! Ray- Essay Corp Flashcards
ULTRA VIRES
If purpose in articles and C does something outside purpose:
1) UV K’s are valid
2) SH can sue for injunction to stop
3) Responsible managers liable to C for UV losses
SH GET SUED
- ddp
A shareholder may file an action to establish that the acts or directors are illegal to either shareholder or the coproration. Whether it is direct or derivative depends on injury.
- Direct Suits: Direct suit is appropriate when the wrong done amounts to a breach of duty owed to the individual personally
- Derivative Suits: A derivative suit is appropriate when injury is caused to the corporation and SH is trying to enforce corps rights. To file lawsuit, SH must meet 3 reqiurements “SAD”
(i) standing to bring lawsuit
(ii) adequacy in representing corp
(iii) demand written generally 90 days before filing suit unless irrep injury would result.
* ** Any recovery goes to corporation. but can collect fees
* **Derivative suit can be dismissed with the court approval if it is not in the best interest of the corporation.
SH LIABLE
- pvc or __ theory when do they apply
- PVC—- SH acting behind corp
Generally not liable for SH. No precise test, PCV if (i) abuse corporate priv (ii) fairness requires that they be held liable —- only for close corporation.
ex: undercapital, commingle assets, failure to comply with formalities
2. Participation Theory—–SH independent act
SH is liable under “participation theory” if
-acting as an agent
-brings wrongful conduct of third party
(misfeasance= liable) (non feasance= not liable)
To impose liablity under participation theory, p must establish that the corporation SH acted as an “AGENT” and performed MISFEASANCE
SH VOTING
Right to Vote
record SH as of record date set by D’s
Voting on What
elect/remove Ds, fundamental C changes ,etc.
How to Vote
1) written unanimous consent of all voting shares
2) mtg that satisfies quorum/voting rules
Quorum
- Majority of outstanding shares
- can’t be loss
Voting
Elect D: plurality, may be by cumulative voting all spent on one dude ([# shares x # of Ds to be elected])
Other: majority of shares that actually vote
Meetings Annual: used to elect Ds Special: can be called by a) the board b) holders of 20% of voting shares c) as provided in articles Notice -when and where -if special, also purpose of mtg (bc SH can't do anything else at that mtg) -Failure to give notice voids action unless waiver by 1) express in signed writing any time, or 2) attend mtg w/o objection at the outset
FIDUCIARY DUTIES
Act as Group
- unanimous in writing (including email if print is kept in records)
- mtg satisfying quorum and voting
- can ratify by above methods
Quorum
- majority of all directors
- if quorum present, just need majority vote of those present to pass resolution
- quorum can be lost if some leave
Meetings
Regular: no notice
Special: 5 days, written notice (time, date, place)
-failure to give notice voids whatever happens at mtg unless Ds not given notice waive defect (writing or attending mtg w/o objecting)
-no proxies; non-delegable fiduciary duties
DUTY OF CARE
DoC: degree of care RPP would exercise w/r/t his own business
DoL: good faith w/ reasonable belief that acts are in C’s best interest
Burden on P
- Nonfeasance
- liable for breach only if caused loss to C
- must show causation - Misfeasance
- Bd does something that causes harm to C (causation clear) - Defense - BJR
decision was good faith, informed, rational basis.
