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PABar > Corps > Flashcards

Corps Flashcards

1
Q

Promoter Liability for Pre-Incorporation Agreements

A

Absent express or implied agmt to contrary, promoter personally liable absent novation (mere adoption of K by corp after formation insufficient)

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2
Q

Promoter’s Fiduciary Duty to Corporation

A

Promoter must act in good faith + can be liable to corp for breach of fid duty, such as failing to disclose a comm’n

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3
Q

Promoter’s Right to Reimbursement

A
  1. Formation costs; + 2. Any pre-incorporation agmts for which promoter personally liable, to extent corp received benefit
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4
Q

Corp’s Liability for Pre-Incorporation Transactions

A

Not liable unless corp adopts

Adoption occurs when corp accepts benefits of transaction; corp liable as of adoption date, not original K date

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5
Q

Incorporator Liability for Pre-Incorporation Transactions

A

Incorporator (ie: person who signs and files arts of incorp w/ state) has no liability

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6
Q

A de jure corporation is formed when…

A
  • 2 copies of A of I filed w/ Dept of State + fees paid
  • corp must also advertise intent to file or filing of A of I in 2 newspapers
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7
Q

Articles of Incorporation must include…

A
  1. Names, adds + sigs of incorporator(s)
  2. Corp name (“corp,” “company,” “ltd.”)
  3. Name/add of registered agent w/in PA
  4. # of authorized shares + sttmt of rights associated w/ different classes, if available
  5. Statement that incorporated under PA BCL of 1988
  6. Duration, if not intended to be perpetual

*No statement of purpose req’d; PA presumes corp has a lawful purpose + can conduct all lawful business

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8
Q

Three ways to challenge an ultra vires action by corp…

A
  1. SH
  2. corp v. D/O
  3. State
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9
Q

Fact that corp acted ultra vires not a defense to…

A
  • enforceability of a K, by either side.
  • By statute, charitable contributions never ultra vires
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10
Q

Defective Incorporation

A

If owner made g-f effort to incorp + operates as corp w/out knowing req’ts not met, may escape personal liability under 2 theories:

  1. de facto incorp (focus on owner)
  2. corporation by estoppel (focus on 3d p)
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11
Q

Types of Stock

A
  • Every corp is req’d to have common stock, entitled to vote on matters of corporate governance
  • May also create different classes to give different voting rights or rights upon corp dissolution (ie: preference in dividends + upon dissolution)
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12
Q

Issuance of Stock: Authorization

A

Stock cn be sold or traded by corp unless listed in A of I; if Bd wants to sell more, must propose amendment to Articles

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13
Q

Shareholder Preemptive Rights

A
  • SHs of statutory close corp have preemptive right to purchase voting shares to maintain same percentage of ownership
  • A of I can also expressly provide such rights for non-close corp
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14
Q

Distributions – Authorization

A

Board of directors authorizes; SH cannot compel unless board abuses discretion + refuses to declare a distribution in bad faith

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15
Q

Limits on Distribution: 2 Tests for Insolvency (must pass both)

A
  1. equity test: corp must be able to pay its debts as they come due
  2. balance sheet test: total assets must exceed total liabilities plus liquidation preferences of senior securities
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16
Q

Director’s Liability for Unlawful Distributions

A
  • If violation of duty of care or loyalty (ie: not protected by BJR), D personally liable to corp for amt in excess of lawful amt
  • D entitled to contribution from any other liable D + entitled to recoup SH’s pro rata proportion of distribution if SH knowingly accepted
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17
Q

Close Corp Restrictions on Stock Sales

A
  • Owners of close corp can restrict in order to maintain control
  • Outright prohibition + consent req’ts may be challenged as unrsnble restraints on on alienation, but test is one of reasonableness
  • Purchaser not bound by terms of restriction unless constructive/actual knowledge
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18
Q

SHs generally dn owe duty to fellow SHs or corp, but controlling SHs may…

A
  1. be liable for damages caused by selling to looter
  2. have duty of loyalty (ie: no interested transactions
  3. have fiduciary duty (ie: may be liable for freezing out minority SHs if for purpose of continuing biz for own benefit)
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19
Q

SEC R. 10b-5: MOM SPARD + PJS

A

Privity

Jurisdiction (interstate commerce–anything but face-to-face)

Standing (P must have bought or sold; refraining insufficient)

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20
Q

R. 10b-5 Actions: Bespeaks Caution Doctrine

A

Statement of opinion or prediction that is accompanied by adequate cautionary language DN constitute a false or misleading statement

