Virginia Corporations

Question 1

Enforcement of a restriction on the transfer of stock occurs when:

Answer 1

A transferee who takes the stock with knowledge of a restriction may be subject to this:

Question 2

When shareholders are granted cumulative voting rights, this is how they vote:

Answer 2

For this voting rights scheme, each shareholder can 1) multiply the number of votes entitled to; 2) by the number of directors to be voted on; and either 3) cast all votes for one director or 4) allocate those votes amongst candidates

Question 3

Allocation of profits and losses of an LLC are either:

Answer 3

Profits and losses for this are either 1) distributed according to the allocation in the operating agreement or 2) according to each member’s contribution if absent from the agreement

Question 4

Once a board has authorized a distribution and set sufficient parameters, it may do what with respect to a committee?

Answer 4

A committee may receive authority from this to fix the amount and terms of a distribution

Question 5

Normally election of a director by the shareholders requires:

Answer 5

Plurality of the votes by a quorum

Question 6

A committee cannot do these whereas a board of directors can:

Answer 6

A committee cannot adopt/amend/repeal bylaws, or recommend actions requiring shareholder approval, unlike this group:

Question 7

To form a corporation:

Answer 7

To form this, it must 1) file articles of incorporation with the SCC and pay registration fee, include name of corp, designation that it is a corp, # of authorized shares, and registered agent and office

Question 8

To form a LLC:

Answer 8

To form this, it must file articles of organization with the SCC and pay registration fee, include name of LLC, designation that it is an LLC, registered agent and office, and principal office.

Question 9

A court can pierce the corporate veil against shareholders if:

Answer 9

This can occur if the shareholders fail to observe the separateness of the entity and use it to perpetuate fraud or injustice

Question 10

Corporation makes distributions based on this:

Answer 10

Shareholders make these in the form of dividends per share, by the percentage of ownership interest in the corporation

Question 11

LLC allocations are based on what?

Answer 11

These are based on the members’ contribution to the entity

Question 12

An LLC’s manager has more what regarding liability than its members?

Answer 12

This person has more fiduciary duties than the members

Question 13

A manager of an LLC typically does what as opposed to members?

Answer 13

This person typically has more management rights and decision-making authority over day-to-day operations than members

Question 14

Promoter is personally liable for:

Answer 14

This person is personally liable for pre-incorporation transactions, even after Corp comes into existence unless subsequent novation, and for fiduciary duties; may be indemnified if no novation, right to reimbursement if Corp receives benefits

Question 15

Promoter will not be liable if (exception to general rule):

Answer 15

This person will not be liable if 3rd party w/ whom this person makes contact on behalf of Corp knew that incorporation had not occurred

Question 16

Corporation is not liable for pre-incorporation:

Answer 16

Corporation is not liable for these transactions (even if made for Corp’s benefit), but IS liable if expressly/impliedly adopts contract by accepting benefits of transaction/gives express acceptance of liability of debt

Question 17

An incorporator is not liable for this:

Answer 17

This person is not liable for contract entered into by promoter

Question 18

Articles of Incorporation requires:

Answer 18

This must be signed by one incorporator and filed w/SCC & filing fee, must include name/location/shares authorizes/identity of registered agent in VA, may include statement of purpose, may enumerate powers; legal existence begins upon filing & issuance of certificate; failure to attempt to comply may result in class 1 misd

Question 19

When a corp with narrow stated business purposes engages in activity outside stated purpose, this is considered a:

Answer 19

An ultra vires act is this, and a third party generally cannot escape liability for a transaction of C that is an ultra vires act

Question 20

Challenges to ultra vires acts:

Answer 20

These are only done by the shareholder, the corporation, or SCC; here, the court may enjoin/set aside Corp’s action and award damages

Question 21

Amendment of the articles of incorporation may be done:

Answer 21

This may be done by BoD if Corp has no stock; if stock, BoD must adopt and then submit to ShareHs w/ adequate notice and obtain their approval

Question 22

Personal liability for defective incorporation may be found for a corporation by estoppel in Virginia (NOT de facto Corp): Requires

Answer 22

If there is a good faith effort to incorporate but is defective, a person dealing with an entity as if it were a corporation is estopped from denying its existence & seeking personal liability

Question 23

Authorization of issuing shares is granted by this party:

Answer 23

The BoD can do this unless otherwise specified in the articles; they remain outstanding until reclaimed/canceled by C.

Question 24

Form of shares require:

Answer 24

The certificate of this must state name of Corp, that it is incorporated in VA, name of the shareholder, and the number and class of shares

Question 25

Consideration for shares issued are:

Answer 25

This is value determined by BoD (include cash, promissory note, property etc to pay for); articles may specify minimum par stock to issue, corp may issue but not required

Question 26

Pre-incorporation stock subscription is irrevocable for:

Answer 26

This is irrevocable for six months from the date of subscription

Question 27

The articles may grant these to shareholders, but they are not automatic:

Answer 27

A shareholder's preemptive rights may be what but are not?

