Questions Flashcards

1
Q

X was interested in creating a company with his friends, Y and Z, to sell clothes. They wanted to issue their shares for sale. They included the name of the company and their possessed shares only in the articles of incorporation and filed it with the secretary of state. Has the company been formed?

A

NO de jure corporation

  • RMBCA
  • Articles of Incorporation did NOT include X, Y, Z + agent’s names and addresses, shares authorised to be issued (only outstanding shares)
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2
Q

X was interested in creating a company with his friends, Y and Z, to sell clothes. On 1 January, they drew up the articles of incorporation with the necessary information and filed it with the secretary of state three days later. When was the company formed?

A

4 January

- Date when Articles were filed with SoS

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3
Q

X was interested in creating a company with his friends, Y and Z. They agreed that the company be named SportDirect and be used to market sportswear. X then decided it would be a lucrative idea to market music artist shirts as well. One day, X sold some shirts of Bob Marley to a customer, C. C realised SportDirect specialised in selling sportswear and was unhappy with the shirt he purchased. Can action be pursued?

A

Yes (RMBCA)

  • Shareholder (Y/Z) can sue Company (SportDirect) => Y/Z can enjoin SportDirect’s act => Valid (even though ultra vires)
  • Company (SportDirect) can sue Director (X) => SportDirect can enjoin X’s act => Valid (even though ultra vires)

No (Common law)
- NOT lawful business purpose (selling music shirts instead of sports shirts) => Ultra vires (outside scope of business) => Void (SportDirect can NOT be sued)

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4
Q

X was interested in creating a company with his friends, Y and Z. They agreed that the company be named SportDirect and be used to market sportswear. They attended an organisational meeting to elect the directors and officers. The bylaws were later adopted but X wanted to change the laws so that the company must only sell football shirts. However, Y and Z wanted to sell all kinds of sport shirts. They also argued that the Articles prohibit exclusive sales. But X believes the bylaws were already changed according to his wishes and went ahead to inform customers they only sell football shirts. Who is correct?

A

Y + Z

  • Bylaws were NOT amended (NO majority vote, only X voted)
  • Articles take precedence over bylaws
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5
Q

X was interested in creating a company with his friends, Y and Z in State A. They agreed that the company be named SportDirect and be used to market sportswear. They were unsure of any relevant law to be complied with in the state. However, they were aware from a friend that an articles of incorporation was required so they filled in the necessary details and kept it safe. X then sold one of its football boots to a customer, C. However, the boot was badly designed and C injured himself. Who can C sue?

A

NOT X
- Protected by veil

NOT SportDirect

  • NOT de jure corporation (Articles NOT filed w/ SoS)
  • NOT de facto corporation under common law (NO existing statute)
  • NOT by estoppel (C is tort victim)
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6
Q

X was interested in creating a company with his friends, Y and Z in State A. They agreed that the company be named SportDirect and be used to market sportswear. They filled in the Articles of Incorporation as required by State A’s law, but did not bother to file with the Secretary of State as they negligently assumed it was not required. X then sold one of its football boots to a customer, C. However, the boot was badly designed and C injured himself. Who can C sue?

A

NOT X
- Protected by veil

NOT SportDirect

  • NOT de jure corporation (Articles NOT filed w/ SoS)
  • NOT de facto corporation under common law (NO good faith attempt to comply with existing law in State A)
  • NOT by estoppel (C is tort victim)
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7
Q

X was interested in creating a company with his friends, Y and Z in State A. They agreed that the company be named SportDirect and be used to market sportswear. They filled in the Articles of Incorporation as required by State A’s law. However, X did not bother to file with the Secretary of State although he knew it was required. X then sold one of its football boots to a customer, C. However, the boot was badly designed and C injured himself. Who can C sue?

A

X

  • NO veil protection
  • X knew SportDirect was NOT validly formed as de jure corporation (State A’s law)
  • X is jointly and severally liable towards SportDirect’s obligations

NOT SportDirect

  • NOT de jure corporation (Articles NOT filed w/ SoS) (State A’s law)
  • NOT de facto corporation under common law (X knew corporation was NOT validly formed)
  • NOT by estoppel (C is tort victim)
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8
Q

X was interested in creating a company with his friends, Y and Z in State A. They agreed that the company be named SportDirect and be used to market sportswear. They were unsure of any relevant law to be complied with in the state. However, they were aware from a friend that an articles of incorporation was required so they filled in the necessary details and kept it safe. X entered a contract on behalf of SD with a football team, Arsenal FC, to sell their shirts. However, SD failed to sell all the shirts and Arsenal FC lost profit. Who can Arsenal FC sue?

