IL Corporations

Question 1

Promoter’s liability

Answer 1

Liable until novation.

Question 2

Requirements on Articles of Incorporation

APAIN

Answer 2

APAIN

1. Authorized shares, max number
2. Purpose
3. Agent (address of registered office)
4. Incorporators
5. Name of Corp.

Question 3

Shareholder liability

Answer 3

Not liable unless the corporate veil is pierced

Question 4

Par value

Answer 4

Minimum issue price

Question 5

Preemptive rights

Answer 5

Right to maintain ownership percentage.

Question 6

Business judgment rule

Answer 6

Presumption that directors manage the corp. in good faith and in the best interest of its SHs.

Directors are not liable for innocent mistakes of business judgment - no matter how bad.

Question 7

Director duties:

Answer 7

1. Of care - prudence, unless limited by Articles.

2. Of loyalty - no unfair benefits unless disclosed and ratified by independent board members.

Question 8

Derivative Suits need:

Answer 8

1. Contemporaneous ownership (standing)
2. Adequacy
3. Demand

Question 9

Quorum

Answer 9

Majority of all SHARES.

Question 10

Vote

Answer 10

Votes CAST in favor exceed votes CAST against.

Question 11

Cumulative voting

Answer 11

shares x slots (for directors)

PRESUMED in Illinois.

Question 12

Common stock

Answer 12

Pay last

Question 13

Preferred stock

Answer 13

Pay first

Question 14

Participating stock

Answer 14

Pay twice

Question 15

Cumulative stock

Answer 15

Add up

Question 16

Eliminating formalities in closely held corps.

2 requirements = 2 upsides

Answer 16

1. Unanimous election AND
2. Share transfer restrictions
   YIELD
3. No piercing AND
4. Possible SCORP status.

Question 17

Professional Corporation (PC)

Answer 17

Just one profession.

Limited liability.

Question 18

LLC

Answer 18

1. Limited liability
2. Limited liquidity
3. Limited life
4. Limited tax

Question 19

Making fundamental changes

Answer 19

1. Board resolves
2. Special notice for special meeting
3. Majority of all shares (2/3 in IL)
4. Dissenter’s have rights
5. File notice with state.

Question 20

Federal Securities Law Sec. 10(b)

Answer 20

Needs:

1. Scienter
2. Deception
3. Actual purchase/sale (reliance)

Question 21

Federal Securities Law Sec. 16(b)

Answer 21

No trading profits w/i 6 months.

Question 22

Sarbanes-Oxley Act (2002)

Answer 22

1. No knowingly false filings

2. No benefits during falsehoods or blackout periods.

Question 23

3 Director Owes Corporation Duty:

Answer 23

1. To act in good faith
2. To act as a reasonably prudent person would in that situation.
3. In a manner the director believes is in the best interest of the corporation.

Question 24

Controlling shareholders must refrain from:

Answer 24

1. using his control to obtain special advantage or,

2. to cause the corporation to take action that unfairly prejudices the minority shareholders.

Question 25

Corporation not liable on promoter's contract unless:

Answer 25

it adopts the contract.

Question 26

Adopting promoter's contract:

Answer 26

1. Express act of corp. | 2. Implied by corp. accepting K's benefit

Question 27

Piercing the Corp. Veil

Answer 27

1. Corporate formalities have been ignored, and 2. A basic injustice will result b/c of lack of formality. 3. Corp was undercapitalized at the outset. 4. Corp was formed to perpetrate fraud.

Question 28

Derivative Suit

Answer 28

a suit brought by a shareholder to enforce a right belonging to the corporation.