Question 28

For public offerings of stock (securities registration):

Answer 28

For this to occur, must file a registration statement with SEC and provide buyer w/ prospectus

Question 29

Distribution authorization comes from and may be these:

Answer 29

Power to issue shares to shareholders pro rata and without consideration rests with BoD, unless restricted by articles

Question 30

Limitations on distributions include:

Answer 30

Corp cannot do this if insolvent or it would make Corp insolvent (insolvency = if payment would prohibit C from paying debts or L>A)

Question 31

Defendant's liability for unlawful distributions in violation of duty to care/loyalty:

Answer 31

This holds D personally liables to Corp for amount in excess of lawful amount

Question 32

Restriction on stock transfers (typically small corps) must:

Answer 32

To do this, must have valid lawful purpose (no undue restraint on alienation), be reasonable (question of fact, but absolute is unreasonable), and enforceable (restriction must be noted on certificate).

Question 33

Shareholder meeting requirements:

Answer 33

Annual time/place specified in bylaws (primary purp to elect Directors) OR Special - called by any specified in articles or by private corp w/ >35 Shareholders who own 20% of voting shares; written notice no less than 10 no more than 60 days to Shareholders unless waived in writing/by attending meeting

Question 34

Eligibility to vote:

Answer 34

The owner of voting stock at COB on record date has right to do this; record date is fixed by BoD, cannot be more than 70 days before meeting; co-owner may vote shares, but Corp cannot

Question 35

Shareholders typically vote for:

Answer 35

These vote for selecting BoD or approving fundamental corporate changes

Question 36

For shareholders to cast a vote, the number required to be present:

Answer 36

This must be a majority of votes entitled to be cast; articles may set out something different, but cannot be less than 1/3rd

Question 37

Plurality voting for Directors:

Answer 37

In this voting scheme for Directors, this nominee that receives the most votes wins

Question 38

Cumulative voting for Directors must be provided in the articles and if permitted:

Answer 38

In this voting scheme for Directors (if permitted), each shareholder can multiply votes cast by number of directors to be elected and may distribute/put all votes on one candidate; must provide notice to Corp of intent to use this scheme/proxy statement conspicuously authorizing the same

Question 39

For proxy voting to occur for a shareholder:

Answer 39

For this, it must be in writing and delivered to the Corporation or its agent; valid for 11 months

Question 40

Voting trusts are this: (After Jul 2015, time limit must be):

Answer 40

These are shareholders' shares transferred to trustee who votes the shares and distributes dividends according to trust terms; must specify duration in agreement after 2015

Question 41

A pooling agreement requires:

Answer 41

This requires a signed agreement between 2 or more shareholders to vote in a particular manner; no separation of legal/equitable title, and may be specifically enforced

Question 42

Without restriction, Shareholder of record can inspect/copy:

Answer 42

Shareholder of record can inspect/record articles & bylaws, annual report, conact details of directors/officers, minutes of meetings, and certain BoD resolutions when/how?

Question 43

With PROPER PURPOSE, Shareholder can inspect/copy:

Answer 43

Shareholder can inspect/copy corporate records directly related to this if Shareholder for 6 months or record/beneficial owner owner of at least 5% outstanding shares

Question 44

Corporation must deliver financial statements for most recent year when?

Answer 44

This record inspection must be done by corporation upon Shareholder's written request

Question 45

Direct action of Shareholder vs. Derivative

Answer 45

This for a shareholder is brought to enforce their rights for breach of fiduciary duty by director/officer of corporation vs. being brought on behalf of corporation for harm suffered by corporation (recovery to C)

Question 46

For a shareholder to have standing in a derivative action:

Answer 46

For this to occur, must have been/became by operation of law a shareholder at time of act/omission, or became SH before pub disclosure w/out notice of act/ommission; must be SH when demand made and fairly/adequately represent C's interests

Question 46

A corporation can move to dismiss a derivative action if:

Answer 46

This may occur if disinterested directors submit short explanatory statement after adequately reviewing allegations & determining in good faith that suit was not in C's best interest

Question 47

When piercing the corporate veil, C's existence is ignored and:

Answer 47

When this occurs for liability, SH's are held personally liable; typically applied when SH's control/use C to evade personal obligation/perpetuate crime/fraud/commit an injustice

Question 48

An individual being the sole SH/Direct/Off in the Corp is not by itself:

Answer 48

This is not by itself grounds for veil piercing; failure to hold corporate meetings/records cannot justify piercing

Question 49

If parent C owns all of sub C's shares, the corporate veil:

