MD Corporations Flashcards
Key characteristics
- freely transferable shares
- continuous existence
- limited liability of SHs (only to your investment EXCEPT piercing)
- central professional management
- entity for tax purposes - double taxation
Articles of Incorp must have:
- name/addy of incorporators
- name of corp, indicating it’s a corp
- purpose (can be broad)
- address of corp
- registered agent name/addy
- stock info: number, classes, par value
- > exists when accepted by state
Bylaws
Created by board for internal governance, usually have annual meeting and restrictions on transfering shares, can’t conflict iwth Articles
De facto corporation
If the promoters made good faith attempts to incorporate right, will get limited liability
Corporation by estoppel
If creditor always dealt with as if was a corp, can’t pierce LL
Ultra Vires acts by the board
an action beyond the authority given the Board by the Articles. OJO! an act or transfer of property by corp NOT invalid solely because ultra vires -> Bd can be sued for breach of fiduciary duty. DIFFERENT from partnership(?)
Piercing Corp Veil
IF 1. necessary to prevent fraud/iniquity and 2. failure to comply with formalities (meetings, records, commingle funds) OR 3. inadequate capitalization -> liability for SHs
Promotor Liability
IF they know corp not formed yet -> jointly liable for Ks (they're a partnership) OJO unless K specially disclaims personal liability IF corp adopts (express or implied by accepting the benefits) -> both liable IF novation (creditor agrees to release promotor) -> only corp liable
Debt securities
DEFINE: $ investor loans to corp.
RIGHTS: priority over equity (SH) holders to repayment but not part owners so no dividends
TYPES:
- notes: IOUs
- bonds: when sells IOUs to a lot of people at once
- debentures: unsecured obligations so they’re general creditors
Equity securities (shares): Rights in general
- no right to repayment 2. dividend rights 3. liquidation rights 4. voting rights
Preferred stock
get: 1. fixed dividend b4 common stock 2. preference in liquidation 3. do not vote
Noncumulative dividend right: get stated amount only in years where dividends paid to common stock
Cumulative: Get credit for years where nothing paid
Participating: Get both the preference AND what’s paid to common stock
Stockholders’ preemptive rights
Right to buy additional shares at the same price when there is a new stock issuance. Default is NO preemptive rights, can be in Articles
Stockholders’ right to dividends
Generally no inherent right. Corp MAY NOT make dividend if: 1. makes unable to pay debts 2. total assets outweighed by liability. BUT if directors’ refusal to pay dividends due to bad fait, fraud, abuse of discretion (e.g. pay selves high salary) then can get $
SH Management Rights Generally
- Elect directors
- Approve extraordinary actions that are fundamental to the corporation: defensive mergers, amending Articles, selling all assets, dissolving
- Annual and special meetings (called by prez, Bd, or 25% of SHs, notice 10-90 days)
- Voting
- Right to information
Shareholder Voting: Quorum
Default is quorum = majority of the votes. Once quorum is present, majority of votes cast wins.
Shareholder Voting: Proxies
Can either give and specify how you want to vote or let your proxy decide. REVOCABLE regardless of language of proxy UNLESS coupled with interest for benefit of proxy-holder (e.g. gave to secure a debt).
Shareholder Voting: Agreements and Trusts
In order to gain control/strength.
Agreements = K to vote a certain way together BUT costly to enforce after breach.
Trust = sign shares to trustee who votes in accordance w. agreement
Shareholder Right to Info
May inspect/copy 1. bylaws 2. minutes of SH meetings 3. annual statements of affairs 4. any voting agreements. IF you own more than 25%, can get accounting books and lists of shareholders.
Board reqs and rights
Must have at least one. Can hire officers, set major direction of corp, acquire another corp. Quorum = majority
Board elections
Straight voting = vote your shares. Bad for minority. Cumulative voting where multiply number of shares times number of directors so minorities can get some elected.
Officers powers
Must have prez, treas, secy. Have actual express/implied authority from Board, Apparent authority when normal, bind the corp if w/in scope of authority.
Duty of Care (Corp)
for directors, owe reasonably prudent person BUT business judgment rule: only bad faith or grossly negligent conduct creates liability. ALSO entitled to rely on reports given to them
Duty of Loyalty
Fiduciary duty.
Business dealings: if Dir has personal financial interest in a deal THEN must disclose to Board and have approved by a majority AND K must be fair and reasonable to the corp.
Usurp corp opp: IF 1. corp financially able to undertake opp, 2. in corp’s line of business 3. practical advantage to corp 4. by taking, D/O will come into conflict w. corp THEN must offer to corp
Compete: can’t compete directly
REMEDY: disgorge profits
10-b5 False/Misleading Statemetns
- in connection with purchase/sale of security
- use any artifice to defraud
- omission AND misstatement of material fact
- any practice that operates as a fraud or deceit
Private OR gov’t action
