Organizational Structure

Question 1

What is required to amend articles of incorporation?

Answer 1

(1) Board adoption
(2) Shareholder approval (unless purely routine and ministerial)
(3) File amended articles

Question 2

What is required to amend bylaws?

Answer 2

Shareholder or board approval

Question 3

If not otherwise provided by the operating agreement, what is required to amend the foundational documents of an LLC?

Answer 3

Consent of all members

Question 4

What is required for a merger?

Answer 4

(1) Plan of merger
(2) Both corporations’ boards approval
(3) Both corporations’ shareholders approval

Question 5

When is shareholder approval not required for merger?

Answer 5

(1) Acquiring company’s shareholders need not approve if merger will have little effect on that company
(2) Target company’s shareholders need not approve a two-step merger
(3) Neither company’s shareholders need to approve a short-form merger

Question 6

What are dissenters’ rights?

Answer 6

A shareholder who does not consent to a merger may be entitled to sell their shares to the corporation for a fair value

Question 7

Is shareholder approval required to sell substantially all of a corporation’s assets?

Answer 7

Yes

Question 8

What is recapitalization?

Answer 8

The practice of exchanging one form of financing for another

Question 9

What is a two step merger?

Answer 9

(1) Acquiring company offers to purchase all of the target company’s shares at a certain price. If purchasing company becomes majority owner, move to step two.
(2) Once the acquiring company owns the majority of shares, it proposes a merger in which each remaining shareholder receives consideration for their shares at the same rate as the others from step 1

Question 10

What is a short-form merger?

Answer 10

When a parent company owns at least 90% of a subsidiary, the parent merges the subsidiary into the parent or one of the parent’s other subsidiaries

Question 11

What is an exchange of securities?

Answer 11

When an acquiring company issues new shares and exchanges them for all of the shares in a target company. Both companies stay in existence after the exchange

Question 12

What are the three methods of dissolving a corporation?

Answer 12

(1) Voluntary dissolution
(2) Administrative dissolution
(3) Judicial dissolution

Question 13

How can a corporation voluntarily dissolve?

Answer 13

(1) Majority of the board votes in favor
(2) Majority of the shareholders vote in favor; and
(3) Corporation files appropriate article of dissolution

Question 14

What is a direct shareholder suit?

Answer 14

When a shareholder brings suit against the corporation for their direct injury rather than an injury to the corporation as a whole

Question 15

What is a derivative shareholder suit?

Answer 15

A suit brought by a shareholder on behalf of the corporation for an injury to the corporation

Question 16

What are the requirements for a derivative shareholder suit?

Answer 16

(1) Contemporaneous ownership
(2) Continuous ownership
(3) Fair and adequate representative
(4) Either:
(a) demand on the board and the board’s refusal was improper; or
(b) Demand on the board would have been futile

Question 17

When is a board’s refusal to bring a lawsuit after being demanded by a shareholder improper?

Answer 17

(1) The board did not act in good faith;
(2) The board did not conduct a reasonable inquiry; or
(3) The directors who made the decision were not disinterested

Question 18

When will a shareholder be entitled to attorney’s fees for a derivative suit?

Answer 18

When the lawsuit results in a “substantial benefit” for the corporation

Question 19

When will a shareholder be liable for a defendant’s expenses for a derivative suit?

Answer 19

When the court finds that the plaintiff lacked reasonable cause to bring the suit or the suit was brought for an improper purpose

Question 20

Are the rules for members lawsuits the same as for shareholders?

Answer 20

Yes