A

NOT X
- Protected by veil

SportDirect (by estoppel)

  • NOT de jure corporation (Articles NOT filed w/ SoS) (RMBCA)
  • NOT de facto corporation under common law (NO existing statute compliable with)
  • By estoppel (Arsenal is contract victim + dealt with SD as though it existed) => SD is estopped from denying its existence (case by case basis)
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9
Q

X and Y decided to set up a company, named Pharma, to sell medicine. They hired Z to promote the company before they filed the Articles with the secretary of state. Z entered a contract with a retailer, Boots, to sell Pharma’s medicine. Both agreed that Z would not be liable for any problems related to Pharma. Boots prepared its posters advertising Pharma’s medicine. Customers complained that Pharma was not in fact incorporated. Who can Boots sue?

A

Z (promoter)

  • NO novation (Z did NOT agree with Pharma, only Boots)
  • Jointly + severally liable for Pharma’s obligations (before + after Pharma’s incorporation) (RMBCA)

NOT Pharma
- NO adoption (express/implied) of contract

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10
Q

X and Y decided to set up a company, named Pharma, to sell medicine. They hired Z to promote the company before they filed the Articles with the secretary of state. Z asked X whether he should enter a contract with a retailer, Boots, to sell Pharma’s medicine. X asked one of the company’s employees, E, on his thoughts. E agreed to the deal, although it would only benefit X and Y. X ultimately gave the green light. Boots then sold Pharma’s medicine to customers. Pharma was rewarded with $100,000, in which X and Y were paid equal amounts. However, the customers then complained that Pharma was not in fact incorporated. Who can Boots sue?

A

Z

  • NO novation
  • Jointly + severally liable for Pharma’s obligations (before + after Pharma’s incorporation) (RMBCA)

Pharma

  • Express adoption: X (director) had knowledge of deal
  • NO implied adoption: E (employee) did NOT receive any benefits from deal
  • Pharma must reimburse some of its monies to Z
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11
Q

X and Y decided to set up a company, named Pharma, to sell medicine. One of the employees, Z, wants to buy some of the company’s shares over the course of next year. Pharma imposes a 5% commission fee for brokers, to which Z is willing to pay. Can Z purchase the shares?

A

NO stock subscription

  • RMBCA
  • Z wants to buy shares for long period (1 year)
  • BUT broker commission fee included => NO stock subscription allowed
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12
Q

X and Y decided to set up a company, named Pharma, to sell medicine. Several of its employees have been purchasing its shares during the last few years. However, one of its employees, Z, wants to cancel the subscription, despite no mention of revocation options. Can Z still cancel?

A

NO revocation of stock subscription

  • RMBCA
  • Subscription grants NO revocation option
  • NO unanimous vote by subscribers to revoke (only Z)
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13
Q

X, Y and Z decided to form a company named RubberCo, which specialised in producing rubber made products. They held an organisational meeting to elect themselves as directors. X was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. X did not want to delay the transaction so he decided to confirm in writing his approval of the deal. X asked Y and Z to agree in writing as well. Y was on holiday so he called X to tell him he wants in. Z was not content with the idea. Can X enter the deal?

A

No

  • Directors’ decision (NO meeting)
  • Ds’ consent NOT in writing (Y consented orally)
  • NOT unanimous Ds’ vote (only Y consented)
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14
Q

A, B, C, D and E decided to form a company named RubberCo, which specialised in producing rubber made products. They held an organisational meeting to elect themselves as directors. A was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. A knew it was important to have a formal approval of the deal. Therefore, A asked B, C and D to attend a special meeting. A notified B and C two days before the meeting of the details of the meeting, in which B received the notice on that day but C received it a day later. A also called D who was on holiday a few days before the meeting. D did not want to attend the meeting. Only B and C attended the meeting. A and B agreed towards the deal. However, B suddenly had to leave the meeting. Can A still enter the deal?

A

NO

  • Special meeting
  • NO notice to ALL directors (A excluded E)
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15
Q

A, B, C, D and E decided to form a company named RubberCo, which specialised in producing rubber made products. They held an organisational meeting to elect themselves as directors. A was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. A knew it was important to have a formal approval of the deal. Therefore, A asked everyone to attend a special meeting. A notified B and C two days before the meeting of the details of the meeting, in which B received the notice on that day but C received it a day later. A also called D and E who were on holiday a few days before the meeting. D and E did not want to attend the meeting. Only A, B and C attended the meeting. They all agreed towards the deal. Can A enter the deal?

