Corporations MEE Flashcards
1
Q
What is a corporation?
A
A legal entity distinct from its owners, the shareholders.
2
Q
List the four key characteristics of a corporation.
A
- Perpetual or continuous existence
- Centralized management through a board of directors
- Limited liability for owners (shareholders)
- Free transferability of ownership interest (shares)
3
Q
What is one advantage of the corporate form?
A
Facilitates the raising of significant amounts of capital.
4
Q
What is one disadvantage of the corporate form?
A
It is subject to double taxation.
5
Q
Who is responsible for governing the corporation?
A
Corporate directors.
6
Q
What is the role of corporate officers?
A
Manage the conduct of the corporate business and serve as agents of the corporation.
7
Q
True or False: Shareholders generally exercise control over the management of the corporate business.
A
False.
8
Q
What are promoters in the context of corporations?
A
Individuals who take the necessary preliminary steps for creating a corporation.
9
Q
Are promoters agents of the contemplated corporation?
A
No, promoters are not agents of the contemplated corporation.
10
Q
What happens if a promoter enters into a contract for a not-yet-formed corporation?
A
Promoters are personally liable on those contracts.
11
Q
Under what conditions are promoters not liable on pre-incorporation contracts?
A
- The contract specifically disclaims the personal liability of the promoter
- Circumstances show the other party agreed to look only to the corporation for performance.
12
Q
What does a corporation need to do to assume liability on a pre-incorporation contract?
A
The corporation must assume liability by its own act through adoption or novation.
13
Q
What is the effective date of incorporation?
A
The date of filing unless a delayed effective date is specified.
14
Q
What are the requirements for incorporation?
A
- Proper execution and filing of articles of incorporation
- Articles must include name and address of incorporators
- Address of the corporation’s initial registered office
- Number of shares authorized
- A corporate name.
15
Q
What is required for a duly held meeting of the board of directors?
A
Participation of a quorum of the board.
16
Q
What constitutes a quorum for board action?
A
A majority of the fixed or prescribed directors.
17
Q
What is the doctrine of ultra vires?
A
Limits the authority of the corporation to those powers defined in the articles of incorporation.
18
Q
What is the corporate name requirement in the articles of incorporation?
A
Must contain the word ‘corporation,’ ‘incorporated,’ ‘company,’ or ‘limited,’ or their abbreviations.
19
Q
What is the purpose of bylaws in a corporation?
A
To govern the actions and relations of the corporation, its shareholders, directors, and officers.
20
Q
How can a corporation adopt a promoter’s contract?
A
Through express or implied adoption.
21
Q
What is a novation?
A
An agreement among three parties to substitute the corporation as a party to the contract in place of the promoter.
22
Q
What is corporation by estoppel?
A
Prevents a third party from alleging defective incorporation if it would unjustly expose corporate principals to liability.
23
Q
True or False: The corporation by estoppel doctrine is applicable to tort claims.
A
False.
24
Q
What must be proven for a refusal to declare a dividend to be actionable?
A
That it amounted to fraud, bad faith, or an abuse of discretion.
25
What is the role of the board of directors regarding corporate policy?
Management of the corporation's business and exercise of corporate power.
26
How is corporate power limited?
By the statement of corporate purpose in the articles of incorporation.
27
What happens if a corporate officer acts beyond their actual authority?
Consider whether the officer had apparent authority or if the actions were ratified by the board.
28
What must shareholders prove to challenge a refusal to declare a dividend?
Fraud, bad faith, or abuse of discretion.
29
What is the Doctrine of Ultra Vires?
A doctrine stating that a corporation cannot be obliged to undertake a contract or activity beyond the scope of its powers as described in the articles of incorporation or bylaws.
30
Under what conditions can the limits of a corporation's authority be challenged?
In a proceeding by a shareholder, by the corporation against a director/officer, or by the attorney general based on fraud or exceeding authority.
31
What are the three components of the Duty of Care for directors and officers?
* Good faith
* Care of an ordinarily prudent person
* Best interests of the corporation
32
What does the Business Judgment Rule presuppose?
Directors and officers acted on an informed basis, in good faith, and with honest belief in the corporation's best interest.
33
What is a 'Conflicting Interest Transaction'?
A transaction between a director/officer and the corporation where the director/officer has knowledge and a material financial interest.
34
What must a director do in a conflict of interest transaction?
Notify the other directors, officers, or shareholders of all material facts regarding the conflict.
35
How can a 'conflict of interest transaction' be validated?
* Material facts disclosed and approved by disinterested directors
* Material facts disclosed and approved by disinterested shareholders
* Court determines transaction was fair
36
What does the duty of loyalty prohibit regarding corporate opportunities?
Usurping business opportunities that properly belong to the corporation.
37
What are the factors courts consider to determine if a business opportunity belongs to the corporation?
* Relatedness to the corporation's business
* Board's expressed interest
* Awareness by the director/officer in their capacity
* Use of corporate resources
38
When can competition by a director or officer not be a breach of fiduciary duty?
If they act in good faith.
39
What are directors and officers generally not personally liable for?
Debts and obligations of the corporation, except for fiduciary duty violations or unauthorized actions.
40
What is the collective power of shareholders?
To elect directors, remove directors, amend bylaws, and approve fundamental changes.
41
What constitutes a quorum for shareholder meetings?
A majority of the shares entitled to vote.
42
What is cumulative voting?
A voting process allowing shareholders to allocate all their votes to any candidate when there are multiple openings.
43
How can shareholders remove directors under straight voting?
By a majority of shares entitled to vote.
44
What is required for a meeting to consider an amendment to the articles?
