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MEE > Corporations > Flashcards

Corporations Flashcards

1
Q

The main players in corporation law

A
  1. Shareholders
  2. Directors
  3. Officers
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2
Q

Creation of a Corporation

A
  1. one or more corporators
  2. articles of corporation
    3.
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3
Q

What does a corporator do?

A

Executes the articles and delivers them the SOS

a person or an entity

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4
Q

Req of Articles of Corp

A
  1. Corporation name (must include Corp, Company, Inc, or Limited)
  2. Name + Address of Corporators
  3. Name of the Registered Agent + Address of the Registered Office (must be in state of incorporation)
  4. # of authorized shares (authorized stock)
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5
Q

When Does Corporate Existence Begin?

A

When articles filed by state

Promoters generally liable for preincorporation contracts but Corporation not liable unless it adopts

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6
Q

Defects in Formation

A person who purports to act on behalf of a corporation knowing there was no valid incorporation is:

A

personally liable unless its a de facto corporation

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7
Q

A de facto corporation is one that has:

A

a. Colorable compliance with the incorporation statute; and
b. Exercise of corporate privileges

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8
Q

Corporation by estoppel occurs when:

A

people treating business as valid corporation are estopped from denying corporation’s existence

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9
Q

Where no corporation recognized, only those who acted _____ will be held liable;

A

on behalf of the business

passive investors not liable

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10
Q

Piercing the Corp Veil (onyl for Close Corps)

Under the alter ego doctrine, a ct will piece the corp veil if harm was caused to third parties on the grounds that:

A

1) Owners do not treat corporation as a separate entity
2) Commingle personal and corporate funds
3) Use corporate assets for personal purposes
4) Owners do not hold meetings

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11
Q

Piercing the Corp Vel (only for Close Corps)

Must start corporation with sufficient unencumbered capital to meet its prospective liabilities

A

Court may pierce corp veil

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12
Q

A corp cannot be formed to avoid exisitng liabilites but it can be formed to:

A

limit future liabilities

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13
Q

If the court pierces the veil, who is liable?

A

only active shareholders liable

. Generally liable only for tort obligations

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14
Q

___ create debtor-creditor relationship

A

Debt securities (bonds)

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15
Q

___ create ownership interest

A

Equity securities (stocks)

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16
Q

Authorized but unissued shares are ___

A

described in the articles but not currently issued

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17
Q

Issued and outstanding shares are ___

A

shares sold to investors

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18
Q

Treasury shares are ___

A

former name for shares repurchased by corporation; now called authorized but unissued shares

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19
Q

A __ is a written agreement to purchase shares from a corporation

A

Subscription agreement

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20
Q

Preincorporation subscription agreements are irrevocable for ___

A

six months UNLESS:
1. provided in the terms of the subscription agreemen or
2. all subscribers consent to revocation

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21
Q

T/F: Generally shareholders do not run corporation on a day-to-day basis

A

True

Exception: Closely held corporation may dispense with board by shareholders’ agreement and run corporation through a different scheme

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22
Q

Shareholders indirectly control corporation by:

A
  1. electing directors,
  2. amending
    bylaws, and
  3. approving fundamental changes
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23
Q

Record Shareholders

Shareholders of record on the record date have a right to vote:

A

1) At the annual meeting to elect directors
2) Regarding fundamental corporate changes

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24
Q

Notice of meetings must be given to shareholders by providing:

A
  1. annual meeting - date, time, location
  2. special meeting - date, time, location, purpose
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25
Q

Can improper notice be waived?