Answer 49

If this scenario is present, the corporate veil cannot be pierced to reach parent except when it could be pierced to reach an individual SH

Question 50

Inadequate capitalization is a factor to be considered, not:

Answer 50

This is not a a sufficient ground on its own for piercing

Question 51

SH is not permitted to do this to corporate veil; the more likely piercer is:

Answer 51

This person cannot pierce the corporate veil for personal benefit; this person is tort claimant is one who has not willingly entered into a transaction with C

Question 52

Management of C can be made inconsistent to statute by:

Answer 52

All SHs at time of agreement may agree to do this if noted conspicuously on certificate/in SH info; becomes ineffective upon C becoming public

Question 53

Composition of BoD requires:

Answer 53

This can have as few as 1, w/ #/range set by articles or bylaws, must be natural person w/ quals set in articles or bylaws; need not be VA resident

Question 54

Term of BoD members is:

Answer 54

This is typically 1 year, may be longer if terms staggered, no longer than 3; can be removed by SH's w/ or w/out cause unless articles say otherwise; Direct may resign anytime w/ written notice to BoD, ,chair or secretary

Question 55

A court may remove a Director if:

Answer 55

This may occur if in best interests of C and the Director committed fraud vs. C or its SHs/grossly abused position, or intentionally harmed C

Question 56

SHs are only entitled to notice of these types of meetings:

Answer 56

These are only entitled to notice of special meetings

Question 57

BoD can act w/out meeting by:

Answer 57

This may occur by signing consent describing action to be taken

Question 58

Voting requires quorum rules of D to be present, and may:

Answer 58

This may be higher/lower depending on bylaws, but no less than 1/3rd

Question 59

Assent of majority of directors present at time of vote is necessary for this:

Answer 59

This is required for board approval, with statute/articles/bylaws able to set higher

Question 60

Director dissent to voting requires:

Answer 60

This person must 1) object to holding of the meeting, 2) vote against the action or abstain from voting or 3) properly deliver written notice of D's dissent

Question 61

Director voting agreements are unenforceable and:

Answer 61

These are unenforceable as each Director must exercise independent judgement; may not vote by proxy unless, for private Cs, otherwise provided for in SH's agreement

Question 62

BoD may generally exercise power through committee but cannot:

Answer 62

This is general for BoD unless articles or bylaws provide otherwise, cannot authorize distributions, propose action requiring SH approval, approve plan of merger not requiring SH approval, fill vacancies on BD or committee, amend articles, adopt/amend/appeak bylaws, authorize sale of shares

Question 63

Director must discharge duties in accordance with (no liability if they satisfy):

Answer 63

This must occur with good faith business judgement of best interests of corporation; no liability if they satisfy

Question 64

Business judgement rule is a rebuttable presumption that:

Answer 64

This is a rebuttable presumption that D acted properly & in good faith in exercise of business judgement; overcome by showing of self-dealing, fraud, bad faith

Question 65

Director is not liable for breach of duty of care if:

Answer 65

Director is not this if undertaken in good faith (subjective standard)

Question 66

For duty of care, director may rely on information of opinions of officers/employees/attorneys/accountants/other experts/committees if:

Answer 66

For this to be done, D must reasonably believe these people to be reliable or competent

Question 67

A director's absence from a meeting/dissent on record are:

Answer 67

These are defenses to alleged breach of duty of care to C

Question 68

Duty of loyalty requires Director to:

Answer 68

This requires director to act in manner that Direct reasonably believes in best interest of C

Question 69

Self-dealing is where a D who engages in this:

Answer 69

This is where D engages in a conflict-of-interest transaction w/ his own Corp violates duty of loyalty (CANNOT profit at C's expense!)

Question 70

A transaction is voidable unless:

Answer 70

This is voidable unless disclosure of all material facts & BoD/Committee approved transaction, SHs were aware of material facts & approved transaction OR transaction was fair to C (AKA either outcome the same despite dealing or ratified by information)

Question 71

Whether or not a transaction is fair to a corporation: must determine:

Answer 71

To do this, must determine whether 1) transaction would have been approved by a disinterested BoD, or 2) same result would have been accomplished between 2 parties of same economic bargaining power not acting under duress

Question 72

A disinterested director is one who:

Answer 72

This person is one who has no financial interest in matter or relationship that would reasonably impair objectivity of D's judgement

Question 73

Usurpation of corporate opportunity to be present unless:

Answer 73

For this to occur, D must fail to first offer opportunity to Corp; may be protected by safe harbor provisions if 1st approved by BoD or SHs

Question 74

A D who engages in a business venture that competes with C does this:

Answer 74

This is a breach of duty of loyalty to C.

Question 75

Director has this duty with regard to corporate assets

Answer 75

This person has duty not to wast corporate assets