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CORPS Flashcards

1
Q

What is the liability of a promoter for pre-incorporation agreements?

A

A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation and remains liable after unless:
* There is a subsequent novation releasing the promoter
* The third party looks only to the corporation for performance
* The promoter had no actual knowledge that the corporation’s charter has not yet been issued

Promoters must act in good faith and can be held liable for fiduciary duty violations.

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2
Q

What is the general rule regarding a corporation’s liability for pre-incorporation transactions?

A

A corporation is not liable for pre-incorporation transactions, even those for its benefit, as there is no principal-agent relationship

This means that the promoter is personally liable unless certain conditions are met.

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3
Q

Under what conditions can a corporation adopt pre-incorporation contracts?

A

A corporation can adopt pre-incorporation contracts if it:
* Expressly or impliedly adopts a contract by accepting the benefits
* Gives an express acceptance of liability for the debt

Adoption can lead to the corporation being liable for obligations incurred before incorporation.

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4
Q

What must be included in the articles of incorporation?

A

The articles of incorporation must include:
* The corporate name
* Filing with the state
* May enumerate powers or limit duration
* May include a statement of the corporation’s legal purpose

These articles mark the beginning of the corporation’s existence.

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5
Q

What does ‘ultra vires’ mean in the context of corporate actions?

A

‘Ultra vires’ refers to actions taken by a corporation that are beyond the scope of its stated business purpose in the articles of incorporation.

Third parties generally cannot escape liability for ultra vires acts.

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6
Q

What actions can be taken against ultra vires acts under the RMBCA?

A

Under the RMBCA, the following actions can be taken:
* A shareholder can file a suit to enjoin the ultra vires action
* The corporation can take action against a director, officer, or employee involved
* The state can initiate a proceeding

These actions aim to protect the corporation and its stakeholders.

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7
Q

What defines a ‘de jure’ corporation?

A

A ‘de jure’ corporation is one that has satisfied all statutory requirements for incorporation and is liable for its activities.

This contrasts with a ‘de facto’ corporation or a nonexistent corporation.

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8
Q

What are the consequences of conducting business as a corporation without proper incorporation?

A

A person conducting business as a corporation without complying with incorporation requirements is personally liable for the obligations of the nonexistent corporation.

This highlights the importance of following legal procedures for incorporation.

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9
Q

Fill in the blank: A promoter may seek _______ for related expenses incurred before incorporation.

A

compensation/reimbursement

However, the promoter cannot compel the corporation to pay these expenses.

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10
Q

True or False: A corporation’s existence begins when the articles of incorporation are filed.

A

True

Unless the articles specify a later date for corporate existence.

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11
Q

What is defective incorporation?

A

Lack of good faith - person who conducts business as C without complying with incorporation requirements is personally liable for nonexistent C’s obligations

Good faith effort - two ways to escape personal liability. De facto C or corporation by estoppel

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12
Q

What is a de facto corporation?

A

An entity where the owner makes a good-faith effort to comply with incorporation requirements without knowing they were not met

This can provide a way to escape personal liability.

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13
Q

What is corporation by estoppel?

A

A situation where a person dealing with an entity in a contractual agreement cannot deny its existence and seek personal liability

This applies when the person treats the entity as a corporation.

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14
Q

What are the two main types of corporate stock?

A
  • Common stock
  • Preferred stock
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15
Q

What is common stock?

A

A basic ownership interest that entitles the owner to vote on corporate governance matters

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16
Q

What is preferred stock?

A

Stock that has preference over other stock regarding distributions

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17
Q

Who authorizes the issuance of stock?

A

The board of directors and/or shareholders

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18
Q

What happens if the consideration for stock is adequate?

A

The stock is deemed fully paid and non-assessable

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19
Q

What is the status of a pre-incorporation stock subscription?

A

Irrevocable for six months from the date of subscription unless all subscribers agree to revoke

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20
Q

What are stock rights, options, and warrants?

A

Instruments that can also be issued by the board of directors

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21
Q

What are shareholders’ preemptive rights?

