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Corporations Mega Banger Flashcards

1
Q

What body of law governs corporations?

A

Roughly 50% of states follow statutes and common law;

Roughly 50% follow the RMBCA (revised model business corporations act)

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2
Q

Hypo

On January 1st, Chase files articles of incorporation with the secretary of state but fails to include the amount of authorized shares. Secretary of State responds and tells me it is wrong. On January 30th, I refile properly. When was the corporation formed?

A

January 30th

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3
Q

What needs to be included in the Articles of Incorporation?

SPAWN

A

Share Info (maximum authorized)

Par Value (minimum issue price. If shares drop below this price, company has to pay shareholders the difference)

Address Info (name/addy/PPB)

Why (statement of purpose)

Name (of corporation + designation (“inc.”))

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4
Q

Corporate Saving Doctrines

De Facto Corporation Status

A

If you tried to incorporate in good faith and didnt know your corporation wasn’t SPAWNED CORRECTLY the court will likely insulate you from liability

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5
Q

MEE HACK

Chad files his articles of incorporation and gets rejected. But, he does not get his rejection letter in the mail. Thereafter, he begins conducting business on behalf of his corporation. Whats the deal?

A

Chad is chillin

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6
Q

What is a De Jure corporation?

A

A validly formed, real corporation

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7
Q

Corporate Ass Sacing Doctrines

Corporation by Estoppel

A

A person who deals with an entity as a corporation is estopped from denying its existence and prevented from seeking the personal liability of its owner

Reqs:
- CONTRACTS ONLY
- owner of the “corporation” must have made good faith effort to comply/not known about deficiency

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8
Q

Bylaws

A

non-public internal governance rules. If by-laws conflict with articles of incorporation.

You do not need by laws to form a corporation, but most have them.

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9
Q

What body of law governs an LLC?

A

ULLCA
Uniform Limited Liability Company Act

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10
Q

Requirements to form an LLC

A
  1. Articles of Organization
  2. Operating Agreement (bylaws but for LLC)
  3. Atleast 1 person
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11
Q

Promoter Liability (corporate or LLC)

A

Promoters themselves are liable unless there is a novation or agreement saying they are not

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12
Q

What do promoters do?

A

They enter into contracts on behalf of the corporation/LLC prior to incorporation. The K’s are not valid until the entity 1.) is created; and 2.) adopts the K

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13
Q

Generally, are officers/directors/shareholders liable for corporate behavior?

A

NO NO NO

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14
Q

VEIL PIERCERS

Chase keeps his corporation dirt poor and laughs as tortfeasors and creditors seek to recover debts from the corporation.

A

This is serious undercapitlization and a Court could expose the big kahunas to liability for it

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15
Q

Veil Piercers

Alter-Ego

A

If a corporation is just a facade for a dominant shareholders personal dealings, then a court will pierce the veil

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16
Q

Rule Statement

PIERCING THE VEIL

A

Generally speaking, officers/directors/shareholders will not be personally liable for the corporations actions. However, in some circumstances, Courts will disregard the existence of a corporation.

TEST - TOTALITY OF THE CIRCUMSTANCES, NO ONE FACTOR IS DISPOSITIVE

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17
Q

Veil Piercers

Lack of Formality

A

No filings, meetings record keeping, not calling yourself a corporation.

ONLY APPLIES TO CORPORATIONS

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18
Q

Common Stock

A

Stock that represents 1.) an ownership interest in the corporation; and 2.) entitles the holder to vote on matters of corporate governance.

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19
Q

Preferred Stock

A

Preferred stock is just common stock that takes preference over other stock in things like distributions.

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20
Q

Preemptive Rights

A

When the board of directors decides to issue new shares, current shareholders get the rights to buy those shares so they can maintain the same % of ownership.

CL - this right was automatic
RBMCA - must be in A.O.C.

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21
Q

Dividends

A

Cash distributions or payment in the form additional stock. Generally this is issued quarterly.

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22
Q

Hypo

Do Shareholders have a right to recieve dividends?

A

fuck no

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23
Q

When can shareholders compel the distribution of dividends?

A

When they are withheld in bad faith.

Bad Faith:
1. money was available to pay dividends.
2. there was a dishonest purpose for withholding them

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24
Q

Are directors/officers/shareholders liable for corporate obligations?

