MA Corporations Flashcards
What’s needed to form a corporation?
PEOPLE, PAPERS, ACT
Three duties of incorporators are to
- sign the articles of incorporation
- deliver to the secretary of state for filing, and
- (maybe) hold organizational meeting
The info required in articles of incorporation includes:
- corporate name
- names/addresses of incorporators
- capital structure of corporation (number of authorized shares, shares per class/series, information on voting rights, limitations of each class/series)
The supplemental info that must be filed with the articles of incorporation includes
name of initial registered agent, address of registered office, name and address of initial directors & officers, limitations of each class or series
Acceptance of the articles of incorporation by the secretary of state is
conclusive proof that a corporation has been formed.
The de facto corporation doctrine applies when these three conditions are met:
- there’s an applicable incorporation statute (there is)
- parties made a good faith, colorable attempt to comply with the act (e.g. papers got lost in the mail), and
- corporation is exercising some corporate privileges
If requirements for the de facto corporation doctrine are met, the entity will be treated like a corporation for everything except
actions by the state (“quo warranto” actions)
Is the de facto corporation doctrine alive in MA?
Probably, but it’s unclear
The corporation by estoppel doctrine applies when
you treat a business as a corporation – in that case, you’re later estopped from denying it’s one. Similarly, when corp holds itself out as corp, it’s estopped from later denying that it is.
Is the corporation by estoppel doctrine alive in MA?
Probably
Who can amend or repeal corporate bylaws in MA?
The shareholders. Board can amend/repeal if the articles or bylaws allow them to.
What’s a promoter of a corporation and what obligations does that person have?
A person who acts on behalf of a corporation that’s not yet formed; has fiduciary duties to corporation when formed.
A corporation is liable on pre-incorporation contracts when
it has adopted the contract, either by express board action or by implicitly accepting benefits of corporation (e.g. paying rent on a lease).
When is a promoter personally liable on a pre-incorporation contract?
ALWAYS, unless there has been a novation (agreement by promoter, corp, and other party to contract that corp will be subbed in for promoter).
How can a foreign corporation do business in MA?
If it qualifies (by getting authority from secretary of state) and pays prescribed fees when transacting business in MA.
A foreign corporation transacts business in MA when it
engages in a regular course of INTRAstate business, e.g. owning real estate, using labor in state (not sporadic or occasional activities).
A professional corporation has these three attributes:
- directors, officers, and shareholders must be licensed professionals
- shareholders are not liable for each other’s malpractice/liabilities but are always liable for own torts, and
- name’s got to say PC
Subscriptions are
written offers to buy stock from a corporation
Can preincorporation subscriptions be revoked?
Not for six months, unless the subscription says otherwise or all subscribers agree to let you revoke
Can postincorporation subscriptions be revoked?
Yes, until they are accepted by the corporation (by board).
What happens if a shareholder doesn’t pay the amount he promises to in a subscription?
Corporation can sue him
Board’s determination about the adequacy of consideration paid for its stock is
conclusive.
In Massachusetts, par stock is
not required
Preemptive rights are
a stock owner’s right to maintain her percentage of ownership by buying stock whenever there’s a new issuance. (These rights exist only if articles, or a contract with the corporation, requires them.)
If the articles or bylaws don’t specify, how many board members must a MA corporation have?
If 1 shareholder, 1 director minimum. If 2 shareholders, 2 directors minimum. If 3 shareholders, 3 directors minimum.
In MA, staggered boards are
required for publicly traded corps
Staggered boards in MA must be organized how?
Into three tiers
Are directors in MA removable for cause or without cause?
FOR CAUSE ONLY in public corporations (b/c of staggered boards); with or without cause in nonpublic corporations.
Who can remove directors?
Shareholders. Other directors can remove directors only with majority vote of board and only for cause.
What % of board needs to agree to take action?
If via written consent – unanimous. If via regular meeting — majority of board members present.
What’s a quorum of the board?
Majority of members, unless articles or bylaws say otherwise.
Can directors enter voting agreements?
NO
Who bears the burden of proof in duty of care/duty of loyalty cases?
Care: Plaintiff
Loyalty: Defendant
What’s the standard for a director’s fiduciary duties?
Director must act in good faith, with the care that a like person in similar circumstances would reasonably believe appropriate, in a manner that he reasonably believes is in the best interests of the corporation.
State the business judgment rule standard
Court will not second guess a director’s business decision if it was informed and had a rational basis, and was made in good faith, without conflicts of interest.
(Think of this as two prongs about the substance of the decision – informed and rational – and two about the director’s loyalty – good faith and no conflicts.)
An interested director transaction will be set aside unless director can prove it was
(1) fair to the corp when entered into, OR
(2) approved by: majority of disinterested directors (at least 2) or a committee thereof, OR by majority of disinterested voting shares.
* *Note that you might still have to prove fairness even if sanitizing procedures are followed!
What’s the test for when a corporate opportunity has been usurped in MA?
Whether the director taking the corporate opportunity was unfair (corporation’s inability to pay is no excuse).
Remedy for usurping a corporate opportunity:
If director still has opportunity, must sell to corporation at cost. If director doesn’t, must impose constructive trust to disgorge profits to corporation.
A director is presumed to concur with the board’s actions when he
Is present and does not vote no or abstain (or object to meeting being held, or deliver a no/abstention to the presiding officer shortly after meeting). Absent directors are not liable for anything happening at that meeting.
The corporation MUST indemnify officers and directors for _______________ but CANNOT indemnify them for ______________. It MAY indemnify officers for _________________.
- any challenge for which the director is wholly successful on the merits or otherwise (e.g. because of procedural ruling).
- any act that makes director/officer liable for breach of DOL or intentional misconduct.
