Final exam - close corporations and LLCs Flashcards
Close corporations generally
no secondary market
harder to exit
SHings represent large portion of investor’s net worth
SH have active management role
easy negotiations with smaller group of shareholders
Statutory close corporation
In DE, can’t have more than 30 SHs
Business managed by SHs, not board
Separation of ownership and control in DE
No one share one vote requirement
Providence and Worcester: a corp can even vary voting power within a particular class of shares
Types of SH agreements
voting trust - all shares put in trust and trustee votes
irrevocable proxies - attached to interest
contractual agreement/enforcement - whom to support for directions. if disagreement, neutral party decides
MBCA approach to SH agreements
Allows SH agreements even if they:
1. Eliminate the Board
2. restrict the discretional powers of the Board
2. Establish who will be directors or officers of the corporation
3. Limit directors’ liability from (violating?) fiduciary duties
BUT must be set in the AOI, in bylaws, or in a written agreement signed by all shareholders.
And becomes void when shares are traded, unless new SHs agree
Formation of an LLC
File Articles of Organization
Pay fees and franchise tax
choose name (must include LLC)
choose office
draft operating agreement
LLC lingo
shareholders/partners = members
directors/officers = managers
Articles of incorporation = articles of organization
bylaws = operating agreement (can trump articles as to internal governance matters
[can be member or manager managed]
Piercing the LLC veil
Some states allow for piercing even in an LLC:
Like piercing the corporate veil, but less formalities inherently. Focus on fraud, illegality, injustice
Dissolution of an LLC
Need to follow formalities
Members share in profits and losses
can have disassociation or dissolution, and that can lead to distribution of the remaining funds
