Corps & LLCs Flashcards
Corporation
formation requirements
failure to follow formation requirements scenarios
formation
No bylaws needed
AOC – SPAWN factors
* Share Info (max authorized)
* Par Value (min issue price)
* Address info
* Why corporation is formed
* Name of corporation
o What if SPAWN factors fucked up?
De facto corporation —> If you tried to incorporate in good faith AND did business under the corporate name AND had no knowledge you didn’t hit the spawn factors (even if they mailed a rejection but they didn’t receive the rejection)(
Corporation by estoppel —> you fucked up the SPAWN factors and youre being sued personally bc you werent really a company, the courts will give you limited liability against parties that treated you like a corporation
LLC formation & incorp document requirements, member agency & personal liability, dissolution
Formation
- Articles of Organization AND one person
AO includes - RaANCH
- name/purpose
- address
- reg. agent’s name/addy
- initial capital contributions of all members
- member hierarchy info (and their names/addys)
Members in a manager-LLC are treated as agents w/ act/app authority for OCOB decisions (NOT extraordinary affairs)
Personally liable if
- Pierced the veil
- Proper procedures for dissolution and winding up not followed
unanimous vote by members
promoters:
who are they
Promoter fiduciary duties to corp
Promoters personally liable if
liability for pre-corp Ks after corp formed
They enter into pre-organization Ks which are NOT effective against the Corp untill the corp is created AND adopts the Ks (either express or implicitly)
Promoter owes FDs to the corp AND other promoters
- caannot covertly profit from transactions involving corp (ex. Selling land to corp for way over FMV or misappropriating corporate opportunities)
- all profits from failure of good faith^^ can be recovered by corp
Promoters personally liable if
He purports to act on behalf of corp AND
both parties know the corp hasn’t been formed yet
Promoter remains liable for pre-corp Ks even if the corp adopts it
BUT not liable if theres a novation OR contract saying no promoter liability (indemnity clause) (unless promoters breached fiduciary duty ex. Fraud)
piercing the corporate veil
who does it apply to
standard
factors
only in LLCs or Close Corporations
P is suing the SHs
P must show SHs of Close Corp or Members of LLC: (1) abused the privilege of incorporating AND (2) fairness requires holding them liable
factors
o Serious undercapitalization
o Alter ego
o Comingling assets
o fraud
o Lack of formality (does NOT apply to LLCs, run an analysis for close corporations depending on how many directors/SHs there are)
o NOTE: only SHs or Members who participated in the wrong are personally liable
court usually fucks all SHs after piercing but some dont extend liability to passive investors
stocks/bonds
o Authorized stock —> company cant issue more shares than authorized
o Outstanding shares —> already issued and entitles the holder to one vote
o Treasury shares —> corp recaptures shares and don’t give a vote until rebought
o Corps can reserve a right of buyback (preemptive right) to avoid hostile takeover (or other stock options)
dividends
o Shareholders are NOT entitled to dividends
o Cant be withheld in bad faith
Proving bad faith: (1) the money was there AND (2) there was a dishonest purpose for withholding them (includes majority shareholders being assholes)
If withheld in bad faith —> shareholders can compel distribution
SH meetings
- how many required?
- special SH meeting rules
must be at least one annual shareholder meeting
Board, president, or 10% of voting shares can call special shareholder meeting at any time to vote on fundamental change
* Voting shareholders entitled to 10-60 day notice
* If no purpose stated in notice —> no vote (no surprise attacks)
Director must receive at least 2 days notice??? idk If this goes here
sH voting at SH meetings
How many shares needed to vote
Voter qualification
Proxy rules
Types of votes
Need a quorum of shares entitled to vote
Have to held stock on the record date to vote (usually <=70 days before the meeting - check bylaws)
* Even if you sell your shares later, your vote is determined by the record date
Proxy —> freely revokable written agreement for 11 mos
* Only irrevocable if it explicitly states “irrecovable” and is coupled with an interest
* If multiple proxys, the last one is valid(assuming non-irrevocability)
* proxy either in verifiable electronic transmission OR written appointment form (NEVER ORAL)
Types of votes
* Ordinary proposals —> quorum majority
* Fundamental changes —> majority of outstanding(issued) shares needed
* electing directors —> plurality
SH right to inspect books
right to inspect books when they suspect some bullshit afoot;
- 5 days notice to view
-during regular business hours
-in good faith and
- for a proper purpose
- Proper purpose —> reasonably related to a SHs interest (ex. addressing econ risks to corp)
- SH msut state: (1) purpose (2) records desired to inspect (3) records are directly related to purpose
BOD meeting/voting rules
Voting/meeting rules:
- Need quorum to vote
- Calling into a vote is fine BUT you have to be able to simultaneously hear and be heard by everyone else
o NO voting by proxy or agreement - 2 days notice for special meetings only
o Notice only of time and place needed, not purpose - informal actions dont need quorum if board has unanimously consented to the action via writing
officers
treat them like agents and use authority rules
Director/officer fiduciary duties
Duty of care
o Elements
Act in best interest of company
Disclose material info to board
Must be informed
Act reasonably
o Business Judgment Rule —> court presumes directors/officers didnt breach DoC if decisions are made:
in good faith
with care an ordinarily prudent person in a like position would exercise under similar circumstances
in a manner the D/O reasonably believes is in the best interests of the corp
NOTE: the articles may exculpate for bad judgment but NOT for bad faith
Duty of loyalty
o 3 scenarios
(1) Ursurping a company opportunity for yourself
(2) competing with corporation
(3) Self dealing –> material financial interest on both sides of deal AND knowledge of that interest
NOTE: BJ rule does NOT apply
Duty of Loyalty Exceptions
o Full disclosure + Approved by a majority of disinterested directors
o Full disclosure + majority disinterested shareholder approval
o Entire fairness at the time it was entered into
waiving duty of loyalty in LLCs
LLCs can waive duty of loyalty unless its “manifestly unreasonable”
mergers/consolidation
need both of these from BOTH corporations:
(1) ABSOLUTE majority board vote
(2) ABSOLUTE majority of shareholders
SH litigation for corps
LLC litigation rules
Direct —> the SHs rights were violated, NOT the corporations
ex. denial of preemption rights, payment of dividend, oppression in close corp, etc)
Derivative claims –> corp was harmed
* 3 requirements - SAD
o Standing - SH at time of breach and throughout the entry of judgment
o Adequacy (the SH represents the interest of the corp)
o written Demand and wait 90 days (unless futile)
NOTE: All recovery goes to corporation
LLC
Same as above EXCEPT the action can be brought w/i a reasonable time post demand (unless futile)