A

No

  • Special meeting
  • NO 2 days’ advance notice to C (received it 1 day before meeting)
  • A + B attended meeting => Less than 50% of Ds (2/5 directors) attended meeting => NO quorum
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16
Q

A, B, C, D and E decided to form a company named RubberCo, which specialised in producing rubber made products. They held an organisational meeting to elect themselves as directors. A was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. A knew it was important to have a formal approval of the deal. Therefore, A asked everyone to attend a special meeting. A notified B and C two days before the meeting of the details of the meeting, who both received it on that day. A also called D and E who were on holiday a few days before the meeting. C and D did not want to attend the meeting. Only A and B attended the meeting, and E called into the meeting although he could not hear A and B talk. All three agreed towards the deal. Can A enter the deal?

A

No

  • Special meeting
  • E did NOT attend meeting (called in BUT could NOT be heard)
  • A + B attended meeting => Less than 50% of Ds (2/5 directors) attended meeting => NO quorum
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17
Q

A, B, C, D and E decided to form a company named RubberCo, which specialised in producing rubber made products. They held an organisational meeting to elect themselves as directors. A was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. A knew it was important to have a formal approval of the deal. Therefore, A asked everyone to attend a special meeting. A notified B and C two days before the meeting of the details of the meeting, who both received it on that day. A also called D and E who were on holiday a few days before the meeting. C and D did not want to attend the meeting. Only A and B attended the meeting, and E called into the meeting and was able to communicate with everyone. Only A and B agreed towards the deal. B suddenly left the meeting. Can A still enter the deal?

A

No

  • Special meeting
  • A + B + E attended meeting => At least 50% of Ds (3/5 directors) attended meeting => Quorum
  • A + B voted in favour of decision => At least 50% of Ds present (2/3 directors) voted in favour of decision => Quorum
  • B left meeting => Broke quorum
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18
Q

X is a director of company NetSky, a software engineering company. X entered a deal with a bank to provide a software development program. X knew that the bank had a low P/L the last financial year, but decided to enter the deal anyway. Y, the shareholder, discovered X’s deal and was not happy. Can Y sue X? Who holds the burden of proof?

A

X’s breach of duty of care
- Burden of proof => Y

NO business judgment rule applies

  • X did act in NetSky’s best interests (deal for program good business for NS)
  • X did NOT act in good faith (knowledge of Bank’s low P/L)
  • X did NOT act as ordinary prudent person (should have investigated Bank’s financial status further)

NO good faith reliance applies
- X did NOT rely on any reports

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19
Q

X is a director of company NetSky, a software engineering company. X received reports about a bank interested in contracting with a software company to create a software development program. The reports were from X’s team members and third party accountants who X recently hired. X hired them specifically because they are related to X and X wanted to give them an opportunity following a recent business mistake that they made. X then entered the deal with the bank. Y, the shareholder, discovered X’s deal and was not happy. Can Y sue X? Who holds the burden of proof?

A

X’s breach of duty of care
- Burden of proof => Y

NO business judgment rule applies

  • X did act in NetSky’s best interests (deal for program good business for NS)
  • X did NOT act in good faith (knowledge of accountants’ incompetence)
  • X did NOT act as ordinary prudent person (should not have relied on reports if X knew the accountants were incompetent)

NO good faith reliance applies

  • X did NOT reasonably believe accountants to be competent (knowledge of their business mistake)
  • Accountants are related to X
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20
Q

X, Y and Z are three of the ten directors of the company NetSky, a software engineering company. NetSky was growing fast at an early stage. X’s cousin from a bank rang X to ask him about creating a software development program for him. X contacted all the directors about the deal, mentioning that ‘a good business opportunity has come up’. Y, Z and another director agreed, but the others refused. Nonetheless, X, Y and Z then entered the deal with the bank in return for $1m. One of the shareholders discovered X’s deal and was not happy. Can the shareholder sue X? Who holds the burden of proof? What can the shareholder recover?

A

X’s breach of duty of loyalty

  • X’s failure to avoid conflicting interests (X’s related family member (Cousin); X knew Cousin would influence X’s judgment)
  • Burden of proof => X

NOT disclosure of material facts

  • ‘Good business opportunity’ NOT material fact
  • X, Y + Z are interested Ds => Their vote is NOT relevant => Majority vote of 7 Ds required (4/7)
  • 1 director voted in favour of deal => NO majority vote

Maybe fair transaction at time of deal

  • NOT necessary deal (NS in good position at time growing fast at early stage)
  • Good consideration ($1m)

Remedies => SH

  • Damages (resulting from possibly bad deal)
  • Enjoin deal
  • Set aside deal
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21
Q

X is a director of the company NetFlix, a video hosting channel. X received a call from a gaming company asking whether NetFlix would be interested in hosting games as well as videos. X knew the company was not doing so well recently and did not want to delay the deal by waiting for the other directors to consent. X then entered the deal in return for $1m. One of the shareholders discovered X’s deal and was not happy. Can the shareholder sue X? Who holds the burden of proof? What can the shareholder recover?

