Corps, Agency, Partnerships

Question 1

Corporation Definition

Answer 1

A distinct legal entity that can conduct business in its own right by buying, selling, and holding property or by suing or being sued, and by lasting forever

• limited liability
• promote investment
• governed by state laws

Question 2

Promoters

Answer 2

Liable for pre-corp contracts unless

• Novation: agreement btw promoter, corp, TP where corp substituted
• Adoption (express/implied)

Question 3

Articles of Incorp

Answer 3

• Name
• Agents and address
• incorporators and addresses
• duration
• purpose

Question 4

Ultra Vires

Answer 4

Acting beyond scope of narrowly stated purpose

• shareholder enjoin action
• corp take action against directors
• state can enjoin

Question 5

Incorp Timing

Answer 5

Sec of State

• Accepts the Fee
• Files

Question 6

De Facto Corp

Answer 6

Treated as corp if organizers

• GF effort to comply with process
• no actual knowledge of defect

Question 7

Veil Piercing

Answer 7

Court may “pierce the veil” of limited liability to avoid fraud or unfairness

• Alter Ego (fail formalities)
• Undercap (insufficient funds for liabilities)
• Fraud

Question 8

Preferred Stock

Answer 8

Preference over common

• Dividends (payments to shareholders)
• Liquidation

Question 9

Stock Concepts

Answer 9

1) Authorized (Max # can sell)
2) Issued (# sold from authorized pool)
3) Outstanding (SH possession)
4) Treasury (reacquired)

Question 10

Stock Subscriptions

Answer 10

Ask people in advance to buy stock, before corp formed

- irrevocable for six months

Question 11

Preemptive Rights

Answer 11

Right to acquire stock to maintain percentage of ownership any time new shares are issued

Default: No unless negotiated or included in Articles

Question 12

Unlawful Dividends

Answer 12

Directors who vote to authorize an unlawful dividend are personally liable, jointly and severally, to the corporation for the amount in excess of the lawful amount

Defense: GF reliance on financial statements

Question 13

Shareholder Meetings

Answer 13

Notice: 10 to 60 days
- waived by attending
Special: Notice must include purpose

Question 14

Record Date

Answer 14

Used to determine which shareholders eligible

• fixed by directors
• 10-70 days before meeting

Only shareholder owning on record date are entitled to vote

Question 15

Proxy

Answer 15

Authorize other to vote shares in accordance to SH wishes

• in writing
• signed by SH as of record date
• sent to secretary
• state authorization
• cannot be valid for more than 11 months, unless otherwise stated

Question 16

Shareholder Approval

Answer 16

Quorum (majority of outstanding represented at start of meeting)

Necessary Vote (more in favor than against)

Question 17

Cumulative Voting

Answer 17

Election of Directors

Votes = Shares x Open Positions

Question 18

Derivative Lawsuit

Answer 18

SH at time of harm that fairly and adequately represents the interests of the corp sues on behalf of the corp

• First demand BOD bring suit
• Not required if demand would be futile

Recovery to corp
- pays SH att fees if produces “substantial benefit”

Question 19

Duty of Controlling Shareholder

Answer 19

To minority shareholders

1) Sale of Stock to Outsider/Looter
2) Tx with corp

Question 20

Removal of BOD

Answer 20

By SH with or without cause

EXCEPT: Staggered Board

• class elected at diff times
• only fore cause, only if articles provide
• only removed by electing class

Question 21

BOD Voting

Answer 21

Quorum (Majority unless bylaws)

Affirmative Vote: Majority of Present

Question 22

BOD Dissent

Answer 22

Avoid liability for decision

• enter dissent in meeting minutes;
• file written dissent before meeting adjourned; or
• Provide written dissent by certified or registered mail to the corps secretary immediately following adjournment

Question 23

Duty of Care

Answer 23

BOD and Officers

1) Business Judgment Rule (absence of fraud, illegality, self-dealing will not disturb GF business Decisions)
2) Person in a like position would reasonably believe appropriate under similar circumstances (special skills considered)
3) Reliance on expertise defense

Question 24

Duty of Layalty

Answer 24

No unfair benefit without effective disclosure and ratification

1) Self Dealing Tx
2) Usurp corp opp

Ratification: majority of disinterest Dir or SH
Fairness