A

The right of a shareholder to purchase newly issued shares to maintain their proportional ownership share

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22
Q

What is required for public offerings of stocks?

A

Securities registration, which includes filing a registration statement with the SEC and providing a prospectus

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23
Q

Who is authorized to make distributions?

A

The board of directors

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24
Q

Under what conditions can a corporation not distribute funds?

A

If the corporation is insolvent or if the distribution would make it insolvent

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25
What is the liability of directors for unlawful distributions?
Directors are personally liable for the amount in excess of a lawful amount
26
What can shareholders do to compel a distribution?
Sue to enforce their individual right by proving the existence of funds legally available to pay a distribution and the directors' bad faith for refusing
27
What are the enforceability requirements for private restrictions on the sale of securities?
* The security must be certified * The restriction must be conspicuously noted on the security certificate * The person must have knowledge of the restriction
28
What is the test for challenging restrictions on the transfer of stock?
Reasonableness
29
What are the requirements for a Rule 10b-5 action?
* The plaintiff purchased or sold the security * Use of interstate commerce * Fault to prevent misleading statements - D’s fraudulent or deceptive conduct re a fact that a reasonable investor would find important in deciding whether to purchase or sell a security - statement made intentionally or recklessly - P justifiably relied on P’s fraudulent conduct * Harm to the plaintiff
30
What are the elements of a Rule 16(b) action?
* publicly traded C - securities traded on national securities exchange or assets of more than 10 m and more than 500 SH - corporate insiders with more than 10% of stick Six-month period - corp insider both bought and sold C’s stock during any six month period * SEC report of change in stock ownership
31
What is the primary purpose of the annual meeting?
To elect directors
32
Who can call a special meeting?
The board of directors or shareholders who own at least 10% of voting shares
33
What is the notice requirement for voting shareholders?
Must be notified of time/date/place in a timely manner, no less than 10 days and no more than 60 days before the meeting
34
What can shareholders do with unanimous written consent?
Take any action that could have been taken at a meeting
35
What are shareholder resolutions?
Submitted for shareholder action at a meeting; cannot bind the corporation or board of directors unless amending bylaws
36
Who is generally eligible to vote?
Only record owners of voting stock at the close of business on the record date
37
Can a corporation vote its own stock?
No
38
39
Who is generally permitted to vote in corporate matters?
Only record owners of voting stock ## Footnote This ensures that those who have a financial stake in the corporation can influence its governance.
40
What is the quorum requirement for voting?
A majority of the votes entitled to be cast on a matter ## Footnote This means that more than half of the eligible votes must be present for a vote to be valid.
41
What is cumulative voting?
Shareholders can cumulate votes to allow minority shareholders to elect representatives to the Board of Directors ## Footnote This practice helps ensure that minority shareholders have a voice in governance.
42
What is required for proxy voting?
Must be in writing and delivered to the corporation or its agent ## Footnote This formalizes the voting process when shareholders cannot attend meetings.
43
What is a voting pool?
A binding voting agreement under which shareholders retain legal ownership; does not need to be filed with the corporation and has no time limit ## Footnote This allows shareholders to coordinate their voting without losing ownership rights.
44
What is a voting trust?
A trust to which legal ownership of shareholders' stock is transferred; the trustee votes the shares and distributes dividends according to the trust ## Footnote Must be in writing, limited to 10 years, and filed with the corporation.
45
What is a management agreement?
Allows shareholders to alter the way the corporation is managed, even if inconsistent with statutory provisions ## Footnote This provides flexibility in corporate governance.
46
What right does a shareholder have regarding corporate records?
A shareholder with a proper purpose has the right to inspect and copy corporate records upon five days' written notice ## Footnote This promotes transparency and accountability in corporate governance.
47
What are direct actions in shareholder suits?
An action to enforce shareholder rights for breach of fiduciary duty by directors or officers, or based on grounds unrelated to shareholder's status ## Footnote This allows shareholders to hold directors accountable for their actions.
48