A

X’s breach of duty of loyalty

  • X’s usurpation of corporate opportunity (X did NOT give NetFlix chance to act upon deal + deal was within X’s line of business as an online hosting platform, rather than X’s declining financial status)
  • Burden of proof => X

Remedies => SH

  • Recover profits from X
  • Impose constructive trust on deal (X’s breach of fiduciary duty) => Force X to convey deal to NetFlix for $1m
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22
Q

X is a director of the company NetFlix, a video hosting channel. X was informed by one of his colleagues that one of its main market rivals, Amazon Prime wanted to enter a joint venture with NetFlix. X secretly held shares in Amazon Prime. X agreed to the deal and received 5% profit from the deal. One of the shareholders discovered X’s ownership in Amazon Prime and was not happy. Can the shareholder sue X? Who holds the burden of proof? What can the shareholder recover?

A

X’s breach of duty of loyalty

  • X’s failure to avoid competing ventures (X derived benefit (5% profit) from competitor Amazon Prime)
  • Burden of proof => X

Remedies => SH

  • Enjoin deal
  • Set aside deal
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23
Q

X is a director of a sports channel. X was furious that the company did not distribute extra money for this financial year. X then decided to enter a deal for the company with a poorly performing football team, which derived low profits for the channel. The company’s articles included exculpatory provisions. The shareholders were furious. Can the shareholder sue X? Who holds the burden of proof?

A

X’s breach of duty of care
- Burden of proof => Y

NO business judgment rule applies
- X did NOT act in channel’s best interests/good faith (X knew team was poorly performing; X wanted revenge on company for low dividend)

Exculpatory provisions do NOT apply
- NOT for intentionally inflicted harms => X is liable

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24
Q

X is a director of a sports channel. X discovered a lucrative deal but knew the channel was not performing well recently. X then decided to change the figures in the channel’s financial statements to show it was doing well, and entered the deal. The shareholders were furious when they found out. Can the shareholder sue X? Who holds the burden of proof?

A

X’s breach of duty of care
- Burden of proof => Y

NO business judgment rule applies
- X did NOT act in good faith (X fraudulently provided channel’s financial statements)

Exculpatory provisions do NOT apply
- NOT for intentional criminal violation (fraud) => X is liable

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25
Q

X is a deputy manager of a company named Tangent, a gaming company. X got a call from a retailer asking whether Tangent is interested in entering a deal with them. X asked how Retailer discovered his contact details, to which Retailer replied that X was recommended on Tangent’s website for entering into interested deals. X decided to enter the deal. Tangent’s games received poor reviews and Retailer lost profit. Who can Retailer sue?

A

Tangent
1) X is officer (deputy manager) => Agent of Tangent (Principal)
2) X had apparent authority (Retailer reasonably believed X to have authority based on Tangent’s website)
3) X acted within scope of employment (in Tangent’s best interests)
=> Tangent is liable to Retailer

26
Q

X, Y and Z are shareholders of Corporation NZ. X owns 100,000 shares, Y owns 100,000 shares and Z owns 10,000 shares. X and Z each issued all of their shares on the stock market. NZ repurchased 50% of their shares. As NZ was entering liquidation, the directors held a meeting to declare dividends to all of the shareholders without first consulting NZ’s unsecured creditors. Is this correct?

A

No

  • X + Z are record SHs (outstanding shares - 50% of their issued shares were repurchased by company) => X + Z are entitled to dividends => Same priority as unsecured creditors
  • Y is NOT record SH (NO issued shares) => Y is NOT entitled to dividends
27
Q

X, Y and Z are shareholders of Corporation NZ. X owns 100,000 shares, Y owns 100,000 shares and Z owns 10,000 shares. All three issued their shares on the stock market. NZ repurchased 50% of their shares. As NZ was entering liquidation, the directors held a meeting to declare dividends. X and Y were paid to their entitled amounts, but Z was not. What can Z do?

A

Require X + Y (maj SHs) to force directors to make proper declarations of dividends
- Directors’ distributions oppressed Z’s rights (min SH)

28
Q

X, Y and Z are shareholders of a family corporation, NZ, run by a family of directors and accountants. Each owned 100,000 shares. All three issued their shares on the stock market. NZ repurchased 50% of their shares. As NZ was entering liquidation, the directors held a meeting to declare dividends. The directors reviewed the company’s accountants’ financial statements that complied with the necessary regulations. All three were paid 20% less than what they were entitled to during that financial year. What can the shareholders do?

