Corporations Flashcards
On the exam, corporations fall into 5 main fact patterns or topic areas. What are they:
1) Organization of a corporation
2) Issuance of stock
3) Directors and Officers
4) Shareholders
5) Fundamental Corporate changes
What is a De Jure Corporation?
A corporation formed in accordance with law.
What is a De Facto Corporation?
If all corporate laws have not been followed, a de facto corporation might result or a corporation might be recognized through estoppel.
What are the three things that are required to form a de jure corporation?
A person, a paper, and an act.
What are preemptive rights?
The right to an existing shareholder of common stock to maintain her % of ownership in the company by buying stock whenever there is a new issuance of stock FOR MONEY.
Directors have two fiduciary duties to the shareholders of the company. What are they?
Duty of care
Duty of loyalty
If an officer or director has been sued and incurred cost (i.e., attorney fees or judgment), the plaintiff may seek indemnification from the company (reimbursement). What are the three categories of indemnification?
1) No indemnification. A corporation cannot indemnify a director/officer who is held liable to the corporation OR held to have received an improper benefit.
2) Mandatory Indemnification. A corporation MUST indemnify director/officer if the person was successful in defending a proceeding on the merits.
3) Permissive Indemnification. A corp MAY indemnify the director/officer in unsuccessfully defending a suit if the director acted in good faith AND believed that her conduct was in the best interests of the corp. [Catchall category]
Who makes the determination that the corporation will indemnify or not indemnify the director/officer?
A disinterested majority of the board.
The corporate veil in close corporations may be pierced and personal liability may be imposed onto the shareholders. What are the two requirements to pierce the corporate veil?
1) The SHs must have abused the privilege of incorporating; AND
2) Fairness must require holding them liable.
What are the three common situations in which the corporate veil is often pierced?
1) Alter Ego
2) Purposeful Undercapitalization
3) Fraud, avoidance of existing obligations, or evasion of statutory provisions.
What is a derivative suit?
A SH is suing to enforce the corporation’s claim, not her own personal claim.
To distinguish breaches of duty owed to the corporation and duties owed to the shareholder, ask two questions:
1) Who suffers the most immediate and direct damage, the corporation or the shareholder; AND
2) To whom did the defendant’s duty run, the corporation or the shareholder?
What are the requirements for voting trust?
1) A written trust agreement, controlling how the shares will be voted;
2) A copy of the agreement is given to the corporation;
3) Legal title to the shares is transferred to the voting trustee; AND
4) The original SHs receive trust certificates and retain all shareholder rights except for voting.
What are the requirements for Voting Agreement?
The agreement must be in writing and signed.
Every time the SHs vote, we must have a quorum represented at the meeting. Quorum focuses on number of shares represented, not number of shareholders. The general rule is that a quorum is based on what?
The majority of outstanding shares entitled to vote.