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21
Q

R. 10b-5 Action: Insider Trading

A

Person who is in possession of info at time he makes a trade presumed to have traded on basis of that info unless trade made in accordance w/ pre-existing written plan

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22
Q

Section 16(b) of Securities + Exchange Act

A

*No showing of inside info req’d; concern is short-swing profits only

  1. Corp traded on nat’l security exchange or have more than $10m in assets + 500 SHs
  2. Only corp insiders: Os, Ds + SHs w/ more than 10% stock
  3. Liable for any profits made when buys + sells w/in 6 mo period
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23
Q

Amending Articles of Incorporation

A
  1. if no stock issued, bd of directors (or incorporators) may amend
  2. if stock issued, bd must propose and SHs approve
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24
Q

Special SH Meetings

A

In add’n to annual meeting, Ds or owners of 20% of shares may call special meeting; must give notice 5 days in advance, unless meeting involves fundamental change, then 10 days

25
Q

SH Voting

A
  • Elect bd + approve fundamental changes (mergers, stock exch, sale of all/most assets, amend A of I)
  • Quorum generally requires majority of shares eligible to vote (not SHs)
  • Once quorum met, only majority of votes case must vote in favor (plurality for election of bd)
26
Q

Cumulative Voting for Bd of Directors

A

Permitted if not expressly prohibited; SHs given # of votes equal to # of shares x # of positions

27
Q

Collective Voting by SHs

A
  • Voting pool: binding voting agmt that may be specifically enforced
  • Voting trust: legal ownership of shares transferred to trustee who votes + distributes dividends in accordance w/ terms of trust
28
Q

SH Right to Inspect Corporate Books/Records + SH List

A

Must be for purpose relating to SH’s interest in corporation; burden on SH for books/records; for SH list, corp must show improper purpose

29
Q

Direct SH Action

A
  • Action to enforce shareholder rights (interference w/ voting rights, bd’s failure to declare dividend, or bd’s approval/failure to approve merger)
  • Mismanagement must be brought derivative
30
Q

Derivative SH Action

A
  • Recovery goes to corp (SH may get expenses if substantial benefit to corp)
  • Standing: (i) SH owned shares from time of wrong through disposition of case; + (ii) made a written demand on Bd to enforce corp’s rights, unless demand would cause irreparable injury to corp
31
Q

Piercing Corporate Veil: Factors to Determine if Corp Mere Alter Ego of SHs

A
  1. uncapitalization of corp in light of anticipated liabilities**
  2. disregard of corp formalities (ie: meetings, minutes)
  3. use of corp assets as SH’s own assets
  4. wrongful, misleading, or fraudulent dealings w/ corporate creditor

*easier to pierce in tort cases than K + in parent/sub context; PA cts strongly opposed, but will permit it; only SHs that were active in operation of corp’s biz personally liable

32
Q

Removal of Director from Bd

A
  • Generally, SHs can remove D w/ or w/out cause at any time; exceptions: (i) Ds on classified bd only for cause; (ii) D elected by cumulative voting cn be removed when votes sufficient to elect him cast against removal
  • By Bd only if judicially declared to be of unsound mind or convicted of felony
33
Q

Board of Director Voting Requirements

A
  • Majority of all Ds constitutes quorum; unlike SHs, D must be present at time of vote to be counted for quorum; unless otherwise specified, majority of those voting must approve
  • D present at meeting presumed to have assented unless dissents on record or in writing submitted to sec during or immediately after meeting
34
Q

Corp Director Duty of Care: General Standard

A
  • Ds must act w/ care of an ordinarily prudent person in a like position under similar circs
  • laziness not enough if no harm to corp
35
Q

Corp Director Duty of Care: Reliance Protection

A

Entitled to reasonably rely on info, opinions of: Os + other employees; outside attys, accountants, or other experts retained by corp; and committee of bd of which D not a member

36
Q

Corp Director Duty of Care: BJ Rule

A
  • Rebuttable presumption D reasonably believed actions in best interest of corp
  • To overcome, must show: 1. failure to inform; 2. self interest; or 3. lack of good faith
37
Q

Duty of Loyalty: General Rule Against Self Dealing

A

Any transaction w/ corp from which D or relative benefited must be set aside unless protected by safe harbor rules + transaction ultimately fair; D must also pay damages to corp in form of profits

38
Q

Duty of Loyalty: Safe Harbor Rules

A
  1. approval by majority of disinterested bd members (interested member counts for quorum)
  2. approval majority of disinterested SHs
  3. fairness of transaction

