Termination of Corporate Status

Question 1

What are the ways a corporation can terminate its corporate status?

Answer 1

1) Voluntarily
2) By agreement
3) Involuntarily by court order or state action

Question 2

How does a corporation voluntarily dissolve before the issuance of stock?

Answer 2

By majority vote of the incorporators or initial directors.

Question 3

How does a corporation dissolve after the issuance of stock?

Answer 3

1) Board of directors adopts a proposal for the dissolution and 2) the majority of shareholders approves it.

Question 4

May a dissolved corporation continue to exist?

Answer 4

Yes, for the limited purpose of winding up its affairs and liquidating its assets.
Doesn’t include transferring title to property, changing quorum or voting requirements, terminating authority of agent, preventing commencement of a proceeding

Question 5

In what order must a dissolved corporation’s assets be distributed?

Answer 5

1) to Creditors to pay debts and bona fide obligations to shareholders
2) To shareholders of stock w/ preferences
3) Shareholders of other stock

Question 6

Who may bring an action for involuntary dissolution of a corporation?

Answer 6

A shareholder or a creditor.

Question 7

When may a creditor move for involuntary dissolution of a corporation?

Answer 7

Only if the corporation is insolvent.

Question 8

When may a shareholder move for voluntary dissolution of a corporation?

Answer 8

1) Corporate assets being misapplied or wasted
2) Directors acting illegally oppressively or fraudulently
3) Directors are deadlocked in the management of corporate affairs.
4) Shareholders are deadlocked in voting power and have failed to elect successors to the board of directors.

Question 9

What is the Oppression Doctrine?

Answer 9

Protects minority shareholders from majority shareholder oppression

Want to protect reasonable expectations of shareholders in a corporation.

Question 10

When may a state force a corporation to close?

Answer 10

When:

1) The corp failed to pay fees or taxes
2) failed to file required reports
3) abused its powers

Question 11

What must a foreign corporation do to do business in another state?

Answer 11

File a certificate of authority in the state it’s doing business. Failure to do so prevents the corporation from suing but not being sued.

Question 12

What is a professional corporation?

Answer 12

Corporation statutorily limited to providing a professional service.

Question 13

What is an S corporation?

Answer 13

• avoids double taxation and income and expenses are passed through to the shareholders.
• Must file form 2553 w/ IRS and get approved
• no more than 100 shareholders
• one class of stock
• limited identity of shareholders

Question 14

Benefit Corporation

Answer 14

• for profit entity w/ purpose of creating general public benefit.

Question 15

How is an LLC Created?

Answer 15

• filed articles of organization -(note difference from articles of incorporation)
• may adopt operating agreement which only needs to be on the record and not necessarily in writing.

Question 16

What is required for a person to become a member of an LLC?

Answer 16

Approval by all other members.

Question 17

Can you transfer membership of the LLC?

Answer 17

• only if unanimous consent, unless members otherwise agree

- transfer of interest doesn’t give right to manage.

Question 18

What is a charging order?

Answer 18

A lien on a judgment debtor’s transferable interest in an LLC. Any distribution that would have been paid to a member automatically goes to this creditor.

Question 19

Does withdrawal of a member trigger dissolution of an LLC?

Answer 19

No.

Question 20

What happens when an individual withdraws?

Answer 20

• LLC not dissolved
• LLC may liquidate the FMV of that person’s interests
• LLC operating agreement deemed to be automatically changed upon withdrawal.

Question 21

In an LLC will a member who renders professional services be liable while rendering such services?

Answer 21

No.

Question 22

What is the difference in piercing the veil for the LLC?

Answer 22

A failure to follow formalities is less a problem for a LLC. Mere instrumentality and unity of ownership interest.

Question 23

What is an LLC duty of loyalty?

Answer 23

• duty to account to company for any benefit derived by a member.
• duty to refrain from dealing w/ company on behalf of one ahving an adverse interest.

Question 24

What is an LLC duty of care?

Answer 24

• subject to business judgment rule: must act in a manner one reasonably believes is in the best interests of the business.
• can’t enggage in grossly neglient conduct or reckless conduct or intentional misconduct o rknowing violation of the law.

Question 25

Rule on fiduciary waiver in LLC context:

Answer 25

Courts more favorable of fiduciary waivers in LLC waivers unless they are manifestly unreasonable.

Question 26

When may a member bring a direct suit against an LLC?

Answer 26

When they suffer an actual or threatened injury which is not solely the result of an injury suffered by the LLC.

Question 27

What events cause dissolution of an LLC?

Answer 27

1) Consent of all members, 2) Passage of 90 consecutive days w/o members 3) Court order 4) an event causing dissolution per terms of operating agmt.

Question 28

When does an involuntary dissolution happen?

Answer 28

1) Controlling member acts in a way that is oppressive and directly harmful. Were the member's reasonable expectations violated.

Question 29

How does an LLC wind up?

Answer 29

1) Discharge company's debts, obligations or other liabilities 2) settle and close company's activities and marshal and distribute the company's assets Actions it may take: - file a statement of dissolution - preserve the company activities and proprety as a going concern for a reasonable time - prosecute and defend all actions - transfer the company's property - settle disputes by mediation or arbitration.