Corporations

Question 1

Under the Virginia Stock Corporation Act, each corporation must maintain in the Commonwealth a ____ and a ____.

Answer 1

registered office

registered agent

Question 2

Under the Virginia Stock Corporation Act, to approve an ordinary matter at a shareholders’ meeting at which a quorum is present, how many shareholders must vote in favor?

Answer 2

votes cast in favor of the matter must exceed the votes cast against it
(not majority)

Question 3

Notice required to shareholders for an annual and special shareholders’ meeting?

Answer 3

Notice is no less than 10 and nor more than 60 days before meeting date.

Question 4

Other than the Virginia Stock Corporation Act, what two written sources do corporations rules come?

Answer 4

1) article of incorporation

2) bylaws

Question 5

Unless otherwise provided, who may fix compensation of directors?

Answer 5

Board of directors.

Question 6

Under what two situations may a shareholder institute a derivative proceedings before the 90 day waiting period?

Answer 6

1) shareholder has been notified before the expiration of 90 days that the demand has been rejected by corporation
2) irreparable injury to the corporation would result

Question 7

Under the Virginia Stock Corporation Act, corporation’s articles of incorporation may provide for a lesser or greater quorum requirement for shareholders as long as the change is not less than _____.

Answer 7

1/3 of the shares eligible to vote

Question 8

If a corporation makes a motion to dismiss a derivative action, who can decide whether the motion is in the corporation’s best interest?

Answer 8

1) independent panel appointed by the court
2) majority of the independent directors present; or
3) majority of committee consisting of at least two independent directors present at a board

Question 9

Under the Virginia Stock Corporation Act, an appointment of a proxy is valid for ___ unless expressly provided for in appointment form.

Answer 9

11 months

Question 10

Under the Virginia Stock Corporation Act, where corporation has less than 35 shareholders, the holders of at least __ of all votes entitled to be cast on any issue proposed to be considered at a special meeting may make a written demand for such a meeting?

Answer 10

20%

Question 11

What is the difference between voting trust and voting agreements regarding corporation shares?

Answer 11

voting trust are formal - subject to statute - 10 year limit - separation of beneficial ownership and voting power
voting agreements are informal

Question 12

Under the Virginia Stock Corporation Act, in what types of proceedings may the ultra vires nature of a corporate act be raised?

Answer 12

1) proceeding before State Corporation Commission
2) injunction proceeding by shareholders
3) action by the corporation against an incumbent or former officer

Question 13

Defenses to a breach of good faith and loyalty by a director who usurped a corporate opportunity against a shareholder?

Answer 13

1) Shareholder must be shareholder to file a derivative action
2) shareholder must make demand on board 90 days before bring action (unless demand denied earlier or irreparable harm)

Question 14

Is a director personally liable for their own tortious conduct in a corporation?

Answer 14

Yes.

Not liable for torts of other directors, officers, or employees

Question 15

When does a corporation become liable for promoter’s contracts?

Answer 15

When corporation adopts the contract by express adoption by board of directors or implied adoption through knowledge of contract and acceptance of benefits - acquiescence estoppel

Question 16

How long does a promoter remain liable on contracts entered into before the corporation is formed?

Answer 16

Until there is adoption and novation by corporation

• if never formed then promoter remains liable.
• if only an adoption, then promoter is still liable together with corporation

Question 17

What is the promoter’s duty to corporation when selling property to corporation?

Answer 17

property acquired before - profit recoverable by corporation if it exceeds fair market value
property acquired after - all profit made on resell

Question 18

What is a subscriber?

Answer 18

Person who makes a written offer to buy stock from corporation that is not yet formed.
- pre-incorporation offer is irrevocable for 6 months

Question 19

What are two situations that a court will pierce the corporate veil?

Answer 19

Piercing necessary to avoid a fraud and unfairness

1) controlling shareholder is failing to observe sufficient formalities and treating corporate assets as personal assets (alter ego)
2) corporation is undercapitalized to cover foreseeable liability

Question 20

What are consequences if foreign corporation transacts business in the Commonwealth without qualification?

Answer 20

1) subject to fine; and

2) cannot initiate lawsuits in VA, but can be sued in VA

Question 21

What does par value mean?

Answer 21

Minimum issuance price of stock for a corporation

Question 22

What is treasury stock?

Answer 22

Stock that was previously issued and has been reacquired by corporation. Treasury stock can be resold and deemed to be non-par stock.

Question 23

Corp. issues 10,000 shares of $3 par to X for $22,000. What are the remedies of the Corp. against the directors of Corp. and against X?

Answer 23

Election of remedies (only one satisfaction) can recover difference between par value and amount from directors or X.

Question 24

Under VA Corporate Law, what are preemptive rights?

Answer 24

Rights of an existing shareholder to maintain her percentage ownership by buying stock whenever there is a new issuance of stock for cash.

• after 2006 exists only if mentioned in articles of incorporation
• prior 2006 then a common law right

Question 25

Are directors allowed to vote by proxy at a board of director’s meeting?

Answer 25

No.

Question 26

How many votes of directors are required to adopt a resolution at a board of directors?

Answer 26

there must be a quorum (1/3 of all directors) present

- majority vote of directors present

Question 27

What is the business judgment rule?

