Marbes Questions- Corps. Flashcards
How is a corporation formed?
- Select a state for incorporation
- Draft articles of incorporation, which must include:
- Name of corp (that complies with rules)
- Number and classes of authorized stock
- Name and address of registered agent
- Name and address of incorporator
- File articles with SOS (the corporate existence begins when AOI are filed)
- Hold organizational meeting
For what purposes can a corporation be formed?
Engaging in any lawful business unless a more limited purpose is set forth in the AOI.
What responsibilities do “promoters” have for pre-incorporation contracts if the corporation is not properly formed?
- A promoter is a person who purports to act as or on behalf of the corporation before it is actually incorporated and who knows the entity has not been incorporated.
- Promotors are jointly and severally liable for all liabilities while acting or purporting to act on behalf of a corporation knowing no incorporation existed, unless the contracting parties otherwise agree.
- The promoter remains liable if the corp. never comes into existence, absent an agreement to the contrary.
- The promoter remains liable until a novation occurrs.
What circumstances can lead to “piercing the corporate veil” and holding shareholders vicariously liable for corporate action or inaction?
- The corporation was the alter ego of the controlling SH or treated as a mere instrumentality; and
- Adherence to the rule would sanction a fraud or promote injustice.
Common veil piercing factors:
- Business is closely held
- P is involuntary creditor
- D is corporate shareholder
- Corporate insiders failed to follow corporate formalities
- Corporate mingled business and individual assets/affairs
- Business not adequately capitalized
- D actively participated in mgmt; and
- Insiders deceived creditors about business or its financial status
How are the members of the Board of Directors selected?
Directors are elected at the first annual SH meeting and at each annual meeting thereafter unless AOI provide for staggered terms.
How are the officers selected?
The BOD may elect individuals to fill offices of the corporation, as authorized by the bylaws or the BOD.
What procedural requirements must be met for actions by the Board to be valid?
- proper notice of meeting (or waiver)
- quorum present (unless AOI states otherwise, majority of directors)
- affirmative vote of majority of directors present
What is the function of the Board of Directors in management of the company?
Manage business, subject to any limitations in the AOI including:
- set policy and make certain extraordinary decisions;
- act as agent to bind company;
- designate specific directors to act on behalf of the board and bind the company
What is the function of officers in managing a corporation?
- Work for directors.
- officers act as agents for the corp, subject to control by BOD;
What fiduciary duties do members of the Board of Directors owe to the corporation?
- Duty of Care: regulates competence & diligence in performing tasks. Liability limited by BJR.
- Standard of Conduct: To act in good faith; and in a manner he reasonably believes to be in the corp’s best interest.
- Duty of Loyalty: regulated self-dealing; no BJR shield
What is the business judgment rule and how does it impact a court’s analysis of an alleged breach of a director/officer’s duty of care?
BJR is the idea that directors or officers carry out their functions and make decisions that reflect the directors or officers:
- Are disinterested and independent;
- Are well informed;
- Act in good faith; and
- Reasonably believe the decision is in the best interest of the corporation.
The court will assign no liability for decisions that meet BJR. BJR is rebuttable presumption of proper conduct and court will not review BOD decision unless proof of: fraud, illegal conduct, self-dealing
What is a “director’s conflicting interest transaction”
Director’s conflicting interest transaction” means a transaction effected or proposed by the corporation (or an entity controlled by the corporation):
- To which the director is a party; or
- Respecting which the director had knowledge and a known material financial interest; or
- Respecting which the director knew a related person was a party or had a material financial interest, at the relevant time.
How can a director escape liability for engaging in a directors conflicting interest transaction?
- If independent directors approve/cleanse
- If independent SHs approve
- The transaction, judged under circumstances relevant at the time is established to be fair to the corporation.
What is the corporate “business opportunity” doctrine
A corporate director/officer may not usurp a “corporate opportunity” for his own benefit, unless the corporation (acting through its Board of Directors without improper participation by the conflicted director/officer) or disinterested shareholders gives consent after appropriate disclosure by the fiduciary.
How can a director or officer escape liability for taking a “business opportunity” from the company?
if before becoming legally obligated respecting the opportunity the director brings it to the attention of the corporation and . . . either obtains approval from the qualified directors or the qualified shareholders.
