MEE Essentials: Corporations

Question 1

Incorporation rule statement

Answer 1

Articles of incorporation are filed with the state, and, if in conflict with bylaws, articles control.

Question 2

Is corporation liable for pre-incorporation?

Answer 2

NO, unless expressly or impliedly adopts K, PROMOTER is liable

Question 3

Shareholders rule statement

Answer 3

Shareholders are only owners and do not manage the corporation.

Question 4

Annual meetings: who must be notified, what notice is required, who can vote and how

Answer 4

ALL SHAREHOLDERS must be informed

Notice: 10-60 days prior, with time/place/purpose of meeting

Can vote by PROXY or AGREEMENT

Question 5

What is quorum of shareholders?

Answer 5

Majority of SHARES must be present

Question 6

Director rule statement

Answer 6

directors manage and act as a body by voting. they may exercise all corporate powers that are not limited to articles or shareholder agreement

Question 7

Shareholder responsibilities

Answer 7

Enter Ks, hire and fire directors

Question 8

Directory voting: proxies and quorum

Answer 8

Directors CANNOT vote by proxy

Director quorum = majority, must be present at START of meeting but can break quorum by leaving

Question 9

Do directors need notice for annual meeting?

Answer 9

NO, only special meeting

Question 10

BUSINESS JUDGMENT RULE

Answer 10

There is a presumption that in making a business decision, directors acted on informed basis, in good faith, and in honest belief that actions were in company’s best interest

Question 11

What may directors rely on?

Answer 11

They must be INFORMED but an rely on information, opinions, reports by officers/counsel/accountants

Question 12

Who has burden to show breach by director?

Answer 12

CLAIMANT

Question 13

Does business judgment rule apply to duty of loyalty, care, or both

Answer 13

ONLY duty of care

Question 14

Duty of loyalty rule statement

Answer 14

Director must act in good faith and reasonable belief that what he does is in corp’s best interest

Question 15

Three duty of loyalty prohibited acts

Answer 15

1) BOTH sides of transaction
2) COMPETES with corp
3) USURPS corporate opportunity

Question 16

Defenses to breach of duty of loyalty

Answer 16

1) approved by majority of disinterested directors (no material interest + when all relevant info disclosed)

2) approved by majority of disinterested shareholders(NOT held by conflicted director) or

3) FAIR TO CORPORATION (BEST defense)

Question 17

Waiver of duty of loyalty for LLC

Answer 17

LLC may waive duty of loyalty so long as not MANIFESTLY UNREASONABLE

Question 18

Record date voting rule

Answer 18

Voters must own shares on record date (70 days or less)

Question 19

How to establish voting proxy

Answer 19

Shareholder can appoint proxy IN WRITING or through ELECTRONIC TRANSMISSION

ANY inconsistent action revokes proxy

When two or more are given, LAST PROXY GOVERNS

Question 20

Proxy revocability

Answer 20

Usually revocable unless otherwise stated for max of 11 months

ONLY irrevocable if explicitly stated AND coupled w interest

Question 21

Shareholder lawsuit: 2 types

Answer 21

Shareholders may sue corporation directors for illegal/fraudulent acts that are unfair or oppressive to corporation OR shareholder. Direct or derivative suit depends on injury

Question 22

Direct suits

Answer 22

A direct suit is appropriate when the wrong done amounts to a breach of duty owed to individual PERSONALLY, and recovery goes to shareholder

Question 23

Derivative suit

Answer 23

Derivative suit is shareholder attempting to enforce CORP’s rights. Recovery goes to corporation

Question 24

Requirements to file derivative suit

Answer 24

SAD

Standing (contemporaneous ownership)
Adequacy (representing corp interests)
Demand (shareholder sent written demand to corp and no reply received within 90 days UNLESS imminent injury or demand futility)

Question 25

When can derivative suit be dismissed?

Answer 25

If court determines not in CORP’S BEST INTEREST to bring

Question 26

Piercing corporate veil: when and why

Answer 26

Generally, law treats corp as separate entity EVEN WHEN all stock is owned by one person. BUT courts can pierce veil on rare occasions.

Question 27

Piercing corporate veil: rule statement

Answer 27

Courts can hold shareholders personally liable for corporate debt ONLY for LLCs and closely held corporations when shareholders ABUSED PRIVILEGE OF INCORPORATION and FAIRNESS requires personal liability. ONLY those personally wrong can be liable

Question 28

piercing the veil: what types of offenses?

Answer 28

Undercapitalization, failing to follow formalities, commingling of assets, confusion of business, deception of creditors

Question 29

Shareholder’s right to inspection

Answer 29

Must be in GOOD FAITH w PROPER PURPOSE related to persons’ FINANCIAL INTEREST

must 1) state purpose 2) during business hours 3) identify records 4) state that records relate to purpose

Question 30

LLC formation/rights/duties

Answer 30

LLCs require filing of articles of incorporation, and are usually analyzed under corporate or partnership law.

Partners have FIDUCIARY duties

Members of LLC are treated as AGENTS (with actual/apparent authority to bind in ORDINARY–but not extraordinary–affairs)

Question 31

Dissociation of corps

Answer 31

When member leaves, that member dissociates, but does NOT lead to winding up or dissolution unless other members UNANIMOUSLY AGREE

Question 32

LLC individual liability

Answer 32

Individual members usually NOT liable for losses unless 1) VEIL PIERCING or 2) IMPROPER DISSOLUTION/WINDING UP

Question 33

Creditor enforcement of claims against corp individuals

Answer 33

Creditors may enforce claims against all LLC members, but total liability cannot exceed value of assets given to member in dissolution)