Corps Flashcards
Shareholder Voting
Voting: ONLY record sh as of record date
1) Proxies (agency): written agreement directing another to vote, effective for 11 months
Proxies may be revoked at any time
2) Voting Trust:
- Written trust agreement
- Copy to Corp
- Legal title for shares transferred to trustee
- Sh retain sh rights except for voting (10yrs but renewable)
3) Voting agreement: just a K
- Written agreement + Signatures
Requirements:
- Quorum of number of shares (not number of sh) + more votes in favor than against
- Cumulative voting (elect BOD) ONLY if in articles of incorporation (# of BOD positions x # shares owned = # of votes)
Officers of Corporation
- Agents of Corp: can bind Corp (i.e. Agency: Officers are A of Corp P)
- O owe duty to Corp
- BOD selects, removes and sets compensation of Officers
- Sh vote/hire BOD
- Sh do NOT hire Oficers
Indemnification: if O is sued in O’s capacity as O
- NONE if O is found liable to Corp
- Mandatory: O defends claim on merits or otherwise (e.g. SOL)
- Mandatory: O satisfies claim (e.g. settlement)
Foreign Corp
- Any Corp not w/in the State (e.g. from another state or country)
Corp Formation
People + Paper + Act
1) People:
- One or more Incorporator (human or Corp)
- BOD MUST be natural person
2) Paper: Articles of incorporation must contain:
- K between Corp and shareholders AND between Corp and State
- Contains: Name and add of incorporator agent and BOD; Name of buss + Corp, Co, Inc, Ltd; duration period (may be perpetual)
- Statement of purpose: “engage in lawful activity” OR specific purpose (ultra vires theory if acts outside purpose)
- Capital structure
3) Act: Articles of Inc filed w/SoS
- Filing w/SoS = conclusive proof of valid formation
- De Jure Corporation
- State Law GOVERNS internal affairs of Corp
Imperfect Formation (De Facto Corp)
- Elements: good faith attempt to Inc + acting as a Corp
- Liability: NONE ONLY if Ct applies De Facto doctrine to treat it as a de jure Corp (except in action by the State)
- If Ct applies doctrine: Corp and TP are Estopped from denying it’s a Corp
- Exception: if aware of imperfect formation, owners personally liab for buss activities JUST LIKE a PS
Distributions by Corp
Distribution are at BOD’s discretion thus Sh have no right to distribution
Exception: NO distribution if Corp is insolvent OR distribution would render Corp insolvent
Types
- Dividends
- Repurchase: voluntary sale of stock to Corp
- Redemption: forced sale of stock to Corp at price set by articles
Liability for improper distribution:
- BOD are jointly and severally liab unless BJR
- Sh liab ONLY if knew distribution was improper when sh received distribution
Federal Securities Law and Corporations (10b5)
Security: transactional instrument
Types of Securities
- Debt security: investor lends capital to Corp
- Equity security: investor buys stock in Corp
10b5 Claim related to purchase/sale of ANY security asserting fraud or misrepresentation against Tipper/Tippee
- Scienter: MUST have intent to deceive, manipulate, or defraud, or reckless
- Relationship of trust and confidence w/shareholder (BOD, O, controlling sh, employees w/confidential info)
- Reliance (presumed in public misrepresentation)
- Proximate Cause (foreseeable):
- Material info
- Damages recovery for transactions only (NO recovery if sh did not buy/sell)
Exception: safe harbor rule (insider transacts w/o prior knowledge info is confidential)
Tipper MUST get benefit (gift or gain in reputation is sufficient)
Fundamental Corp changes
For amendment of articles, mergers (X merges into Y), consolidations (X and Y merge to form Z), transfer of all or substantially all assets of SELLING Corp (not buying Corp), voluntary dissolution (quorum + for>against), invol dissolution (sh petition Ct)
Requires:
- BOD action adopting resolution
- BOD submits written proposal to sh
- Sh MUST approve by vote
Quorum of shares + votes for exceed votes against (not majority)