Answer 27

presumption that the directors manage the corporation in good faith and in the best interests of the corporation and shareholders
- not liable for innocent mistakes

Question 28

Directors may avoid liability for a breach of a fiduciary duty by doing what?

Answer 28

obtaining independent ratification from

1) majority vote of disinterested directors
2) majority vote of shares held by independent shareholders

Question 29

Who can approve a grant a permissive indemnity to a director of a corporation?

Answer 29

1) majority of independent directors
2) majority of committee of at least 2 independent directors
3) majority of disinterested shareholders
4) legal counsel opinion

Question 30

What are two requires before bringing a derivative suit?

Answer 30

1) shareholder must have own one share of stock when claim arose
2) must make demand on director prior to bringing lawsuit

Question 31

What are consequences of successful derivative suit in VA?

Answer 31

recovery is to corporation not to shareholder.

may pay attorney fees of shareholder and reasonable expenses

Question 32

What is required for a valid proxy?

Answer 32

1) writing
2) authorized by record shareholder
3) directed to secretary of corporation
4) authorized another to vote the shares
5) valid for 11 months

Question 33

Day for determining eligibility to receive notice and vote is known as _____ and it may be not be more than ____ prior to meeting.

Answer 33

record date

70 days

Question 34

When paying a dividend, which type of stock gets paid first?

Answer 34

Preferred stock gets paid first and common stock is paid last

Question 35

When paying a dividend, what do shares that are preferred that are participating received?

Answer 35

Paid twice. Once as preferred stock and once as common stock.

Question 36

When paying a dividend, what do shares that are preferred that are cumulative entitled to receive?

Answer 36

Get right to receive dividend for previous years in which no dividend was paid

Question 37

If a corporation makes a dividend that renders it insolvent, who is liable?

Answer 37

Directors are personally liable for unlawful distributions.

Question 38

Requirements for a closely hold corporation?

Answer 38

• nonpublic corporation
• unanimous shareholder agreement
• valid for 10 years, unless indicated otherwise

Question 39

What is the effect of a closely-held corporation?

Answer 39

1) no piercing veil for failure to adhere to corporation formalities
2) ability to be taxed as S-corp (like a partnership) if no more than 100 owners of stock and only 1 class of stock

Question 40

How is a limited liability corporation created?

Answer 40

Filing articles of organization

LLC - limited life, limited liability, limited tax, and limited liquidity

Question 41

What is a dissenting shareholder’s right of appraisal?

Answer 41

Right of shareholder to force corporation to buy shares at fair value when there is a fundamental corporate change

Question 42

Can a creditor step into the corporation’s shoes and enforce a promise from a subscriber that is not fulfilled (obligation to pay for shares or offer services)?

Answer 42

Yes.

Subscribes must give value for shares

Question 43

Does a pledge of stock limit a shareholder’s rights to vote or receive notice?

Answer 43

No. Pledge of stock to secure loan is not a waiver of stock ownership and shareholder is entitled to receive notice

Question 44

What can a shareholder rightful demand to inspect from a corporation?

Answer 44

shareholder needs to be a shareholder for 6 months or own more than 5%
make a written demand 5 days in advance
can view articles, bylaws, minutes, and resolutions

Question 45

How can a shareholder who did not receive notice of a meeting object to the actions without waiving right to proper notice?

Answer 45

Shareholder can attend meeting and object to notice at beginning of meeting that the meeting is not lawfully created or convened

Question 46

Does a corporation need a shareholder’s vote of approval before pledging all of its assets?

Answer 46

No, unless articles state otherwise.

Question 47

Is cumulative voting for shares permitted in VA if the articles of incorporation do not permit it?

Answer 47

No. Cumulative voting is not permitted if not expressly authorized in the articles of incorporation.

Question 48

If a class of shares elected a director, what is required to remove the director?

Answer 48

A majority of the shares in that class.

Question 49

If a director breaches a duty to a corporation, and the corporation does nothing to remedy the deficiency, what can the shareholder do?

Answer 49

File a shareholder derivative suit (need to give notice to corporation)

Question 50

Does Virginia apply a duty that majority shareholders owe to minority shareholders?

Answer 50

Virginia does not apply this rule.

Some states apply it to closely held corporations.

Question 51

When the corporate veil is pierced, which shareholders are liable?

Answer 51

only shareholders who were actively managing the corporation are liable.
- contract claims unlikely to pierce corporate veil

Question 52

How can shareholders fix some problems if formalities were not followed?

Answer 52

Sign a consent to actions taken and formalize the informal actions taken.

Question 53

Are directors personally liable if they distribute assets of the corporation upon dissolution before all known corporate debt is paid?

Answer 53

Yes, jointly and severally liable for an unlawful distribution

• liability limited to amount wrongful distributed
• good faith defense if relied on financial statements

Question 54

If shareholder receive a distribution or dividend must they disgorge the money if the distribution or dividend was unlawful?

Answer 54

Yes.

Question 55

Statute of limitations for bringing statutory claims against a corporation including director’s liability?

Answer 55

Two years.

Question 56

For a resolution to be approved without a meeting, how many directors must approve the resolution?

Answer 56

All directors must approve the resolution.

- Corporation may still be liable if the secretary certifies the resolution.

Question 57

Are corporations allowed to cap liability for directors and officers in the articles of incorporation?

Answer 57

Yes - permitted in VA.

Can limit liability for willful misconduct.