CORPS

Question 1

Articles of Incorporation

Answer 1

1. Name
2. Number of shares
3. Incorporators and agent – name and address
4. Limited purpose provision?

Question 2

De Facto Corporation

Answer 2

i. Colorable compliance with the incorporation statute; and

ii. Exercise of corporate privilege

Question 3

corporation by estoppel

Answer 3

people treating business as valid corporation are

estopped from denying corporation’s existence

Question 4

3 reasons to pierce

Answer 4

1. alter ego
2. fraud
3. inadequate capitalization

Question 5

special shareholder meetings

Answer 5

1. Must be on at least 10 (but no more than 60) days’ notice to shareholders
2. Must specify time, place, and purpose

Question 6

Voting trusts

Answer 6

i. Shareholders transfer share ownership to a trustee who votes as agreed
ii. Valid in most states for up to 10 years but renewable

Question 7

Director Special meetings

Answer 7

2 days’ notice of

date, time, and place (but not purpose)

Question 8

Duty of Care

Answer 8

Must act:

In good faith;

With the care that an ordinary prudent person in a like position would exercise, and

In a manner reasonably believed to be in the best interest of the corporation

If meet this, directors protected against lawsuits under business judgment rule

Question 9

reasonable reliance doctrine

Answer 9

director may defend suits if relied on opinions, contract reports, etc. made by experts or reliable employees

Question 10

Procedure for Fundamental Corporate Changes

Answer 10

a. Board approval
b. Notice to shareholders
c. Shareholder approval
d. Articles of change filed with state

Question 11

10(b)(5) prima facie case

Answer 11

i. Fraudulent conduct
ii. In connection with purchase or sale of a security
iii. Use of a means of interstate commerce

Question 12

16(b)

Answer 12

a. Requires surrender to the corporation of any profit realized by any director, officer, or shareholder (with at least 10& of a class)
- Sale or purchase test: type of sale in which abuse of inside info likely to occur’?
- Transactions occurring before one becomes & officer or director excluded

b. Applies to publicly held corporations

c. Profit determined by matching highest sale price against lowest purchase price for any 6 month period
- May be either a gain or an avoided loss

Question 13

SOX

Answer 13

audit committee

Question 14

Material for fed securities law

Answer 14

SUBSTANTIAL LIKELIHOOD that a REASONABLE INVESTOR would consider it NECESSARY or IMPORTANT in making an investment decision.

Question 15

Duty of Loyalty – Forbidden

Answer 15

Partners and Agents may not

1) engage in self-dealing,
2) USURP partnership opportunities, or
3) Make a secret profit at the partnership’s expense.

Question 16

Partnership Distribution at Termination

Answer 16

FIRST: All creditors must be paid (external AND internal, i.e. a partner that loaned money to partnership)

SECOND: All capital contributions PAID IN by partners must be fully REPAID.

THIRD: Profits and Surplus (or losses), if any.

Question 17

Tipper/Tippee liability

Answer 17

A TIPPER is liable if the inside tip was made for improper purposes.

A TIPPEE is liable if the tippee knew tipper breached a duty when relaying the inside information.

Question 18

Creation of Agency Relationship

Answer 18

An agency relationship can be created by an act of the parties or operation of law (can be an agmt, holding out by the principal, ratification, estoppel, or statute).

Need:

• Capacity (contractual capacity for Principal)
• Consent
• no Consideration is needed, and usually no Writing is needed

Question 19

Scienter

Answer 19

A mental state embracing the INTENT TO DECEIVE, DEFRAUD, or MANIPULATE. Recklessness with respect to truth may also constitute scienter.

Question 20

Shareholder Voting

Answer 20

• Proxies: written authorization for another SH to vote for them (valid for 11 months normally).
• Voting Trusts: a written trust held as such (valid for max of 10 years).
• Voting Agreements: binding and enforceable, no time limit.

Question 21

Stock Issuance

Answer 21

• Directors and Officers are liable for ‘watered’ stock (improperly valued).
• Corporation must receive CONSIDERATION in exchange for stock. Can be any tangible or intangible property or benefit.
• Shareholders have preemptive rights (to maintain % of ownership).

Question 22

Partnership Formation

Answer 22

ANY ASSOCIATION of TWO OR MORE carrying on as co-owners of a business for profit (and sharing the profits) creates presumption of a partnership.

Question 23

Duty of Loyalty Safe Harbor

Answer 23

Interested director transactions will be upheld if:

1) a majority of DISINTERESTED DIRECTORS approve the transaction,
2) a majority of DISINTERESTED SHAREHOLDERS with voting rights approve the transaction, AND
3) the transaction was REASONABLY FAIR to the corporation.

*except insider trading

Question 24

Director successfully defends suit

Answer 24

Mandatory indemnification

Question 25

Discretion to indemnify when

Answer 25

director acted in good faith

and believe his conduct in best interest

Question 26

indemnification prohibited when

Answer 26

director loses and found liable

or received improper benefit

Question 27

decision to indemnify

Answer 27

disinterested majority

Question 28

Derivative Action Requirements

Answer 28

Shareholder when injury occurred

Remains shareholder throughout

Demand

Question 29

Director Decision not to bring Derivative Suit

Answer 29

majority of disinterred directors find in good faith that not in corporation’s best interest

Question 30

Time requirement after demand

Answer 30

90 days

Question 31

Direct Actions

Answer 31

redress personal rights

remedies go to shareholder

Question 32

Derivative Actions

Answer 32

redress injuries to the corporation

remedies go to corp