DUTY OF LOYALTY
Burden on D
BJR does not apply (cannot apply if CoI)
Interested Director Transaction
-Deal b/w corp and one of its Ds/relative of D
Will be set aside UNLESS
(1) fair to C when entered, OR
(2) material facts & interest and was approved in good faith by EITHER
(a) maj of SH entitled to vote
(b) maj of disinterested Ds (interested D’s count toward quorum, but votes don’t count)
-Ct. may still require trans is fair
Competing Ventures
D cannot compete unfairly with her C (no direct competition)
Remedy: constructive trust on profits (accounting)
Corporate Opportunity
Cannot usurp C opportunity. Can’t take until:
1) tells Bd
2) waits for bd to reject
Opportunity: something C needs, has interest in participating in, or is related to present/prospective business
-Likely not valid defense to say that C didn’t have financial ability to pay for it
-Remedy: constructive trust, accounting
No general self dealing
-cannot sell fiduciary office
-bd can set its own comp, but must be reasonable (not waste C assets)
D AVOIDANCE OF LIABILITY
Note dissent in C records by
1) in the minutes
2) writing to C secretary at mtg
3) writing to sec immediately after mtg
- oral dissent not effective by itself
- cannot dissent if voted for proposal at mtg
- if missed mtg for valid reason, not deemed to have agreed
Good Faith Reliance Reasonable belief based on 1) book value of assets 2) financial statements by auditors, Pres, CAO, OR 3) opinion of ee, officer, professional
INDEMNIFICATION OF D+0
- No Indemn: if liable to C
2, Mandatory Indemn:
extent wins jg on merits or otherwise
3, Permissive: anything not falling in above categories, e.g. settlement
4, Eligibility:
acted in good faith & w/ reasonable belief that actions were in best interest of C
-determined by disinterest Ds, legal counsel, SH
-can advance lit expenses if will repay if not eligible for indemn
AoI can exculpate D for damages in duty of care case
-but not for breach of DoL, or reckless or intentional misconduct
FOREIGN CORPS
Foreign C who transact business (regular course, intrastate) w/o qualifying get 1) civil fines, 2) cannot assert claim in PA [can be sued/defend]
Qualify by: cert of auth from PA DoS (PA RA, info from articles, good standing in home)
TYPES OF CORP
De Jure
Filed with dept of state, legit, org meeting held by Ds if selected or I’s if not to select Ds
De Facto C
(a) relevant incorp statute (BCL)
(b) good faith, colorable attempt to comply w/BCL
(c) some exercise of C privilege [acting like there is a C]
- If applies, treated as C for all purposes except in action by state
C by Estoppel
One who treats business as a C may be estopped from denying it is a C (can’t sue proprietors individually if everyone thought it was a C)
-also prevent business from saying it wasn’t C to avoid liability
-K, not tort. Narrower the DFC.
PREFERRED STOCK/PREEMPTIVE RIGHTS
Articles must include: authorized stock, par value (if any), preferences of each class of stock (preemptive rights exist only if articles provide for them - except opposite in stat close corp)
Preemptive Rights
Rights of an existing SH to maintain % ownership by buying stock when new issuance
C CORP
1) few SH
2) stock not publicly traded
Can have a BoD OR let SH run C, by providing so
1) in articles or bylaws approved by all SH, OR
2) SH can make mgmt decisions by written agrmt of majority of shares
- stock certs should note this provision
- those who manage owe fiduciary duties
- look for oppressive acts towards minorty SH (freeze outs)
Stat Close
-no more than 30 SH, not traded, articles say so
PIERCE CORPORATE VEIL
SH USUALLY NOT LIABLE. HOWEVER
Might PCV if:
1) SH abused privilege of incorp, and
2) fairness requires held personally liable (avoid fraud or unfairness)
- Alter Ego
commingling, treating assets as his own, such identity of interests - Under Capitalization
SH failed to cover prospective liabilities when incorporated - Cts more willing to PCV for tort vic than K claimant
DERIVATIVE
- derivative suit to enforce C’s claim
- breach of fiduciary duties (owed to C)
- in close corp, suit for oppressive behavior is not derivative bc duty owed directly to SH
- C recovers the $ from suit, SH just gets costs/fees (if win, not if others, can be liable if bad faith)
- C may move to dismiss suit based on investigation by disinterested Ds (good faith determination that suit is not in C’s best interests - BJR)
Requirements
- stock ownership @ time claim arose (or by operation of law from someone who did)
- and own throughout lit
- fairly & adequately represent interests of SH
- demand on Ds, but may be excused if futile (requires specific showing that irreparable injury to C would result if demand made)