A

Yes by attendance w/o complaint

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26
Q

A proxy vote is valid for:

A

11 months

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27
Q

A proxy vote is generally revocable unless:

A

they specifically provide otherwise and are coupled
with an interest

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28
Q

A proxy vote may be revoked by:

A
  1. attendance or
  2. later appointment
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29
Q

Under federal law, proxy solicitaions must:

A

fully and fairly disclose all material facts

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30
Q

Under federal law, material misstatements and fraud in connection with a proxy solicitation are prohibited

A

Materiality—a reasonable shareholder would consider it important in deciding how to vote

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31
Q

A ___ is a majority of the outstanding voting shares that must be present for valid a vote

A

Quorum

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32
Q

Under the ____, if quorum present, action approved if votes cast in favor exceed votescast against

A

MCBA

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33
Q

Cumulative voting

A

shareholder can vote shares owned x number of directors being elected; can cast all votes for one candidate or split

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34
Q

Inspection Rights

Sharholders have a limited right to inspect:

A

books, papers, accounting records, etc.

must provide 5 days written notice + proper puporse related to SH rights

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35
Q

Inspection Rights

Shareholders have an unqualifed right to inspect:

A

articles and bylaws, minutes of shareholder meetings, names and addresses of current directors, and recent annual reports

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36
Q

Shareholder Suits

A sharholder suit can either be:

A

Direct or derivative

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37
Q

Shareholder Suits

A __ suit is to enforce the right of a shareholder

A

Direct

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38
Q

Shareholder Suits

A ___ suit is to enforce the right belonging to the corporation

A

Derivative

if the corp could have brought the suit, its a derivative suit

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39
Q

Shareholder Suits

In order to maintain a derivative suit, a shareholder must:

A
  1. have owned shares at time of wrong
  2. maintain ownership throughout suit
  3. demand board to bring suit (unless futitle in some states)
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40
Q

A dismissal of a suit can occur when:

A

a majority of directors with no personal interest determine in good faith
that suit is not in best interests of corporation

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41
Q

Recovery in a direct suit goes to:

A

the shareholder

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42
Q

Recovery in a derivative suit goes to:

A

the corp

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43
Q

Generally are in the form of:

A
  1. dividends or
  2. assets after dissolution

No right to receive unless/until declared by board

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44
Q

Insolvency limitation on distributions

There will be no distribution if:

A

1) Corporation unable to pay its debts as they become due
2) Total assets are less than total liabilities

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45
Q

T/F: Director who votes for an unlawful distribution is personally liable for the
excess

A

True

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46
Q

Director may seek ____ from other directors who voted for distribution

A

contribution

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47
Q

Directors may recover from a shareholder who received a distribution
knowing:

A

it was unlawful

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48
Q

What is the good faith defense to unlawful distributions?

A

Shareholder may rely on accountants or reliable officers and employees who indicate distribution is lawful

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49
Q

What are a shareholder’s liabilities?

A

Shareholders not fiduciaries—may act in self-interest

Exception—controlling shareholder cannot use control to obtain a special advantage at the expense of the minority shareholders

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50
Q

(Directors/Shareholders) must attend meetins in person and no proxies are allowed

A

Directors

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51
Q

Do directors need notice for meetings?

A

No notice required for regular meetings

2 day notice required for special meetings (time, date, location)

Quorum of directors must be present at time vote is taken

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52
Q

___ may exercise authortity given to them by board

A

Executive commitess

Comprised of two or more directors (in most states)

Exceptions: In most states committees may not declare distributions, fill board vacancies, or amend the bylaws

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53
Q

The ___ generally protects directors from personal liability to corporation/shareholder

A

Business Judgment Rule

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54
Q

What are the requirements for the BJR to be enforced?

A
  1. director acting in good faith
  2. with the care that a person in like position would exercise and
  3. in a manner reasonably believed to be in the best interests of the corp
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55
Q

Articles may further limit or eliminate director personal liability to corporation or shareholders except:

A

1) To the extent director received improper benefit;
2) For liability for unlawful distributions; or
3) For intentionally inflicted harms or criminal violations of law

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56
Q

What is the reasonable reliance defense?

A

A dir. may defend suits w/ a claim of reasonable reliance on opinions, reports, prepated by experts or reliable employees

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57
Q

A director has a duty to prevent corporate:

A

Waste

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58
Q

A director owes the duty of loyalty to the corporation which means:

A

No self-dealing without disclosure and approval

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59
Q

A transaction between a corporation and a director will not be set aside for
self-dealing if:

A

a) The director disclosed all material facts, and transaction was approved
by disinterested directors or shareholders; or
b) The transaction was fair to the corporation

60
Q

Under the corp. opportunity doctrine, A director may not divert to himself a business opportunity within the
corporation’s line of business without:

A

first giving the corp an opportunity to act aka usupation

61
Q

What is the remedy for the corporate opportunity doctrine?

