Corps & LLCs Flashcards
What is required to form a corporation?
Filing Articles of Incorporation with the state, including:
* Corporate name (must include ‘Inc.’, ‘Corp.’, or ‘Ltd.’)
* Number of authorized shares
* Registered agent and office
* Incorporators’ names
Bylaws are internal rules and not required to be filed with the state.
Define a De Jure Corporation.
A corporation formed in full compliance with statutory requirements.
What is a De Facto Corporation?
A corporation that failed to fully comply with formation rules but operates as a corporation in good faith.
What is Corporation by Estoppel?
A party who treats a business as a corporation may be estopped from denying its corporate status in court.
What does Limited Liability mean for shareholders?
Shareholders are not personally liable for corporate debts, except for:
* Personal guarantees
* Piercing the corporate veil.
When may courts pierce the corporate veil?
When shareholders:
* Fail to observe corporate formalities (commingling personal & corporate assets)
* Undercapitalize the corporation at formation
* Use the corporation to commit fraud.
What is the role of the Board of Directors?
Manages the corporation, sets policies, and hires/fires officers.
What is required for board action?
A quorum (majority of directors) is needed for board action.
What is the Business Judgment Rule (BJR)?
Courts will not second-guess business decisions if made in good faith, with due care, and a rational basis.
What are the voting rights of shareholders?
Shareholders vote on:
* Electing/removing directors
* Mergers & dissolutions
* Amending the bylaws/articles.
What is the difference between Straight Voting and Cumulative Voting?
Straight Voting: One vote per share per director slot.
Cumulative Voting: Shareholder can allocate all votes to one or more candidates.
What is a Derivative Suit?
A shareholder may sue on behalf of the corporation if:
* The shareholder owns stock at the time of the wrongdoing
* The shareholder made a demand on the board, unless futile.
What are Preemptive Rights?
Shareholders may have a right to purchase new shares before outsiders to maintain their ownership percentage.
What approvals are required for mergers and consolidations?
Require:
* Board approval
* Majority shareholder approval.
What is the difference between voluntary and involuntary dissolution?
Voluntary: Requires board + majority shareholder approval.
Involuntary: A court may dissolve a corporation for fraud, abuse, or deadlock.
What does Rule 10b-5 prohibit?
Prohibits fraud or misrepresentation in the sale/purchase of securities.
What are the requirements under Rule 10b-5?
Requires:
* Material misrepresentation or omission
* Scienter (intent to deceive or recklessness)
* Reliance
* Economic loss.
What does Section 16(b) address?
Short-Swing Profits – Directors, officers, or 10% shareholders must disgorge profits made from buying & selling stock within 6 months.
What is required to form an LLC?
Filing Articles of Organization with the state.
What are the default management structures of an LLC?
Member-Managed: All members run the business.
Manager-Managed: Only designated managers run the business.
What are the fiduciary duties in LLCs?
Duty of Care: Members/managers must act in good faith and with reasonable care.
Duty of Loyalty: Members/managers must avoid self-dealing and conflicts of interest.
What is the default rule regarding transferability of membership interests in an LLC?
A member cannot transfer management rights without unanimous consent.
Financial interests (profits/losses) can be transferred freely.
What are the conditions for dissolution of an LLC?
May occur upon:
* Agreement of members
* Court order for misconduct
* Expiration of LLC’s duration.