- any other act, provided it was made in good faith and with reasonable belief act was in corporation’s best interests.
The articles of incorporation can exculpate directors and officers for _______________ but not __________.
violations of duty of care; violations of DOL or bad-faith acts.
The board in a closely held corporation is
technically not necessary. Upon agreement, shareholders can manage the corporation themselves.
The standard for piercing the corporate veil is that
the shareholders must have abused the privilege of incorporation, and fairness must require holding them liable.
Controlling shareholders owe the corporation and minority shareholders ________________. This issue comes up most often in _______________ and ____________.
fiduciary duties
sale of control situations; squeeze-out mergers (cash-out takeover of minority shares)
Shareholders in MA close corporations owe each other a
duty of utmost good faith and loyalty
A shareholder of a close corporation accused of violating the duty of utmost good faith and loyalty can defend by arguing that she
had a legitimate business purpose for her actions
Four fact patterns that might suggest shareholders of a close corporation are violating the duty of utmost good faith and loyalty are:
- terminating minority employment
- removing minority from board
- refusing to pay dividends
- otherwise denying minority a return on investment.
If you bring a derivative suit and lose, will you get attorney’s fees and costs reimbursed?
Not unless you brought substantial benefit to the corporation (which is unlikely if you lost). If you sued unreasonably or without proper purpose, you may be liable to the corporation for attorney’s fees and costs.
Requirements to bring a shareholder derivative suit in MA are that you
owned stock when claim arose, and throughout litigation, AND
made written demand on the board
Demand on the board is
NEVER EXCUSED in MA.
Steps for making demand on the board are:
- wait 90 days after making written demand to sue, unless corporation rejects demand before that time OR waiting would cause irreparable injury to the corporation
- If majority of disinterested directors or shares, after reasonable inquiry, find suit is not in corporation’s best interests, they can move to dismiss
In reviewing decision by majority of disinterested directors or shares to dismiss a derivative suit against the board, the court will examine
whether those making recommendation were disinterested and made good faith, reasonable inquiry. If they did, court will dismiss the case.
Can you revoke a proxy that authorizes someone else to vote your shares?
YES, even if the proxy purports to be irrevocable.
In MA, voting agreements are permissible if they are ___________, and courts will ___________ voting agreements.
- in writing and signed
2. specifically enforce
Shareholders can get a court order requiring a corporation to have an annual meeting if it has been how long since the last one?
15 months (or within 6 months of end of fiscal year)
Notice of a shareholder’s meeting must be provided ________ before the meeting.
7-60 days
A quorum for shareholder voting is
majority of outstanding voting shares
Shareholder resolutions are approved by
a majority of votes actually cast.
Cumulative voting is _____________ in MA.
Permissible on an opt-in basis
What rights does a shareholder have to inspect routine documents of a corporation?
Unqualified right with 5-day advance notice.
What rights does a shareholder have to inspect non-routine documents of a corporation?
Right to view them on written demand showing proper purpose, with 5-day advance notice.
Proper purpose to inspect documents of a corporation is a purpose
related to the shareholder’s interest as a shareholder (even if it’s adverse to the board).
A corporation cannot pay a dividend if it is
insolvent or distribution would render it insolvent. Insolvency measured in one of two ways: (1) corporation is not able to pay debts as they come due (income statement test), or (2) its total assets are less than total liabilities (balance sheet test).
What are the four steps for approving fundamental corporate changes?
- Board resolution
- Written notice to all shareholders
- Approval by 2/3 of outstanding shares
- Deliver document (usually) to secretary of state
For what kinds of transactions can dissenting shareholders get appraisal rights?
- amending articles (sometimes)
- merging
- transferring substantially all assets not in ordinary course of business
- transferring shares in share exchange
- converting to a different type of business organization
Appraisal rights are a dissenting shareholder’s exclusive remedy, unless
he can show fraud.
Appraisal rights exist only in corporations that are
not publicly traded and have fewer than 1,000 shareholders
Steps for exercising your appraisal rights are
- File written notice of objection before the shareholder vote
- Abstain or vote no.
- After the transaction is approved, make a written demand to be bought out by the corporation
- If the shareholder thinks the corporation’s payment is too low, it has 30 days to send its written estimate of value. Corporation then has 60 days to ask court to determine fair value, and if it doesn’t, it has to pay the shareholder the amount she demanded.
Which shareholders vote to approve a merger – buying or selling corporation’s shareholders?
Generally, both – unless no significant change to the surviving corporation (or unless short-form merger, which requires no shareholder approval)
Shareholders of the subsidiary bought out in a short-form merger HAVE/DON’T HAVE appraisal rights
HAVE, always
Which shareholders vote to approve a sale of all/substantially all of a corporation’s assets – buying or selling corporation’s shareholders?
Selling corporation only (they’re also only ones who get appraisal rights)
Three ways to dissolve a corporation are
- Voluntary (board resolution and 2/3 shareholder approval)
- Involuntary (either by 40% of the shareholders petitioning, or by creditor petitioning)
- Administrative (secretary of state dissolves for failure to file required reports or pay taxes for 2 consecutive years, or because corporation is inactive and dissolution is in the public interest)
Involuntary dismissal occurs when
- 40% of voting shares petition for dissolution because of director deadlock threatening irreparable harm to corporation, or failure to fill vacant board position for at least two annual meetings, OR
- creditor petitions that corporation is insolvent and creditor has unpaid judgment against the corporation, or corporation admits creditor’s debt in writing.
Winding up is the process of
gathering assets, converting them to cash, paying creditors, and distributing any extras to shareholders
The MA Uniform Securities Act bars
fraud or misleading omissions in connection with sale or purchase of stock
Chapter 93A requires stock offerings to be
accurate in all material respects – no unfair or deceptive practices in connection with sale of securities.