*satisfaction removes presumption of invalidity, but ultimate test is fairness

39
Q

Usurpation of Corporate Opportunity

A
  • D violates duty of loyalty if doesn’t first offer opportunity to corp
  • “Corp Opp” if: (i) corp had interest/expectation or in corp’s line of biz; or (ii) came to D thu corp
  • Remedy: impose a constructive trust for benefit of corp
40
Q

Corporate Director/Officer Indemnification

A
  1. Mandatory if D/O successfully defends
  2. Prohibited if D/O received an improper financial benefit
  3. Permitted if D/O unsuccessful in suit but: (i) acted in good faith; or (ii) in criminal case, dn have reasonable cause to believe conduct unlawful
41
Q

Corp Governance: Officers

A
  • PA requires pres, sec + treasurer (1 may hold multiple)
  • Actual authority = express + implied
  • Apparent authority if 3d p reasonably believed would have authority
42
Q

Corp Officer Liability

A

PA follows participation theory as basis of liability; corp officer must have participated in act personally, cooperated w/ another, or directed another

43
Q

Statutory Req’t for Mergers (same for seller of all/substantially all assets)

A
  1. Resolution by Bd
  2. Written notice to SHs
  3. Approval by maj of SHs of both corps who cast votes at meeting where quorum present

*No SH approval for short-form merger (80% subsidiary); only Bd of parent

44
Q

Asset Acquisition

A

Sale of assets dn require approval by SH or Bd of transferor corp unless resemble merger, i.e., a transfer involving all or substantially all assets outside usual + regular course of biz, in which case same process as merger for seller

45
Q

Stock Acquisition

A

No merger if corp acquires sufficient stock to have controlling interest in another corp so long as both entities continue to exist

46
Q

Dissenting SH’s Right to Buyout

A

SH entitled to vote on any fundamental change may force buyout at FMV; also for short-form merger even tho no rt to vote

4 steps: Notice before vote, not vote in favor, written demand for payment after vote, FMV (if no agmt, determined thru ct action)

47
Q

Voluntary Dissolution of Corp Prior to Issuance of Stock

A
  1. no biz transacted 2. all debts paid or provision made therefor 3. money received and any subscriptions returned 4. dissolution approved by majority of SHs and/or incorporators
48
Q

Voluntary Dissolution of Corp After Issuance of Stock

A
  1. Bd adopts proposal for dissolution and 2. majority of SHs approve
    - Corp continues to exist for limited purpose of winding up its affairs and liquidating its biz
    - SHs entitled to equal distribution of assets after debts paid
49
Q

Involuntary Dissolution of Corporation

A
  • Action may be brought by AG, SH, director, or creditor
  • SH: (i) corp assets being wasted; (ii) Ds acting illegally, oppressively, or fraudulently; (iii) Ds deadlocked; (iv) SHs deadlocked
  • Ct may grant dissolution or appt custodian to investigate best solution
50
Q

Corporation: Forfeiture

A

State may force corp to forfeit right to exist if fails to pay fees or taxes, file req’d notices or reports, or abuses its powers; if continues to operate as corp, personal liability

51
Q

LLC

A
  • Taxed like a corp for state tax purposes, but federal tax benefits
  • Owners = members, who are presumed to all manage; LLC bound by actions of single member
  • Liability of owners limited to amt of investment
  • Same general principles of corp law apply
52
Q

Replacement of D on Bd if vacancy or Bd enlarged

A

can be done by Bd or SHs

53
Q

Market-out exception to dissenting SH’s right to buy out

A

not available if: (i) corp stock listed on nat’l exchange or (ii) held by more than 2,000 SHs

54
Q

Par value of stock

A

minimum price for which can be sold; if corp dn receive full par value, buyer liable + Ds if knew full value not paid

55
Q

Annual SH Meeting

A
  • Corp req’d to hold meeting once/yr to elect Ds + address other SH biz
  • If fails to hold w/in 6 mos of designated time, any SH entitled to call meeting
  • Ds must fix record date no more than 90 days before
56
Q

Bd of Director: Committees not allowed to make major decisions on behalf of bd, such as:

A
  • declare distributions
  • recommend actions directly to SHs that require SH approval
  • create/fill bd vacancies
  • adopt, repeal, or amend bylaws
57
Q

Statutory Close Corp: Deadlock

A

Ct may appt custodian if SHs deadlocked + biz threatened w/ immediate + irreparable injury

58
Q

Fiduciary Duty of Controlling SH

A

attempt by majority SHs to ‘freeze out’ minority for purpose of continuing enterprise for benefit of majority = breach of fiduciary duty to minority SHs

PABar (6 decks)

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