Review

Question 1

What is required for incorporation?

Answer 1

Articles of incorporation, containing:

1) corporate name;
2) number of shares corp. is authorized to issue;
3) address & name of initial registered agent; &
4) name & address of each incorporator

must be filed with the state.

Question 2

When articles of incorporation conflict with bylaws, which controls?

Answer 2

Articles of incorporation

Question 3

How are the articles of incorporation amended?

Answer 3

By a majority vote of the directors and shareholders

Question 4

Are corporations liable for a contract entered into prior to incorporation?

Answer 4

No, unless the corporation ratifies the contract

Question 5

How can a corporation amend its bylaws?

Answer 5

Through a shareholder vote; or Board of Directors vote unless the articles exclusively reserve the power to shareholders

Question 6

What is a promoter?

Answer 6

A person who acts on behalf of a corp. that has not yet been formed

Question 7

When is a promoter personally liable for a pre-incorporation contract?

Answer 7

When he:

1) purports to act as or on behalf of the corporation, &
2) knows no corporation was formed

Question 8

What is the business judgment rule?

Answer 8

There is a presumption that in making a business decision, the directors acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company

Question 9

When does the business judgment rule apply?

Answer 9

When someone is challenging a director’s duty of care

Question 10

When does the business judgment rule NOT apply?

Answer 10

When someone is claiming the directors breached their duty of loyalty

Question 11

Describe a director’s duty of loyalty

Answer 11

A director must act in good faith and with a reasonable belief that what he does is in the corporation’s best interest

Question 12

The duty of loyalty forbids directors from doing which activities?

Answer 12

a) entering into conflicting interest transactions;
b) usurping a corporate opportunity;
c) trading on inside information; OR
d) competing with the corporation

Question 13

What are defenses to liability for breach of the duty of loyalty?

Answer 13

MBCA includes three safe harbors

1) approval by disinterested directors after full disclosure of material facts;
2) approval by disinterested shareholders, or
3) if transaction is judged to be fair at the time it was entered into

Question 14

Explain the duty of loyalty in an LLC

Answer 14

The duty is the same, but may be waived so long as it is not “manifestly unreasonable”

Question 15

Describe shareholder voting

Answer 15

In order for a resolution to pass, there needs to be a quorum present at the meeting, and more votes must be cast in favor of the resolution than against it

Question 16

Who votes at a shareholder meeting?

Answer 16

The record owner on the record date, even if the SH sells their shares before the meeting.

Question 17

What is the earliest possible record date?

Answer 17

70 days before a meeting

Question 18

What is a proxy?

Answer 18

A proxy grants the proxy holder the ability to vote shares as they deem appropriate.
Proxy agreement must be signed on either (a) appointment form or (b) electronic transmission

Question 19

For how long is a proxy agreement valid?

Answer 19

11 months

Question 20

When may a shareholder sue a corporation?

Answer 20

A shareholder may file an action to establish that the acts of the directors are illegal, fraudulent, or willfully unfair and oppressive to either the corporation or the shareholder

Question 21

Direct Suit

Answer 21

A lawsuit by a shareholder against the corporation when the wrong done amounts to a breach of duty owed to the individual personally

Question 22

Derivative Suits

Answer 22

A derivative suit is a suit brought by a shareholder when the injury is caused to the corporation at large, and a shareholder is trying to enforce the corporations rights

Question 23

What are the three requirements for commencing a derivative suit?

Answer 23

1) Standing to bring a lawsuit;
2) Shareholder adequately represents interests of the corporation, and
3) Demand (written demand + 90 days typically)

Question 24

What is “piercing the corporate veil”?

Answer 24

Courts will disregard limited liability and hold a shareholder personally liable for a corporate debt

Question 25

What types of corporations allow “piercing the veil”?

Answer 25

Only close corporations and LLCs

Question 26

Meeting notice requirements (shareholders)

Answer 26

–Annual meetings: 10-60 days notice that states time, place, and purpose

Question 27

Meeting notice requirements (Directors)

Answer 27

Regular meetings: no notice

Special meetings: at least two days notice providing date, time, and place

Question 28

Removal of officers

Answer 28

May occur any time with or without cause by:

a) board
b) officer who appointed officer, or
c) any other officer if authorized by directors or bylaws

Question 29

Outstanding Shares

Answer 29

Total number of shares issued by the corporation and held by shareholders

Question 30

Authorized shares

Answer 30

The maximum number of shares a corporation may issue

Question 31

Treasury Shares

Answer 31

Shares reacquired by corporation. Not considered outstanding

–NOT allowed to be voted