Corporations MEE Rules

Question 1

Incorporation

Answer 1

The articles of incorporation are filed w/the state and if in conflict with bylaws, the articles control.

Question 2

Promoter

Answer 2

Person acting on behalf of unformed corp.

Liable for contracts entered into on behalf of corporation to be formed and remains liable after formation unless corporation adopts the contracts.

Question 3

Shareholders

Answer 3

Shareholders are owners of a share of the corp. but do not manage the corporation.

Question 4

Directors

Answer 4

Manage the corporation and act as a body by voting, also have the power to form contracts and acquire liabilities.

Question 5

Business-judgement rule

Answer 5

Presumption that in making a decision, the directors acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company.

Question 6

Duty of loyalty

Answer 6

Director must act in good faith and with a reasonable belief that what he does is in the corporation’s best interest.

No competition w/corp, may not usurp corp opportunity, may not be on both sides on a transaction.

Question 7

Safe harbors against duty of loyalty

Answer 7

(1) approval by disinterested directors (if all relevant info is disclosed), (2) approval by disinterested shareholders, or (3) if the transaction is judged to be fair to the corp at the time it was entered into.

Question 8

Voting

Answer 8

In order for a resolution to pass, there needs to be a quorum present, and more votes must be cast in favor or the resolution than against it.

Question 9

Who votes?

Answer 9

The record owner on the record date.

Question 10

Voting by proxy

Answer 10

A shareholder may vote by proxy. May appoint a proxy in writing by signing an appointment form or making a verifiable electronic transmission.

Generally revocable and any action inconsistent with the grant of a proxy works to revoke it.

Only irrevocable if explicitly stated + an interest

Question 11

Direct suits

Answer 11

Directors breached fiduciary duty owed to individual as a shareholder.

Recovery goes to corp not SH.

Question 12

Derivative suits

Answer 12

Appropriate when the injury is caused to the corp and the SH is trying to enforce the corp’s rights.

Must have had stock ownership when claim arose, during litigation, and file written demand to board w/in 90 days before filing suit.

Question 13

Piercing the corporate veil

Answer 13

Allowed in close corps and LLCs.

P must show that that SHs of the corp or members of the LCCs abused the privilege of incorporation and fairness requires holding them liable.

Question 14

Treasury stock

Answer 14

Stock previously issued an reacquired, re-sold as no par.

Question 15

Par value

Answer 15

Minimum issuance price. No par value means any valid consideration board deems adequate.

Question 16

Quorum

Answer 16

Majority of votes must be present.

Question 17

Close corporation

Answer 17

Agreement among SHs to eliminate corporate formalities.

Question 18

Adoption of liability

Answer 18

A corp can become liable on a promoter’s contract if it adopts the contract expressly or impliedly.

Express = official action to adopt
Implied = someone in authority accepts the benefits of the contract w/knowledge of the material facts.

Question 19

Right to inspect books

Answer 19

SHs have to right to inspect the corporate books and records for a proper purpose.

Question 20

Compelling payment of a dividend

Answer 20

SH must show that funds are available for payment and that dividend payment was withheld in bad faith.