A

corporation may recover director’s profits or force director to convey the opportunity to the corporation

62
Q

If director is sued as a director and successfully defends, corporation must ____ for expenses

A

indemnify

63
Q

If director is unsuccessful in defending, corporation has discretion to indemnify if:

A

the director complied with the business judgment rule standards

Exceptions: Director is found liable to the corporation or received an improper benefit

64
Q

Officers are appointed and may be removed by:

A

Board of Dir.

If removal is in breach of contract, officer entitled to damages

65
Q

Officers have ____ given by the board, articles, and bylaws

A

actual authority

66
Q

Officers have ____ to do whatever someone in their position would
normally have authority to do

A

apparent authority

67
Q

General Procedure for corporate changes

A
  1. Board resolution
  2. Notice to shareholders
  3. Shareholder approval
  4. Articles of the change filed with the state
68
Q

A merger of corporations must be approved by:

A

directors and shareholders of both corporations

69
Q

Shareholders who do not like a fundamental corporate change may force the corporation to purchase their shares at a fair price if they:

A
  1. Give corporation notice of intent to demand appraisal rights before vote is taken
  2. Do not vote in favor of the change
  3. Demand payment after the change is approved
70
Q

Upon dissolution, the corporate existence continue, but a corporation is not allowed to carry on any business except:

A

business appropriate to
winding up and liquidating its affairs

71
Q

The state may bring an action to administratively dissolve a corporation for reasons such as:

A

the failure to pay fees or penalties, failure to file an annual report, and failure to maintain a registered agent in the state

72
Q

The attorney general may seek judicial dissolution on the ground that the corporation:

A
  1. fraudulently obtained its articles of incorporation or
  2. that the corporation is
    exceeding or abusing its authority
73
Q

Creditors may seek judicial dissolution if:

A

a. The corporation has admitted in writing that the creditor’s claim is due and owing and the corporation is insolvent or
b. The creditor’s claim has been reduced to judgment, execution of the judgment
has been returned unsatisfied, and the corporation is insolvent

74
Q

Implied adoption occurs when the corporation:

A

enjoys the benefits of the contract

Promoter liable for pre incorporation contracts unless there is a novation

75
Q

The promoter will be released from liability only if there is an express or implied ___

A

Novation- an agreement among all three parties (promoer, corporation, other K party) to release the promoter from liability and subsitute the corp for the promoter in the K

76
Q

___ transacting business in a state must register and pay fees

A

Foreign Corporations

doesnt mean another country, can be different states

77
Q

Foreign Corporations

Tranasacting business means the:

A

regular course of intra state business activity

78
Q

5 Fact Patterns in Corp Law

Formation of Corporation
Issuance of stock
DIrectors and Officers
Shareholders
Fundamental corp changes

A
79
Q

The holder of a debt security is a ___, not an owner

A

Creditor

80
Q

The holder of stock is an ___ not a creditor

A

Stock

81
Q

When a corp sells its own stock, its called an ___

A

Issuance

82
Q

Under the MBCA, stock may be issued for:

A

any tangible or intangigle property or benefit to the corporation

money, property, services already performed for the corp and discharge of a debt

83
Q

___ means minimum issuance price

A

Par value

84
Q

“no par” means:

A

there is no minimum issue price

85
Q

Watered stock is when par value stock is:

A

issued for less than its par value

86
Q

A _ is the right of an existing shareholder of common stock to mainatain her % of owenership in the company by buying stock whenever there is a new issuance of stock **for money **

A

preemptive right

Must be provided for in the AOC

87
Q

Directors and Officers

Requirements for Directors

A
  1. adult natural persons
  2. one or more
  3. initial dir named in AOI/elected by incorporators
  4. shareholders elect thereafter
88
Q

Directors and Officers

Shareholders can hire and fire ____ before their term expires

A

Directors

89
Q

T/F: Directors are removable with or without cause

A

True

90
Q

The BOD must act as a:

A

Group

Individ directors cannot bind the corporation

91
Q

How does the board “act”?