A

Require Ds to pay 20% entitlement

  • NO good faith approval
  • Ds related to accountants (family)
29
Q

X, Y and Z are shareholders of a corporation, NZ. Each owned 100,000 shares. All three issued their shares on the stock market. NZ repurchased 50% of their shares. As NZ was entering liquidation, the directors held a meeting to declare dividends. The directors reviewed the company’s accountants’ financial statements that complied with the necessary regulations. X was paid 20% more than what he was entitled to during that financial year, which he knew was ridiculous. Y and Z were paid their entitled amounts. They found out about X’s dividend and complained to NZ. What can Y and Z do?

A

Maybe require Ds to pay 20% contribution
- Good faith approval (reasonably relied on accountants’ financial statements that were accurate)

Require X to pay 20% contribution
- X knew of breach

30
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. X did not want to delay the transaction so he decided to confirm in writing his approval of the deal. X asked Y and Z to agree in writing as well. Y was on holiday so he called X to tell him he wants in. Z was not content with the idea. Can X enter the deal?

A

NO

  • NO SH meeting
  • NO unanimous consent (X + Y voted in favour, NOT Z)
  • NOT in writing (only X + Y)
31
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. X knew it was important to have a formal approval of the deal. Therefore, X asked Y and Z to attend a special meeting. X notified Y and Z a week before the meeting of the details of the meeting. All three agreed towards the deal. Can X enter the deal?

A

NO

- NO special SH meeting (NO notice given within 10-60 days before meeting)

32
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X owned 100 shares, Y owned 200 shares and Z owned 300 shares. X and Z issued their shares on the market and RubberCo purchased some of their shares. X was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. X knew it was important to have a formal approval of the deal. Therefore, X asked Y and Z to attend a special meeting. X notified Y and Z a month before the meeting of the details of the meeting. Y agreed towards the deal, but Z refused. Can X still enter the deal?

A

No

  • X + Z are record SHs (outstanding shares issued on market + reacquired) => Entitled to vote (400 votes)
  • Y is NOT record SH => NOT entitled to vote
  • 1 share = 1 vote
  • X voted => 100 votes in favour (1 share = 1 vote) => NO quorum (at least 200/400 votes required)
33
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X owned 50 shares, Y owned 100 shares and Z owned 100 shares. X, Y and Z issued their shares on the market and RubberCo purchased some of their shares. X was interested in expanding the company’s activities to producing stationery by engaging with a pencil manufacturer. X knew it was important to have a formal approval of the deal. Therefore, X asked Y and Z to attend a special meeting. X notified Y and Z a month before the meeting of the details of the meeting. Y delegated his voting powers to his secretary a year ago during their one-to-one meeting. Ultimately, Y’s secretary voted in favour, but Z refused. The articles provide that one share entitles five votes. Can X still enter the deal?

A

No

  • X + Y + Z are record SHs (outstanding shares issued on market + reacquired) => Entitled to vote (250 x 5 = 1250 votes)
  • Y did NOT delegate voting power to secretary (11 months expired + NOT in writing + NOT signed) => NO proxy vote
  • X voted => 250 votes in favour (1 share = 5 votes) (50 shares x 5) => NO quorum (at least 625/1250 votes required)
34
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X delegated his voting power along with his stock ownership to his employee 6 months ago in writing, which X signed. Employee now wants to revoke the voting powers. Is this possible?

A

No

  • X delegated proxy vote (writing + signed)
  • Employee’s proxy vote was coupled with interest other than voting power (stock ownership) => NOT revocable
35
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X delegated his voting power to his employee in writing, which X signed. Nowhere did it state that it was not revocable. Employee now wants to revoke the voting powers. Is this possible?

A

Yes

  • X delegated proxy vote (writing + signed)
  • NOT irrevocable + NOT coupled with interest other than voting
  • Employee must notify secretary of RubberCo + vote for revocation
36
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X owned 100 shares, Y owned 200 shares and Z owned 300 shares. They attended a meeting to elect five new directors. X and Y voted for director A. Z voted for director B. Who should be elected director?

A

Deadlock

  • 1 share = 1 vote
  • NO cumulative voting (NOT provided by Articles)
  • Plurality vote
  • X + Y => A (300 votes)
  • Z => B (300 votes)
  • Deadlock
37
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X owned 100 shares, Y owned 200 shares and Z owned 250 shares. They attended a meeting to elect five new directors. X and Y voted for director A. Z voted for director B. The articles provide for cumulative voting. Who should be elected director?

A

A

  • 1 share = 1 vote
  • Cumulative voting (provided by Articles) => Allows minority SHs to vote cumulatively in favour of single candidate vs minority SH
  • X + Y => A ((100 x 5 = 500) + (200 x 5 = 1000) = 1500 votes)
  • Z => B (250 x 5 = 1050 votes)
  • A wins
38
Q

X is a shareholder of company NetSky, a software engineering company. NetSky recently created its subsidiary, NetCloud. X entered a deal with a bank to provide a software development program. X knew that the bank had a low P/L the last financial year, but decided to enter the deal anyway. NetCloud discovered X’s deal and was not happy. Can NetCloud sue NetSky?

