Pg 5 Flashcards
What is corporate successor liability?
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.
What is the deal with Delaware?
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
What are the bad things about incorporating in Delaware?
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.
What is the MBCA (Model Business Corporations Act)?
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.
Is the process of incorporation fairly straightforward?
Yes, and it can generally be done online
What is the Sarbanes-Oxley act?
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.
Are corporations and their shareholders liable for each others’ contracts?
No, shareholders have limited immunity from corporate obligations, but it is possible to pierce the corporate veil
What are the advantages of doing business in the corporate form?
– shareholders are exempt from personal liability – continuity of existence - centralized management – free transferability – access to additional capital – standardized methods
Are shareholders responsible for corporate debts, torts, or contracts?
No. They are immune from personal liability for those things beyond the amount of the investment in the corporations stock.
When might a shareholder become personally liable for the acts or debts of a corporation?
Only if it was the result of his own act or conduct
What does piercing the corporate veil mean?
Ignoring the corporate entity so that injured people can reach behind the veil to shareholders personally
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?
Yes
What does it mean that corporations have continuity of existence?
They can continue to exist indefinitely because their existence is not impacted by incapacity, death, or withdrawal of anyone.
If membership in a partnership changes, what happens to the partnership?
It dissolves and the enterprise is liquidated
What are the two different ways to dissolve a corporation?
– voluntary dissolution
– involuntary dissolution
What is voluntary dissolution of a corporation?
- 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
What is involuntary dissolution of a corporation?
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.
Who elects directors of a corporation and what do the directors do?
Shareholders elect them and the directors appoint and supervise officers
Can shareholders sell or give away their interests in a corporation to anyone they want?
Generally yes although there are some restrictions regarding securities laws, shareholder agreements, and close corporate form
How do corporations have lots of flexibility in financing?
They have options besides just borrowing from a bank, because they can do things like sell stock, issue bonds, notes, etc.
What is stock?
It represents a percentage of ownership in a corporation and money from it is a source of revenue
What are the three major types of stock?
– common stock
– preferred stock
– authorized stock
What is common stock?
Voting stock. Buyers get the usual powers of common stock like electing directors
What is preferred stock?
This includes a variety of features such as limited voting rights, preferential treatment and pay out dividends, etc.
What is authorized stock?
Whatever types and classes of stock that are included in the articles of incorporation
How is a corporation a legal unit?
It can hold property, contract, and sue. It exists apart from its shareholders.
