MEE Essentials: Corporations Flashcards
Incorporation rule statement
Articles of incorporation are filed with the state, and, if in conflict with bylaws, articles control.
Is corporation liable for pre-incorporation?
NO, unless expressly or impliedly adopts K, PROMOTER is liable
Shareholders rule statement
Shareholders are only owners and do not manage the corporation.
Annual meetings: who must be notified, what notice is required, who can vote and how
ALL SHAREHOLDERS must be informed
Notice: 10-60 days prior, with time/place/purpose of meeting
Can vote by PROXY or AGREEMENT
What is quorum of shareholders?
Majority of SHARES must be present
Director rule statement
directors manage and act as a body by voting. they may exercise all corporate powers that are not limited to articles or shareholder agreement
Shareholder responsibilities
Enter Ks, hire and fire directors
Directory voting: proxies and quorum
Directors CANNOT vote by proxy
Director quorum = majority, must be present at START of meeting but can break quorum by leaving
Do directors need notice for annual meeting?
NO, only special meeting
BUSINESS JUDGMENT RULE
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
What may directors rely on?
They must be INFORMED but an rely on information, opinions, reports by officers/counsel/accountants
Who has burden to show breach by director?
CLAIMANT
Does business judgment rule apply to duty of loyalty, care, or both
ONLY duty of care
Duty of loyalty rule statement
Director must act in good faith and reasonable belief that what he does is in corp’s best interest
Three duty of loyalty prohibited acts
1) BOTH sides of transaction
2) COMPETES with corp
3) USURPS corporate opportunity
Defenses to breach of duty of loyalty
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)
Waiver of duty of loyalty for LLC
LLC may waive duty of loyalty so long as not MANIFESTLY UNREASONABLE
Record date voting rule
Voters must own shares on record date (70 days or less)
How to establish voting proxy
Shareholder can appoint proxy IN WRITING or through ELECTRONIC TRANSMISSION
ANY inconsistent action revokes proxy
When two or more are given, LAST PROXY GOVERNS
Proxy revocability
Usually revocable unless otherwise stated for max of 11 months
ONLY irrevocable if explicitly stated AND coupled w interest
Shareholder lawsuit: 2 types
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
Direct suits
A direct suit is appropriate when the wrong done amounts to a breach of duty owed to individual PERSONALLY, and recovery goes to shareholder
Derivative suit
Derivative suit is shareholder attempting to enforce CORP’s rights. Recovery goes to corporation
Requirements to file derivative suit
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)
When can derivative suit be dismissed?
If court determines not in CORP’S BEST INTEREST to bring
Piercing corporate veil: when and why
Generally, law treats corp as separate entity EVEN WHEN all stock is owned by one person. BUT courts can pierce veil on rare occasions.
Piercing corporate veil: rule statement
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
piercing the veil: what types of offenses?
Undercapitalization, failing to follow formalities, commingling of assets, confusion of business, deception of creditors
Shareholder’s right to inspection
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
LLC formation/rights/duties
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)
Dissociation of corps
When member leaves, that member dissociates, but does NOT lead to winding up or dissolution unless other members UNANIMOUSLY AGREE
LLC individual liability
Individual members usually NOT liable for losses unless 1) VEIL PIERCING or 2) IMPROPER DISSOLUTION/WINDING UP
Creditor enforcement of claims against corp individuals
Creditors may enforce claims against all LLC members, but total liability cannot exceed value of assets given to member in dissolution)