A

Breach of fiduciary duty of care

- Parent (NetSky) owes duty of care to Subsidiary (NetCloud)

39
Q

X is a shareholder of company NetSky, a software engineering company. NetSky recently created its subsidiary, NetCloud. X decided to enter a deal on behalf of NetCloud with a bank to provide a financial program, to which X is also a shareholder. One of the shareholders of NetCloud discovered X’s deal and was not happy. Can NetCloud sue NetSky?

A

Breach of fiduciary duty of loyalty

  • Conflicting interests (X’s ownership in NetCloud + Bank)
  • Parent (NetSky) owes duty of care to Subsidiary (NetCloud)
40
Q

X is a shareholder of company NetSky, a software engineering company. NetSky recently created its subsidiary, NetCloud. X came across an opportunity to create a financial program for a bank and decided it would be good business for his sole trading business, Compsci. One of the shareholders of NetCloud discovered X’s deal and was not happy. Can NetCloud sue NetSky?

A

Breach of fiduciary duty of loyalty

  • Usurp corporate opportunity (X did NOT give NetCloud time to act + X received benefit through Compsci)
  • Parent (NetSky) owes duty of care to Subsidiary (NetCloud)
41
Q

X, Y and Z are shareholders who decided to form a company named RubberCo, which specialised in producing rubber made products. X and Y put up capital, but Z failed to do so. RubberCo later entered into a contract with Investor. Investor alleges RubberCo breached their contract by lying that there was full capitalisation of stock and immediately wanted to sue RubberCo without looking further into the case. Can Investor sue X, Y and Z?

A

No

  • X + Y + Z are protected by veil
  • Z lacked capital
  • BUT Investor is contract victim (NOT tort victim) + failed to investigate when he had the chance => NO piercing the veil
42
Q

X, Y and Z as shareholders decided to form a national company named RubberCo, which specialised in producing rubber made products. X later entered into a contract with Investor on behalf of RubberCo. X mentioned that RubberCo had expanded its businesses across various continents. Investor realised this was not true and wanted to sue RubberCo in tort. Can Investor sue X, Y and Z?

A

X

  • NOT protected by veil
  • X committed fraud (misrepresentation of RubberCo’s offices)
  • Investor is tort victim => Pierce the veil
  • X is jointly and severally liable for RubberCo’s obligations to Investor
43
Q

X, Y and Z as shareholders decided to form a national company named RubberCo, which specialised in producing rubber made products. X later entered into a contract with Investor on behalf of RubberCo. X said that RubberCo had improved in its recent financial year by negligently reading an employee’s financial statement. In fact, they did not improve so much. Investor then lost some profit and wanted to sue RubberCo. Can Investor sue X, Y and Z?

A

X

  • X was negligent
  • X breached duty of care (negligent financial review) + causation + damages (loss of profit)
  • X is personally liable to Investor (NOT for RubberCo’s obligations)
44
Q

X, Y and Z as shareholders decided to form a company named RubberCo, which specialised in producing rubber made products. X owned 50 shares, Y owned 400 shares and Z owned 500 shares. Y and Z agreed to a merger with an investor that would see them take 25% and 15% respectively, whereas X would take 5% in the company. X found out and was unhappy. Who can X sue?

A

Y + Z

- Unfairly prejudiced/oppressed minority SH (X - 50 shares, 5% entitlement)

45
Q

X is a director of company NetSky, a software engineering company. X entered a deal with a bank to provide a software development program. X knew that the bank had a low P/L the last financial year, but decided to enter the deal anyway. Y, a shareholder, recently purchased shares in NetSky. Y discovered the deal and was not happy. Because NetSky did not bother to pursue any action, Y wanted to immediately sue X on behalf of the company demonstrating the significant impact the deal will have on its financial results. Can Y sue X?

A

Yes (Derivative suit)

1) Y has stock ownership at time of suit
2) Y can provide adequate representation of NetSky’s best interests (demonstrate deal’s impact)
3) Y did NOT need to notify NetSky and wait 90 days (notice would be futile since NetSky did not bother to pursue action)

46
Q

X is a director of company NetSky, a software engineering company, that consists of ten directors. X entered a deal with a bank to provide a software development program. X knew that the bank had a low P/L the last financial year, but decided to enter the deal anyway for $100,000. Y, a shareholder, recently purchased shares in NetSky. Y was unhappy with the deal and notified NetSky. 3 months later, Y sued X on behalf of the company to recover the contract amount. X asked his other colleagues on their thoughts. Three directors, Y, Z and B voted in favour of the deal following their brief overview of the deal and they incurred a significant amount of legal costs up to $75,000. Can Y still sue X? If so, what are the consequences if Y wins or loses?