Notice must include a copy of the amendment and indicate that the meeting's purpose is to consider the amendment.
45
What is the general rule for voting rights of shareholders?
Each share is entitled to one vote.
46
What is a valid proxy agreement?
An authorization provided in writing or electronically by the shareholder.
47
What is a voting trust?
An arrangement involving a transfer of legal title and is more strictly regulated than voting agreements.
48
What rights do shareholders have regarding information and inspection?
Rights to examine annual financial statements, articles, bylaws, minutes of meetings, and list of shareholders.
49
What are voting agreements among shareholders?
Voting agreements are valid among shareholders even if they counter the discretion of the board, absent fraud or illegal objectives.
50
What information do shareholders have the right to inspect?
Shareholders have the right to inspect:
* Annual financial statements
* Articles
* Bylaws
* Minutes of meetings
* List of shareholders of record
51
What is required for a shareholder to exercise their right to inspect accounting books?
A good faith demand made for a proper purpose and with specificity regarding the items sought.
52
What constitutes a 'good faith' demand for inspection?
A credible basis for the belief of possible wrongdoing; mere suspicion is not sufficient.
53
What are appraisal rights of dissenting shareholders?
Dissenting shareholders have the right to obtain payment of the fair value of their shares during fundamental changes like mergers.
54
In a merger, who has appraisal rights?
Any shareholder of a corporation party to the merger, except shareholders of a subsidiary corporation with a parent owning at least 90% of voting power.
55
What is a direct suit?
A direct suit is brought when the wrong or harm is directly to the shareholder.
56
What must a shareholder prove to compel payment of dividends?
That the directors’ refusal to declare a dividend amounted to fraud, bad faith, or an abuse of discretion.
57
What is a derivative suit?
An equitable action brought by a shareholder on behalf of the corporation for the corporation’s benefit, typically involving breach of fiduciary duty.
58
What is required before bringing a derivative action?
A written demand must be made to the directors to enforce the corporation's rights, and at least 90 days must pass unless irreparable injury would occur.
59
What is the duty of controlling shareholders?
Controlling shareholders must refrain from exercising control to obtain benefits not shared proportionately with minority shareholders.
60
What is 'piercing the corporate veil'?
A legal concept where a court disregards the separate entity of a corporation to hold shareholders liable for corporate obligations.
61
What factors are considered in piercing the corporate veil?
Factors include:
* Undercapitalization
* Failure to observe corporate formalities
* Commingling of funds
* Corporate entity as an alter ego of shareholders
62
What is a limited liability company (LLC)?
An unincorporated association organized under state law, providing limited liability protections to its members.
63
What must an LLC file to be organized?
LLCs must file articles of organization with the state, including the name, statement of LLC status, and registered office address.
64
What is the difference between member-managed and manager-managed LLCs?
In member-managed LLCs, members manage the business; in manager-managed LLCs, one or more managers are appointed to run the business.
65
What is the liability of members in an LLC?
Members are generally not personally liable for the debts and obligations of the LLC beyond their contributions, unless the corporate veil is pierced.
66
What events can cause the dissolution of an LLC under the ULLCA?
Dissolution occurs upon:
* Events specified in the operating agreement
* Consent of all members
* 90 days without members
* Court order due to unlawful conduct
67
What must be provided to creditors during the dissolution of an LLC?
Notice of dissolution must be provided to creditors, explaining how they can enforce their claims.
68
What are the characteristics of corporations versus LLCs?
Corporations have centralized management, formalities, and liability protection; LLCs have operational flexibility, fewer formalities, and similar liability protection.
69
What does it mean to 'pierce the corporate veil'?
A court may hold shareholders personally liable for a corporation's debts under certain circumstances
## Footnote
This legal concept allows for exceptions to the limited liability protection typically afforded to shareholders.
70
Can a court pierce the company veil?
No
## Footnote
The correct terminology is 'corporate veil', not 'company veil'.
71
What are the filing requirements for a corporation?
Articles of Incorporation with requisite fee
## Footnote
These documents are essential for legally establishing a corporation.
72
What are the filing requirements for an LLC?
Articles of Organization with requisite fee
## Footnote
Similar to corporations, LLCs must file specific documents to be recognized legally.
73
What are some required formalities for corporations?
* Annual shareholder meetings
* Annual director meetings
* Maintain separate bank account
* Strict bookkeeping
## Footnote
These formalities help uphold the corporation's legal status and protect against liability.
74
What are the required formalities for an LLC?
* Typically maintain a separate bank account
* Maintain books and records
* File annual reports
* Follow procedures added by the Operating Agreement
## Footnote
LLCs have fewer formalities compared to corporations.
75
What is double taxation in the context of corporations?
The corporation’s profits are taxed at the corporate level and any dividends are again taxed at the shareholder level
## Footnote
This taxation structure can be a disadvantage for shareholders.
76
Does double taxation occur in an S-corporation?
No
## Footnote
An S-corporation election allows profits to pass through to shareholders, avoiding double taxation.
77
How are the profits of a close corporation taxed?
The close corporation’s profits are taxed at the corporate level and any dividends are again taxed at the shareholder level
## Footnote
Similar to regular corporations, close corporations face double taxation.
78
How are the profits of an LLC taxed?
The company’s profits are taxed only once they have 'passed through' to the owners (members) of the LLC
## Footnote
This structure allows for single taxation, which is advantageous for members.
79
How are the profits of a partnership taxed?
The partnership’s profits are taxed only once they have 'passed through' to its owners (the partners)
## Footnote
Partnerships also benefit from single taxation similar to LLCs.
