Themis Outline

Question 1

What must be filed for the formation of a corporation?

Answer 1

Articles of incorporation must be filed, but they need not spell out the manner in which the corporation is governed.

Question 2

What are articles of correction?

Answer 2

Filed if there was an inaccuracy in the articles or they were defectively executed.

Question 3

What controls in case of a conflict between articles and bylaws?

Answer 3

The articles control; a majority vote by either the directors or the shareholders can adopt, amend, or repeal a bylaw.

Question 4

What must the articles of incorporation include?

Answer 4

The C’s name, the number of shares it is authorized to issue, the address of the initial registered office, the name and address of its registered agent, the name and address of each incorporator, and the mailing address of its initial principal office.

Question 5

What is the corporate duration by default?

Answer 5

Perpetual unless stated otherwise.

Question 6

When does the legal existence of a corporation begin?

Answer 6

When the articles are filed by the secretary of state.

Question 7

What is an ultra vires action?

Answer 7

When a corporation engages in activities outside its stated business purpose.

Question 8

Who can sue to enjoin a corporation’s ultra vires action?

Answer 8

A shareholder can sue to enjoin the corporation’s ultra vires action.

Question 9

What is a de jure corporation?

Answer 9

A corporation that has satisfied all statutory requirements for incorporation.

Question 10

What is the consequence of a lack of good faith effort in incorporation?

Answer 10

A person conducting business as a corporation without attempting to comply with incorporation requirements is personally liable for the nonexistent corporation’s obligations.

Question 11

What is a de facto corporation?

Answer 11

If a promoter acts believing that the corporation exists, then there is no liability.

Question 12

What is the general rule regarding a corporation’s liability for pre-incorporation transactions?

Answer 12

A corporation is not liable for pre-incorporation transactions, even those for its benefit.

Question 13

What is common stock?

Answer 13

A basic ownership interest that entitles the owner to vote on corporate governance matters.

Question 14

What is preferred stock?

Answer 14

Stock that has preference over other stock with respect to distributions.

Question 15

Who authorizes the issuance of stock?

Answer 15

The board of directors.

Question 16

What is required for a corporation to make distributions?

Answer 16

The board of directors is authorized to make distributions, usually in the form of cash dividend payments.

Question 17

What is the quorum requirement for shareholder meetings?

Answer 17

Generally, a majority of the votes entitled to be cast on a matter.

Question 18

What is proxy voting?

Answer 18

Must be in writing and delivered to the corporation or its agent; valid for 11 months unless otherwise specified.

Question 19

What is the business judgment rule?

Answer 19

A rebuttable presumption that a director’s decision-making process was done in good faith and that the director exercised ordinary care.

Question 20

What is required for a director to avoid liability for illegal action taken at a meeting?

Answer 20

The director must promptly object to the holding of the meeting and ensure that their dissent is entered in the meeting minutes.

Question 21

What is piercing the corporate veil?

Answer 21

Ignoring the corporation’s existence and holding shareholders personally liable.

Question 22

What must be shown to overcome the rule regarding D’s actions?

Answer 22

It must be shown that: D did not act in good faith; D was not informed to the extent he reasonably believed was necessary; D had material interests in the challenged conduct and was not objective; D failed to devote attention to C’s affairs; D failed to timely investigate matters of material concern; or D received financial benefits to which he was not entitled.

Question 23

What does GA require for D’s actions?

Answer 23

GA requires that D engaged in fraud, bad faith, or an abuse of discretion; negligence or carelessness is not enough.

Question 24

What is the duty of care for D?

Answer 24

A D has a duty to act with the same degree of care as an ordinarily prudent person in a like position and under similar circumstances.

Question 25

What is reliance protection for D?

Answer 25

A D can rely on information and opinions of Os, employees, agents, or outside experts if D reasonably believes them to be reliable and competent.

Question 26

What is the duty of loyalty?

Answer 26

The duty of loyalty requires D to act in a manner that D reasonably believes is in the best interest of C.

Question 27

What is self-dealing in the context of D's conflicting interest transactions?

Answer 27

A D who engages in a conflict-of-interest transaction with his own C violates the duty of loyalty unless the transaction is protected under safe-harbor rules.

Question 28

What are the safe harbors for self-dealing?

Answer 28

Safe harbors include disclosure of all material facts and majority approval by the BD or SHs without a conflicting interest; fairness of the transaction to C at the time of commencement.

Question 29

What is the line-of-business test for appropriation of corporate opportunity?

Answer 29

The line-of-business test determines whether the business opportunity is in the line of C’s business and whether the opportunity is of practical advantage to C.

Question 30

What is the interest or expectancy test?

Answer 30

The interest or expectancy test assesses whether the business opportunity is one in which C has a legal or equitable interest or a reasonable expectancy arising out of a preexisting right or relationship.

Question 31

What are the indemnity requirements for C?

Answer 31

C is required to indemnify a D for any reasonable expense incurred in the successful defense of a proceeding against the D in his role as a D.

Question 32

What is the procedure for dissenting shareholder’s right of appraisal?

Answer 32

The procedure includes: (i) SH gives written notice to C; (ii) SH votes 'no' or abstains; (iii) C sends notice to dissenters; (iv) SH makes written demand for payment; (v) C must offer to pay the SH the fair market value, plus accrued interest; (vi) if the SH is dissatisfied, the SH can make a counteroffer.

Question 33

What is the definition of a statutory close corporation?

Answer 33

GA permits a C to register as a statutory close C if it has 50 or fewer SHs; the articles must contain a statement that it is a statutory close C.

Question 34

What is an S corporation?

Answer 34

An S corporation avoids double taxation by passing income and expenses through to its SHs, who are then taxed directly.

Question 35

What are the characteristics of a Limited Liability Company (LLC)?

Answer 35

An LLC enjoys the pass-through tax advantage of a partnership and the limited liability of a corporation.

Question 36

What is required for the creation of an LLC?

Answer 36

An LLC is created by filing articles of organization with the state.

Question 37

What is the allocation of profits and losses in an LLC?

Answer 37

In the absence of a different provision in the operating agreement, profits and losses are allocated equally among the members.

Question 38

What happens to a member's right to manage an LLC upon transfer of membership?

Answer 38

The transferee merely acquires the transferor’s right to share in the LLC’s profits and losses, not the right to participate in the management of the LLC.