What are derivative actions?
Shareholder sues on behalf of the corporation for harm suffered by the corporation ## Footnote This helps protect the interests of the corporation as a whole.
49
What is required for standing in derivative actions?
The plaintiff must have been a shareholder at the time of the wrong and at the time the action is filed, must continue to be a shareholder during litigation, and must fairly represent the corporation's interests ## Footnote This ensures that the derivative action is properly grounded in shareholder interests.
50
What is the written demand requirement in derivative actions?
A written demand upon the Board of Directors must be made unless it would be futile ## Footnote The futility exception is not recognized under the RMBCA.
51
What must happen for a dismissal by the board in derivative actions?
A majority of qualified directors must decide in good faith after reasonable inquiry that the action is not in the corporation's best interest ## Footnote This provides checks and balances on the board's power.
52
What does 'piercing the corporate veil' refer to?
Looking at whether the corporation is being used as a façade for a dominant shareholder's personal dealings ## Footnote Factors include undercapitalization, disregard of corporate formalities, and self-dealing.
53
What is a controlling shareholder?
A shareholder who holds a high enough percentage of ownership to enact changes at the highest level, typically over 50% of a corporation's shares ## Footnote This gives them significant influence over corporate decisions.
54
What is the duty of a controlling shareholder to minority shareholders?
A duty to disclose important information and a duty of fair dealing when purchasing a minority shareholder's interest ## Footnote This helps protect the interests of minority shareholders.
55
What is the minimum number of directors required for a board?
Can have as few as one director ## Footnote This allows for flexibility in corporate governance structures.
56
What is the typical term length for directors?
Typically one year, but may serve longer if terms are staggered ## Footnote This allows for continuity in governance.
57
What is the notice requirement for special board meetings?
Directors are entitled to two days' notice of the date, time, and place of special meetings ## Footnote Regular meetings may be held without notice.
58
What is required for board approval?
The assent of a majority of directors present is necessary ## Footnote A quorum must be present for valid board actions.
59
Can directors vote by proxy?
No, directors may not vote by proxy ## Footnote This ensures that directors are personally present to make decisions.
60
What is the duty of care for directors?
A director has a duty to act with the care that a person in a like position would reasonably believe appropriate ## Footnote This is an objective standard that includes reliance on reliable information.
61
What is the business judgment rule?
A rebuttable presumption that a director reasonably believed their actions were in the best interest of the corporation ## Footnote It does not apply when there is a conflict-of-interest transaction.
62
What must be shown to overcome the business judgment rule?
That the director did not act in good faith, was not informed, had material interests in challenged conduct, or failed to devote attention to the corporation's affairs ## Footnote This sets a high standard for challenging director decisions.
63
64
What is the good faith presumption in the context of corporate fraud?
It refers to the assumption that actions are taken in good faith unless there is evidence of fraud, dereliction of duty, condoning illegal conduct, or conflict of interest.
65
What is self-dealing in corporate governance?
Self-dealing occurs when a director has a conflicting interest transaction and violates the duty of loyalty unless protected under safe harbor rules.
66
What are the safe harbor rules for directors?
* Disclosure of all material facts * Majority approval by the board of directors (BD) or shareholders (SH) without a conflicting interest * Fairness of the transaction to the corporation at the time of commencement.
67
What is the usurpation of corporate opportunity?
It involves a director taking advantage of a business opportunity that should belong to the corporation.
68
What is the interest or expectancy test?
It assesses whether the corporation has an existing interest or expectancy arising from an existing right in the opportunity.
69
What does the line-of-business test determine?
It evaluates if the opportunity falls within the corporation's current or prospective line of business.
70
True or False: A director competes with the corporation without breaching their duty.
False.
71
What is indemnification in the context of corporate directors?
The corporation is required to indemnify directors for reasonable expenses incurred in successful defenses against proceedings.
72
When is a corporation prohibited from indemnifying a director?
When the director receives an improper personal benefit.
73
What rights do directors have regarding inspection of corporate records?