A
  1. unanimous agreement in writing
  2. at a meeting that satifies quorum requirements
92
Q

What is directors agree to act without an agreement or a meeting?

A

That act is void unless ratifies by a valid act (writing or meeting)

93
Q

Method for giving notice of meeting is governed by:

A

the bylaws

94
Q

(Directors/Shareholders) can vote by proxy

A

Only shareholders

95
Q

A quorum is a ___ of all ____

A

Majority
Directors

96
Q

Director must have the duty of:

A
  1. loyalty
  2. care
97
Q

Under the duty of loyalty, a director must act:

A

in good faith with the reasonable belief that her actions are in the best interest of the corp.

Business Judgment Rules will not apply in duty of loyalty cases

98
Q

Under the duty of care, a director must:

A

act as a prudent person would act under similar circumstances

99
Q

Who has the Burden of Proof in breach of duty of CARE cases?

A

The person challening the dir. actions

100
Q

Duty of care can come up in two ways

A
  1. nonfeasance (lazy director)
  2. Misfeasance (when the board makes a decsion that hurts the business)
101
Q

Who has the burden of proof in breach of duty of loyalty caases?

A

The defendant

102
Q

Duty of loyalty cases are mostly about:

A

Conflicts of interest

103
Q

A conflicting interest transaction will be upheld if:

A
  1. it was approved by a majority if the disinterested directors who knew of all material facts
  2. it was apporoved by a majority of votes entitled to be cast by disintered shareholders who knew of all material facts
  3. it was fair to the corporation
104
Q

In order to vote on a conflicting interest, a quorom will be considered to be:

A

a majority (at least two) of disinterested directors

105
Q

3 main issues in duty of loyalty

A

self dealing
competing venutes
corp opportnuty

106
Q

Directors also have a duty to ___ material corp info the other members of the board

A

Disclose

107
Q

A corporation can make a loan to a director if:

A

it is reasonable expected to benefit the corp

108
Q

A director is presumed to concur w/ board action unless:

A

dissent/abstention is noted in witing in corp records

Oral dissent is not effective on its own

109
Q

Officers are ___ of the corporation

A

Agents

Need actual or apparent to bind principal (corporation)

110
Q

Category 1

A corp cannot indeminfy a director who:

A
  1. is held liable to the corp
  2. held to have recvied an improper benfire
111
Q

When analyzing indemnification, there are 3 different categories:

A
  1. no indemnification
  2. mandatory indemnification
  3. permissive indemnification
112
Q

Category 2

A corp must indemnify a diretor of officer who:

A

was successful indefending a proceeding on the merits

entitled to the extent that they win the case

113
Q

Category 3

A corporation may indemnify a director for reasonable litigation expeses incurred in an unseccuesful suit if the director:

A
  1. acted in good faith
  2. believed their conduct was in best interest of corp

Category 3 is a catchall

114
Q

Articles can eliminate director/officer liable only for duty of ___ cases

A

Care

115
Q

Elements of a Closely Held Corporation

A
  1. Small # of shareholders
  2. stock not publicaly traded
  3. shareholders can manage directly
116
Q

Shareholders owe ____ to other shareholders

A

Fidcuciary duties

117
Q

Piercing the corporate veil can only happen in:

A

Close corporations

118
Q

To pierce the corp veil, it must be shown that

A
  1. shareholdes abused the privilege of incorporating
  2. fairness must require holding them liable
119
Q

Shareholders are not liable for the acts of the ____

A

Corporation

120
Q

Say this for PTCV hypos

A

Cts are more likely to PTCV in a tort case than in a contract case

121
Q

___ is the max number of shares a corp can sell

A

Authorized

122
Q

Shareholders of record on the ___ may vote at the meeting

A

Record date

RD is fixed by the BOD but may not be more than 70 days before the meeting.

