Pg 10

Question 1

If an article of incorporation puts a limit on the purpose or power of a corporation, do shareholders have standing to enjoin corporate actions that violate these limits?

Answer 1

Yes, and if directors or officers act outside of those limits, they can be held personally liable for damages

Question 2

What are situations when ultra vires may apply?

Answer 2

• when shareholders are trying to enjoin an act of the corporation
  – when the corporation is bringing suit against a director, officer, employer, or agent
  – when the attorney general acts as a corporate cop and revokes the corporate charter since limits weren’t observed [charity that isn’t really a charity]

Question 3

Is it possible for a director to make a donation to a charitable organization on behalf of the corporation without there being any link between the donation and the corporation’s business interests?

Answer 3

Yes, and he doesn’t need shareholder approval to do this. He can even donate to causes that shareholders object to as long as their actions fit within the duty of care and loyalty

Question 4

What do modern statutes say with regard to ultra vires acts?

Answer 4

• shareholders have the power to seek injunctions of ultra vires acts
  – corporations can hold directors and officers liable for harm caused by their ultra vires acts
  – attorney generals can dissolve corporations that insist on acting ultra vires

Question 5

What are the different sources of a corporation’s authority?

Answer 5

• statutes
  – articles of incorporation
• bylaws
  – resolutions

Question 6

What is the outcome of an ultra vires act?

Answer 6

The act that is ultra vires is void. It cannot be ratified or approved by shareholders even if they want to because the corporation lacked the power to take that action. There are two exceptions to this

Question 7

What are the two exceptions for an ultra vires act not being void?

Answer 7

• if a contract is fully performed by both or only one part, it cannot be attacked as ultra vires because of estoppel
  – if a contract has been partially performed, the performing party can recover in quasi- contract for the benefit he provided

Question 8

How many incorporators have to sign the articles of incorporation?

Answer 8

Just one, but that person must be a natural person over 18.

Question 9

What do incorporators have the authority to do?

Answer 9

– execute the articles of incorporation
– elect initial directors
– take steps to complete the organization

Question 10

What is the effective date of a corporation?

Answer 10

The date it is approved by the secretary of state

Question 11

If an article of incorporation has an impermanence section that says something like “nothing in this article is a permanent part of the articles of incorporation,“ what does that mean?

Answer 11

While technically the entire article of incorporation is not permanent because it can be changed by making amendments to articles, the information in that section is even less permanent since it can be changed without a formal amendment

Question 12

What have to be filed annually with the Secretary of State?

Answer 12

Annual reports that list the officers and directors

Question 13

Is it possible for more than one office to be held by the same person in a corporation?

Answer 13

Yes, but some states prohibit certain positions from being held by the same person, such as the president and the secretary because you don’t want the president to certify his own acts

Question 14

What is a corporate charter?

Answer 14

A formal contract made by organizers with the state getting authority from the statute to benefit those that will become shareholders or members

Question 15

What are the default provisions for the articles of incorporation?

Answer 15

Two major models:
– opt in: the default provisions do not apply unless the articles of incorporation specifically opts for them to apply
– opt out: the default provisions apply unless the articles of incorporation say they don’t

Question 16

How do the articles of incorporation end?

Answer 16

With a line that says the bylaws of the corporation have been duly adopted and officers and directors have been elected. Then the incorporator signs the document under penalty of perjury.