- Fundamental Change in closely held Corps: merger or consolidation, transfer of substantially all assets NOT in ordinary course of business, OR transfer of shares in share exchange
Remedy: sh have right of appraisal (force Corp to buy sh’s shares at FMV)
Ulta Vires rule
If Corp commits ultra virus activity (outside stated purpose)
- K valid as to TP
- Sh can seek an injunction to stop UV act
- Corp can sue responsible managers for UV losses
Business Judgment Rule
BJR: Ct presumes BOD are experts thus does not second guess BOD decision if: BIGR
- Buss decision
- Informed (DoC: RPP)
- Good faith w/o Self-dealing
- Rational basis
Corp stock
- Issuance: Corp sells its own stock to raise money
- Subscription: Written offer to buy stock from Corp
- Consideration is REQUIRED to purchase stock
- Par value: minimum issuance price
- Pre-emptive rights: NONE unless agreed
Right of sh to maintain percentage ownership by buying more stock
Stock transfer
Unrestricted transferability unlike transfer of ownership in PS
S-Corporations
- No more than 100 human sh
- Closed corp: no publicly traded
- Liability: sh, BOD, officers are not liable (same as C-Corp)
ONLY lose investment amount - Taxes: pass-through to sh and taxed as sh’s own income tax
- Duties: sh owe other sh duty NOT to oppress minority sh (e.g. selling control to people who misappropriates assets)
Remedy: minority sh may sue controlling sh (Ct allow because no market to sell the stock and get out) - Fundamental Corp Change: merger or consolidation, transfer of substantially all assets NOT in ordinary course of business, OR transfer of shares in share exchange
Remedy: sh have right of appraisal (force Corp to buy sh’s shares at FMV)
Derivative suits by Shareholders
- Sh sues to enforce the Corp’s claim (NOT sh’s own personal claim e.g. not honoring pre-emptive rights)
- Damages collected by Corp
- Sh do NOT recover atty’s fees
- Sh liable to Def for costs and atty’s fees if sued w/o reasonable care
Requirements:
- Stock ownership when claim arose AND throughout the suit
- Adequate representation of Corp interest: must make written demand to BOD to bring suit UNLESS demand would be futile (e.g. BOD are the Defs)
Dismissal: MUST be approved by Ct
- Corp may move to dismiss based on independent investigation showing suit not in Corp’s best interest (e.g. low chance of success, or expense > recovery)
Pre-Incorporation K
- Promoter: person acting on behalf Corp not yet formed
Liability on Pre-Inc K:
- Corp NOT liab on pre-inc K
Exception: Corp adopts the K
- Promoter IS liab on pre-inc K
Exception: Novation of K (agreement between promoter, TP, and Corp that Corp will replace promoter in original K)
BOD Fiduciary Duties
1) Duty of Care: BOD owes Corp duty to act in good faith and act as a RPP would do w/regard to his/her own bus (eg: attend BOD meetings, etc)
- BOP on Plaintiff to show: Duty (RPP) + Breach (nonfeasance: BOD does nothing AT ALL or misfeasance: BOD act injures Corp but BJR defense) + Causation + Damages
2) Duty of Loyalty: BOD owes Corp duty to act in good faith and reasonable belief that act is in Corp’s best interest
- BOP on BOD
- BJR does NOT apply to duty of loyalty
- BJR NEVER applies to conflict of interest cases
- Interested Director Transaction: transaction between Corp and BOD or BOD’s relative or BOD’s buss
Requires: 1) MUST be fair transaction to Corp when entered into, OR 2) interest was disclosed/known and transaction approved by majority of disinterested BOD + fairness to Corp
- Competing Ventures: BOD competes w/Corp
Remedy: constructive trust on profits (disgorgement of profits)
- Usurpation of Corp Opportunity/Expectation: MUST disclose to Corp AND allow BOD to reject opportunity, otherwise Corp can disgorge profits OR force conveyance to Corp
- Articles can disclaim BOD liability for breach of Duty of Care BUT not for breach of Duty of Loyalty (intentional, usurp opportunity, unlawful distribution or improper personal benefit)