A

no

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25
Annual Meeting
Corporations must hold at least one annual meeting - usually to elect board members/address any issues
26
Special Meetings
Board, president, or atleast 10% of voting shares can call a special shareholder meeting whenever the fuck they want so long as they want to vote on fundamental changes
27
Notice Requirements for special meetings
Shareholders: Entitled to notice 10-60 days before the meeting. Notice must include purpose.
28
If notice is given for special meeting, but purpose is not stated, what happens?
Cannot vote on that issue
29
Quorum
Required to take any action. **Just means a majority of the shares are present**
30
Who gets to vote?
To be eligible to vote, you need to have owned the stock on the RECORD DATE. Even if you sell your shares after the record date, you can still vote! Record Date - admission ticket
31
Proxy
Written agreement that is valid for 11 moths which is freely revocable by the shareholder who gave it to you.
32
How many votes needed for ordinary proposals?
A majority of votes actually cast.
33
How many votes for fundamental changes?
A majority of outstanding shares.
34
How many votes for director elections?
Plurality (more votes than the other director)
35
Inspect the Books
Shareholders allowed to inspect basic shit regardless of purpose so long as it is not harassment (articles of incorp, bylaws, annual report)
36
What if you want to "inspect the books" of the juicy shit? | accounting records
You need to give them five days notice during regular biz hours. You also need a **Particular Good and Proper Connection.** (this is a neumonic)
37
What is a "particular good and proper connection"
Particular: tell them exactly what you want to inspect Good: good faith - can't just be a fishing expedition Proper: A proper purpose related to either protecting your own stock or the health of the corporation. Connection: You need to show a direct connection between your purpose and the documents you want to see.
38
# Hypo Deb the director gets a special notice meeting with no purpose. Cool?
Yes so long as it is 2 dahys in advance. Directors dont need notice. Also, if they don't timely object, then it is waived
39
Duty of Care owed to corporation by directors/officers
1. Act in best interest of the company 2. Disclose material info 3. Duty to be informed 4. Act reasonably
40
# Hypo: Directors hold 10 minute meeting to buy new corporate building. They vote to purchase. Violation of duty carE?
Yes. 10 minutes not long enough to be informed.
41
BJR application
Good Faith mistake - BJR Bad Faith mistake - no BJR
42
Define the BJ (r)
The business judgment rule is a rebuttable presumption that a director reasonably believed that his actions were in the best interests of the corporation.
43
# Hypo Dan fucks something up while acting in good faith.
A court will not second guess his business decision and he will not be personally liable.
44
Dan fucks something up while acting in bad faith.
A court will second guess his decision and he will possibily have personal liability.
45
What is bad faith?
Fraud, derelicition of duty, condoning illegal activity, self-dealing
46
Duty of Loyalty
Self Dealing 1. A director/officer or their family member is a party to the transaction 2. Has a beneficial interest in the transaction which is singificant
47
How does a director prove loyalty was not breached? | DSF (damn shit fuck)
D - disinterested director S - shareholder Approval - approved by a majority of disintereste dshareholders **(full disclosure)** F - fair. expert testifies it wasn't a bad deal
48
LLC management structure
"Member-managed" Each manager is an agent with actual authority to bind the LLC and can bind it without the consent of other managwers or members. But non-ordinary need approval by most/all
49
Amending operation agreement LLC
Requires majority of members
50
# Rule Statement PIERCING THE VEIL
Generally speaking, officers/directors/shareholders will not be personally liable for the corporations actions. However, in some circumstances, Courts will **disregard the existence of a corporation**. TEST - TOTALITY OF THE CIRCUMSTANCES, NO ONE FACTOR IS DISPOSITIVE
50
What body of law governs an LLC?
ULLCA Uniform Limited Liability Company Act
51
52
53
When does a parent corporation violate it's duty of loyalty to a subsidiary?
If a parent corporation causes its subsidiary to participate in a transaction that **prefers** the parent at the **expense** of the subsidiary, it might involve self-dealing and be a breach of the duty of loyalty.
54
Does the BJR apply in a conflict of interest transaction?
no dumbass
55
What is the primary test for self-dealing by a parent corporation over a subsidiary?
Is the benefit comparable to what might have been obtained in a standard "arm lengths" transaction
56
Usurpation of Corporate Opportunity
Violates the duty of loyalty Line of business test: whether the opportunity is within the corporations current or forthcoming line of business (look at how broad the line of biz is)
57
Member managed | LLC
Default for LLC. If operating agreement is silent, then assume Member managed. Member managed means it is directly managed by the members of the LLC rather than third-party
58
Manager Managed
Centralized management of the LLC by one or more managers
59
Authority of Member Managed managers
M.M. managers can bind the LLC and conduct ordinary business. Broad authority like that of a general partnership. Anything outside the scope requires consent of all members.
60
An LLC may dissolve upon the occurrence of various events, including consent of all members, passage of 90 days without members, by court order, or by the happening of a dissolution-causing event per the operating agreement. Dissociation alone does not cause dissolution. A member can withdraw or dissociate at any time and without reason, even if doing so violates the operating agreement, by providing notice to the LLC. Written notice is not required under the ULLCA. Dissociation does not discharge the member’s interest or liability and does not necessarily trigger dissolution and winding up. The dissociated member relinquishes his right to participate in the LLC. A dissociated member is not entitled to receive payment for the member's pro rata share of the LLC's net assets. Instead, the dissociated member remains entitled to receive distributions authorized by the LLC, but otherwise generally cannot force the LLC to make payments to him.
make into rule
61
Direct suit
No demdand request required. Shareholder is bringing action on behalf of himself and is vindicating his own rights.
62
Derivative Suit
Must make demand request. Standing: Shareholder was a shareholder at time of injury, is currently a shareholder, Demand Futility: might be futile if directors are not independant/disinterested RMCBA has a universal demand requirement for derivative actions
63
Can shareholders vote to amend corporate by-laws?
Yes, so long as not inconsistent with AoI or state law.
64
Shareholders voting to amend election bylaws allowed?
Yes, permitted.
65
What does a board of directors do?
Corporate board of directors direct and manage the business affairs of a corporation.
66
What does a vote by the board of directors require?
Quorum: Simple Majority (unless bylaws or AoI state differently) Majority Vote: If majority of present directors assent to the vote, then the measure is valid.
67
# Hypo: 3 person corporation. 2 directors vote for the corporation to fund their travel to Germany to do some personal stuff, but mainly to do business stuff. Analyze under the duty of loyalty.
Directors owe a duty of loyalty to the corporation. A director breaches this duty by placing his own interests ahead of the corporations. Since these directors have an interest in not paying for their trip to Germany, this was a violation. But Safe Harbor: Substance + Procedure Fairness.
68
Right to Inspect
Proper Purpose (not to harass, made in good faith) - relates to the shareholders interest in the corporation Credible evidence of improper conduct **5 days notice required** **right is not obstructed by a pending lawsuit**
69
Dismissal of Derivative Claim
If a majority of qualified (disinterested) directors determine in good faith that it is in the best interests of the corporation to dismiss a derivative suit, then dismissal is proper. Lack of investigation -> evidence of bad faith

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