A

Derivative suit

1) Y has stock ownership at time of suit
2) Y can provide adequate representation
3) Y made written demand to NetSky
4) Y commenced lawsuit after 90 days (3 months)

NO lawsuit dismissal (NOT in NetSky’s best interests)

1) NO majority vote of directors (3/9)
2) NOT reasonable inquiry into issue (brief overview)
3) NOT in good faith (legal costs < SHs recoverable amount) ($75k < $100k)

Consequences

  • If Y wins => NetSky receives damages + Y receives legal costs
  • If Y loses => Y must pay legal costs to X
47
Q

X is interested in purchasing shares in Company. X wants to have voting powers for an indefinite period of time immediately. X wants to directly use his voting powers without any intermediaries involved. How would you advise X?

A

Create voting agreement

  • NO filing required (immediate voting power)
  • NO time duration (indefinite period)
  • NO intermediaries (X holds legal ownership of voting shares, NOT Trustee)
48
Q

X has just purchased shares in Company. It has come to X’s attention that Company is about to be involved in a hostile takeover and X’s ownership is under threat. X wants to continue having voting powers. How would you advise X?

A

Create voting trust

1) Filing of trust with Company required
2) Proper purpose required
3) 10 years maximum duration (must renew)
4) Trustee holds legal ownership of X’s shares => Trustee can transfer shares to named beneficiaries or re-transfer to X after end of trust (unless X renews trust)

49
Q

X, Y and Z decided to create a corporation named XYZ. X owns 500 of the 1000 shares put up for issuance. Six months later, XYZ decided to issue the remaining 500 shares in cash. The articles include the right to exercise pre-emptive rights. X wants to purchase these shares himself. Can X purchase these shares? If so, for how much?

A

Pre-emptive rights
1) Articles allow right
2) Shares issued 6 months after incorporation
3) Shares issued in cash
4) X has voting rights (issued shares)
=> X can purchase 50% of shares (250 shares) (same % ownership X has in XYZ)

50
Q

X is a shareholder of Prime Corp. The company issued 100 of its 1000 shares. One day, X received a notice from the directors that following their agreement, they wished to notify all the shareholders that Prime Corp wants to merge with its predecessor, Lizard. The notice included that ‘there will be no changes in Prime’s Articles of Incorporation and Prime’s owners will continue to enjoy the same ownership and rights’. X refuses to agree towards the merger. Can X stop the merger?

A

No

Merger (Successor-Predecessor) (Prime-Lizard) (Fundamental corporate change)

  • NO changes in Successor’s Articles
  • NO changes in Successor’s SHs’ rights + ownership
  • Successor issued max. 20% of its voting power (100/1000) before merger => SHs’ consent NOT required (X’s refusal NOT relevant) => Merger allowed
51
Q

X is a shareholder of Prime, which owned 50% of its subsidiary Secondary. X decided to notify Secondary’s owners to let them know he wants to merger the two companies together. Secondary’s shareholders unanimously refused to agree towards the merger. Can they stop the merger?

A

Yes

Merger (Parent-Agent) (Prime-Secondary) (Fundamental corporate change)

  • Parent owns less than 90% of Subsidiary (50%) => Subsidiary SHs’ consent required
  • Subsidiary SHs refused to consent => NO merger allowed
52
Q

X is a shareholder of Prime, which owned 90% of its subsidiary Secondary. X decided to notify Secondary’s owners to let them know he wants to merger the two companies together. Secondary’s shareholders unanimously refused to agree towards the merger. Can they stop the merger?

A

No

Merger (Parent-Agent) (Prime-Secondary) (Fundamental corporate change)

  • Parent owns 90% of Subsidiary => Subsidiary SHs’ consent NOT required
  • Subsidiary SHs’ refusal to consent NOT relevant => Merger allowed
53
Q

X is a shareholder of Prime. X wanted to lease half of the company’s property to another company, which was in line with Prime’s business activities. X refused towards the transaction. Can X stop the lease?

A

No

Asset lease (Fundamental corporate change)
- Less than 75% of assets for lease (50%)
- Within ordinary course of business
=> NO SHs’ consent required

54
Q

X is a shareholder of Prime. Prime was facing financial difficulties. The directors felt it was appropriate to expand the company’s business activities. Therefore, the directors all agreed to include a new change in the Articles of Incorporation. They messaged the shareholders of the change. X could not go ahead with the change and requested that Prime buys his shares so he can leave. Is this allowed?

