M6-Business Structures: Part 2 Flashcards
A domestic corporation is one created under the laws of a given state. A foreign corporation is a corporation created under the laws of another state. A foreign corporation must obtain a certificate of authority from each state in which it does intrastate business. (true or false)
true
Maintaining a bank account, collecting debts, and hiring employees who live within another state are not considered to be “doing business” within the state.
Maintaining an office in another state is a clear indication of “doing business” in another state.
The articles of incorporation generally must contain both the name of a registered agent upon whom process may be served and the number of shares authorized to be issued. (true or false)
true
A merger can be effected by giving some parties cash or property; not everyone need receiving voting shares. (true or false)
true
The merger must be pursuant to a formal plan.
An affirmative vote by the holders of each corporation’s voting shares is required.
A plan of merger must be approved by the boards of the merging corporations.
Generally, a corporation is treated as an entity distinct from its shareholders and shareholders are not liable for the corporation’s debts. However, where the shareholders do not treat the corporation as a distinct entity, such as where they commingle their personal funds with the corporation’s funds, courts are likely to ignore the corporate form as well. (true or false)
true
Amendment of the articles of incorporation, albeit proposed by the directors, cannot usually be effected without the affirmative vote of the shareholders. (true or false)
true
The directors ordinarily have the power to:
- repeal bylaws unless the articles or the specific bylaw to be repealed provides otherwise
- declare dividends at their discretion as long as the dividends do not violate any statute, article provision, bylaw, or contract with a creditor
- set their own compensation, limited only by the fiduciary duties owed to the corporation (e.g., the directors cannot set salaries so high as to constitute waste)
A corporation may indemnify its officers for liabilities incurred in a suit by stockholders, especially if the officer prevails. (true or false)
true
There is no restriction against serving as both a director and an officer.
The Revised Model Business Corporation Act (RMBCA) provides that officers are to be appointed by the board unless the bylaws provide otherwise.
There is no requirement that an officer own stock in the corporation in which he or she serves.
Bonds are debt securities. Thus, convertible bonds and debenture bonds are corporate debt securities. A warrant is a contractual right to purchase stock, which constitutes a share of corporate equity so it (is or is not) a corporate debt security?
IS NOT
Shareholders who are dissatisfied with the terms of a merger, consolidation or sale of assets are permitted to compel the corporation to buy their shares at fair market value. This is known as the right of appraisal or the dissenting right. (true or false)
true
A short-form merger is when a parent mergers a 90% or more owned subsidiary into the parent. In this case, ONLY the shareholders of the subsidiary have dissenting rights.
A derivative action is an action by a stockholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corporation when the corporation does not enforce its own rights. (true or false)
true
Such actions are often brought when the directors or officers have breached their duty to the corporation and have refused to sue themselves. An ultra vires act is an act outside of a director’s or an officer’s scope of authority and thus is a breach of duty to the corporation.
Under the Revised Model Business Corporation Act (RMBCA), a director is authorized to rely on information provided by the appropriate officer. The officers are selected by the board of directors to run the day-to-day affairs of the corporation, and thus will often have more direct access to information. Directors can also rely on information supplied to them by professionals such as attorneys and CPAs hired by the corporation. (true or false)
true
The RMBCA does not authorize a director to:
- serve on the board of a competing corporation
- sell control of the corporation
- profit from insider information
Stockholders have a right to inspect certain corporate records. (true or false)
true
In a short form merger (one between a parent and a subsidiary 90% of which is owned by the parent), the subsidiary’s shareholders have a right to dissent and take advantage of the appraisal remedy. (true or false)
true
The parent corporation’s shareholders have no right to dissent to a short form merger.
If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the board of directors makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. (true or false)
true
A director’s self-dealing does not automatically make a contract void. The contract can be upheld if it was fair.
Shareholders have the right to vote to elect (typically annually) or remove directors. They also have the right to vote on whether to approve fundamental changes to the corporation, such as dissolution. (true or false)
true
Shareholders do have a right to inspect corporate records, but not on demand. Typically, five days’ written notice is required.
An S corporation may not have more than 100 shareholders, although a C corporation may have as many shareholders as desired. (true or false)
true
Either entity’s shareholders may contribute property to the corporations without being taxed and may contribute such property as an exchange for stock as appraised by the directors.
Only an S corporation is prohibited from having foreign country shareholders