Directors have the right to inspect and copy the corporation's books and records.
74
Who elects corporate officers?
Corporate officers are elected by the board of directors.
75
What types of authority do corporate officers have?
* Actual authority * Implied authority * Apparent authority.
76
What is required for mergers and acquisitions to take place?
Approval by the board of directors and shareholders through a majority vote at a meeting with a quorum present.
77
What is a stock acquisition?
A corporation can acquire stock in another corporation to gain control without a merger by exchanging stock or paying cash.
78
What is a dissenting shareholder's right of appraisal?
It allows a shareholder who objects to a merger or acquisition to force the corporation to buy their stock at fair value.
79
What is the procedure for voluntary dissolution of a corporation?
The board of directors adopts a proposal for dissolution, which must be approved by a majority of shareholders.
80
What is the oppression doctrine in corporate law?
It protects minority shareholders from oppressive actions by the majority.
81
What characterizes closely held corporations?
They have only a few shareholders, stock is not publicly traded, and they operate with a more relaxed governance style.
82
83
What is a foreign corporation?
A corporation incorporated in another state that must register and seek a certificate of authority from the current state.
84
What is the primary purpose of a professional corporation?
To render a professional service.
85
What is an S corporation?
A corporation that avoids double taxation by passing income and expenses through to its shareholders, who are then taxed directly.
86
What distinguishes a benefit corporation from a traditional corporation?
Its corporate purpose is creating social/environmental benefit rather than maximizing shareholder profit.
87
What advantages does a Limited Liability Company (LLC) enjoy?
* Pass-through tax advantage of a partnership * Limited liability of a corporation
88
What is required for the creation of an LLC?
Filing articles of organization, including LLC name, mailing address, and a statement regarding members.
89
What is an operating agreement in the context of an LLC?
An agreement that may outline the management and operational provisions of the LLC, which can be oral, written, or implied.
90
What is the minimum and maximum number of members in an LLC?
Minimum one member, no maximum.
91
What does the transfer of membership in an LLC entail?
The transferee acquires the transferor's right to share in profits and losses, but not the right to manage the LLC.
92
Does the termination of membership automatically lead to the dissolution of the LLC?
No, it does not automatically trigger dissolution.
93
How are profits and losses allocated in an LLC?
Unless determined by an operating agreement, allocations are made according to each member's contributions.
94
What inspection rights do LLC members have?
Similar to shareholders of corporations.
95
How can management be structured in an LLC?
* Direct management by members * Centralized management by one or more managers
96
Are members of an LLC generally liable for the LLC's obligations?
No, members are generally not liable.
97
What is 'piercing the veil' in the context of an LLC?
Members may be liable if the veil is pierced due to factors like undercapitalization or commingling of assets.
98
What is the 'mere instrumentality test'?
A test to determine if members dominated the entity, used that domination to commit a fraud, and caused injury.
99
What does the 'unity of interest and ownership test' assess?
Whether the LLC had no existence independent of the members, making failure to pierce the veil unjust.
100
What can creditors obtain against a member's LLC interest?
A charging order (Judgment lien) requiring the LLC to pay distributions to the judgment debtor.
101
What duties do members and managers of an LLC owe?
* Duties of loyalty and care * Must account for benefits derived from LLC business * Must refrain from competing with the LLC
102
What is the duty of care to the LLC subject to?
Business Judgment Rule (BJR); members are not liable for simple negligence.
103
What is the authority of managers in an LLC?
Managers have the authority to bind the LLC.
104
Can a member withdraw from an LLC at any time?
Yes, a member can withdraw at any time for any reason without written notice.
105
What is a direct suit in the context of an LLC?
An action to enforce a member's rights under the operating agreement and LLC statute.
106
What is a derivative suit in an LLC?
An action by a member on behalf of the LLC to enforce its rights after showing a demand was made or would be futile.
107
What events can lead to the dissolution of an LLC?
* Mutual consent of members * Lack of members for 90 consecutive days * Court order * Events specified in the operating agreement
108
What does winding up an LLC involve?
* Discharging the LLC's debts * Settling and closing the LLC's activities * Marshaling and distributing the LLC's assets

MEE CORPS (1 decks)

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