A

No

Amendment of Articles (Fundamental corporate change)
- NO right of appraisal allowed (SH dissents change + Company purchases shares)

55
Q

X is a shareholder of Prime Corp. The company issued 500 of its 1000 shares, including X’s. One day, X received a notice from the directors that following their agreement, they wished to notify all the shareholders that Prime Corp wants to merge with its predecessor, Lizard. The notice included that ‘there will be no changes in Prime’s Articles of Incorporation and Prime’s owners will continue to enjoy the same ownership and rights’. X refuses to agree towards the merger. What can X do?

A

Stop merger (Successor-Predecessor) (Fundamental corporate change)

  • NO changes in Successor’s Articles
  • NO changes in Successor’s SHs’ rights + ownership
  • BUT Successor issued at least 20% of its voting power (500/1000) before merger => SHs’ consent required (otherwise Successor’s SHs’ consent not required)
  • X refused to consent => NO merger allowed

Exercise right of appraisal (X is entitled to vote with outstanding shares)

  • Prime must file notice of right of appraisal to X
  • X must file notice of intent to demand payment from Prime
  • Merger approved within 10 days => Prime must give notice to X of date + location of meeting to exercise right of appraisal
  • X must demand payment of his shares from Prime
  • Within 60 days Prime may allow court to determine fair value of shares/Prime may notify its fair value of shares + within 30 days X may then notify its estimate value of shares
56
Q

X is a shareholder of Prime with voting rights, which owned 50% of its subsidiary Secondary. X decided to notify Secondary’s owners to let them know he wants to merge the two companies together. Secondary’s shareholders unanimously refused to agree towards the merger. What can X do?

A

NO merger (Parent-Agent) (Prime-Secondary) (Fundamental corporate change)

  • Parent owns less than 90% of Subsidiary (50%) => Subsidiary SHs’ consent required
  • Subsidiary SHs refused to consent => NO merger allowed

Exercise right of appraisal (X is entitled to vote with outstanding shares)

  • Prime must file notice of right of appraisal to X
  • X must file notice of intent to demand payment from Prime
  • Merger approved within 10 days => Prime must give notice to X of date + location of meeting to exercise right of appraisal
  • X must demand payment of his shares from Prime
  • Within 60 days Prime may allow court to determine fair value of shares/Prime may notify its fair value of shares + within 30 days X may then notify its estimate value of shares
57
Q

X is a shareholder of Prime with voting rights. X wanted to lease half of the company’s property to another company, which was in line with Prime’s business activities. X refused towards the transaction. What can X do?

A

Stop asset lease (Fundamental corporate change)
- 75% of assets for sale
- NOT within ordinary course of business
=> SHs’ consent required

Exercise right of appraisal (X is entitled to vote with outstanding shares)

  • Prime must file notice of right of appraisal to X
  • X must file notice of intent to demand payment from Prime
  • Merger approved within 10 days => Prime must give notice to X of date + location of meeting to exercise right of appraisal
  • X must demand payment of his shares from Prime
  • Within 60 days Prime may allow court to determine fair value of shares/Prime may notify its fair value of shares + within 30 days X may then notify its estimate value of shares
58
Q

X, Y and Z formed a corporation named XYZ to sell pharmaceutical products. Before any product was put up for sale, X decided there was no point in running the business so he agreed that it should be dissolved. All three owners delivered the Articles of dissolution to Secretary of State and agreed to pay off any outstanding debts. Has XYZ been fully dissolved?

A

Voluntary dissolution

1) NO business commenced yet
2) Delivery of Articles of Dissolution to Secretary of State
3) Pay off debts

Owners can still continue running XYZ
- Activities as appropriate during the winding-up process

59
Q

X and Y formed a corporation named XY to sell pharmaceutical products. They elected themselves as directors and made several successful sales. However, X wanted to sell a new product but Y refused, in which the new product’s sale could boost the company’s profits. Y considers the company should close down. Is this possible?

A

Judicial dissolution (by Y)

  • Directors’ deadlock (X vs Y)
  • Deadlock can NOT be broken
  • Irreparable injury to Company (loss of profit)
60
Q

X and Y formed a corporation named XY to sell pharmaceutical products. They elected themselves as directors and made several successful sales. However, X decided to sell cocaine secretly in XY’s name and made a lot of profit. Y found out, but does not want to sue X otherwise the public will find out about the activity. What else can Y do?

A
Judicial dissolution (by Y)
- Director's illegal activity (cocaine sale)
61
Q

X and Y formed a corporation named XY to sell pharmaceutical products. XY ran into financial trouble and borrowed some money from Bank. However, XY were falling behind on their debts and eventually went insolvent. What can Bank do?

A

Judicial dissolution (by Bank as creditor)

1) XY is insolvent
2) XY did NOT satisfy Bank’s loan