123
Q

3 Exceptions to the GR that the record owner on the record date is the one who votes:

A
  1. treasury stock
  2. death of shareholder
  3. voting by proxy
124
Q

A proxy is a ___, signed by the ___, directred to the _____, authotizing another to vote the___

A
  1. writing
  2. record sharehlder
  3. secretary of the corp
  4. shares
125
Q

A voting trust is a written agreement of SH under which all of the shares owned by the parties to the agreement are transferred to a trustee

A
  1. written agreement
  2. copy of the agreement given to the corp
  3. legal title to the shares is transferred to the voting trustee
  4. the original sharehold receive trust certificates and retain all shareholder rights except for voting

duration of 15 years and renewable

126
Q

Rather than creating a trust, shareholders can enter into:

A

Voting agreement

Must be a written and signed agreement. lasts for 15 years and its renewable

127
Q

Shareholders do not remove ____

A

Officers

(the board hires and fires officers)

128
Q

Any action taken at a meeting w/o giving notice to shareholders will be:

A

void or voidabe

129
Q

Shareholders can vote on:

A

electing/removing directors
fundamental corp changes

130
Q

Shareholder Voting

of shares is more important thatn # of people

A

just fyi

131
Q

With cumulative voting, you dont vote seat by seat

A

You have 1 vote and the top votes get the seat

Number of shares X # of directors to be elected

132
Q

T/F: A SH can sell or give her stock away

A

True

133
Q

Stock transfer restrictions are ok if they are:

A

Not an undue restraint of alienation

134
Q

A __ is a payment from corp to SHs

A

Distributions

1 dividends
2. repurchase
3. redemption (forced sale to corp at price set in articles)

135
Q

Preferred means:

A

pay first

136
Q

Insolvent means

A
  1. unable to pay debts as they come due or
  2. total assets < total assets
137
Q

Any distribtuion will be improper if:

A

corp is insolvent.

Directors are J&S liabile for improper distribution

138
Q

A shareholder will be liable for an improper distribtution if:

A

only if they knew the distributin was improper when they received it

139
Q

Requirements for a Fundamental Corp Change

A
  1. board action
  2. written notice to shareholders
  3. shareholder vote (majority of shares entitled to vote)
  4. deliver doc to SOS if vote goes through
140
Q

Only in Close Corps

What is the Dissenting SH’s right of appraisal?

A

Right to force corp to buy stock at fair value

only triggered by:
1. merging/consolidation
2. /stock being acuqired
3. converting to another form of business
4. transferring substantially all assets

141
Q

To amend the AOI, you need:

A
  1. action
  2. notice
  3. approval
142
Q

Requriements for fundamental corp changes only apply to the:

A

Selling corp only

143
Q

5 Step process of winding up

A
  1. winding up
  2. gather case
  3. liquidate assets
  4. pay CREDITORS
  5. Distribute any remaing $$ to SH (pro rate by share unless liquidation preference)
144
Q

BJR GR

Under the Business Judgment Rule, a director’s decisions may not be challenged if a director:

A
  1. acts in good faith
  2. with the care that a person would exercise in a like position
  3. in a manner reasonably believed to be in the best interest of the corporation

ask yourself, would a reasonable director act this way/ rely on this type of informatino, etc

145
Q

If a director engages in a transaction that conflicts w/ the interest of the corp, it may be set aside if: 1. the dir disclosed ___ facts to to disinterested board members or sharehoders and they approve or the transaction was ______

A

Material

Fair

146
Q

An exculpatory provision in the articles of corporation may limit or eliminate director’s personal liability unless the director:

it wont be called an exculpatory prpvision on the exam, just look for a provsiion that limits liability or “exculpatates”

A
  1. recieved a benefit they were not entitled to
    2.intentionally harmed corp or SHs
  2. approved unlawful distribution
  3. intentionally committed a crime

wont be protected by provision if they violate 1 of the 4 above

147
Q

T/F: BJR will not protect a director who has a personal interest in a transaction

A

True

MEE (6 decks)

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