Pg 5

Question 1

What is corporate successor liability?

Answer 1

If a corporation acquires all or part of the assets of another corporation, they do not acquire the liabilities and debts of the previous one unless there is an express or implied agreement to assume them.

Question 2

What is the deal with Delaware?

Answer 2

40% of corporations on the New York Stock Exchange are incorporated in Delaware because it:

• is very hard to change its corporate statutes so it is very stable
• has a lot of legal precedent that reduces legal costs and give certainty
• is sympathetic to corporations
• has experienced corporate law judges
• has state of the art corporate statutes

Question 3

What are the bad things about incorporating in Delaware?

Answer 3

If your business is actually in another state, but incorporated in Delaware, then you are taxed in both places. Plus you are subject to suit in Delaware, so that can be expensive with multiple court filings.

Question 4

What is the MBCA (Model Business Corporations Act)?

Answer 4

This is model laws developed by the ABA. The majority of states use this as a template. The point is to eliminate formalities and move towards simplification.

Question 5

Is the process of incorporation fairly straightforward?

Answer 5

Yes, and it can generally be done online

Question 6

What is the Sarbanes-Oxley act?

Answer 6

This act reformed corporate governance because of scandals. It emphasizes internal controls, increased public disclosure, and director independence. CEOs and CFOs must certify that they have reviewed their company’s financial reports, that the reports are materially accurate, and that they comply with the SEC. This makes them liable if there are securities fraud claims that come up because they had reason to know if anything was misstated or omitted.

Question 7

Are corporations and their shareholders liable for each others’ contracts?

Answer 7

No, shareholders have limited immunity from corporate obligations, but it is possible to pierce the corporate veil

Question 8

What are the advantages of doing business in the corporate form?

Answer 8

– shareholders are exempt from personal liability
– continuity of existence
- centralized management
– free transferability
– access to additional capital
– standardized methods

Question 9

Are shareholders responsible for corporate debts, torts, or contracts?

Answer 9

No. They are immune from personal liability for those things beyond the amount of the investment in the corporations stock.

Question 10

When might a shareholder become personally liable for the acts or debts of a corporation?

Answer 10

Only if it was the result of his own act or conduct

Question 11

What does piercing the corporate veil mean?

Answer 11

Ignoring the corporate entity so that injured people can reach behind the veil to shareholders personally

Question 12

If it is shown that a shareholder, CEO, director, etc. was personally negligent in his oversight of something that caused injury, can he be personally liable on behalf of a corporation?

Answer 12

Yes

Question 13

What does it mean that corporations have continuity of existence?

Answer 13

They can continue to exist indefinitely because their existence is not impacted by incapacity, death, or withdrawal of anyone.

Question 14

If membership in a partnership changes, what happens to the partnership?

Answer 14

It dissolves and the enterprise is liquidated

Question 15

What are the two different ways to dissolve a corporation?

Answer 15

– voluntary dissolution

– involuntary dissolution

Question 16

What is voluntary dissolution of a corporation?

Answer 16

• when a majority of the incorporators or initial directors dissolve it
• a bylaw provision triggers dissolution on certain events
• the Board of Directors proposes dissolution with permission of the shareholders by vote

Question 17

What is involuntary dissolution of a corporation?

Answer 17

The Secretary of State can start a proceeding to administratively dissolve a corporation for administrative noncompliance, courts can dissolve corporations for fraud or abuse of authority or resolve deadlock, etc.

Question 18

Who elects directors of a corporation and what do the directors do?

Answer 18

Shareholders elect them and the directors appoint and supervise officers

Question 19

Can shareholders sell or give away their interests in a corporation to anyone they want?

Answer 19

Generally yes although there are some restrictions regarding securities laws, shareholder agreements, and close corporate form

Question 20

How do corporations have lots of flexibility in financing?

Answer 20

They have options besides just borrowing from a bank, because they can do things like sell stock, issue bonds, notes, etc.

Question 21

What is stock?

Answer 21

It represents a percentage of ownership in a corporation and money from it is a source of revenue

Question 22

What are the three major types of stock?

Answer 22

– common stock
– preferred stock
– authorized stock

Question 23

What is common stock?

Answer 23

Voting stock. Buyers get the usual powers of common stock like electing directors

Question 24

What is preferred stock?

Answer 24

This includes a variety of features such as limited voting rights, preferential treatment and pay out dividends, etc.

Question 25

What is authorized stock?

Answer 25

Whatever types and classes of stock that are included in the articles of incorporation

Question 26

How is a corporation a legal unit?

Answer 26

It can hold property, contract, and sue. It exists apart from its shareholders.