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Business Associations Flashcards

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1
Q

What are the requirements of an irrevocable proxy?

A
  1. Must be labeled as such and coupled with an interest
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2
Q

How long does a proxy agreement last?

A

11 months unless otherwise agreed

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3
Q

When may a self-dealing transaction be permitted?

A

Where there is full disclosure and independent ratification

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4
Q

What must a corporation do before making a fundamental change?

A
  1. Hold a special meeting
  2. Notice shareholders with time date place and reason for meeting

No other business discussed at special meeting

Meeting gives rise to appraisal and dissenters rights

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5
Q

What are the requirements for the establishment of a valid proxy agreement?

A
  1. Writing
  2. Signed
  3. Delivered to corp’s secretary
  4. State they are delegating authority to vote
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6
Q

What constitutes a fundamental corporate change?

A
  1. Merger
  2. Consolidation
  3. Amendments to AOI
  4. Sale of all or substantially all business assets
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7
Q

How much a decision by a board of directors be approved?

A
  1. At a board meeting, with quorum met and a majority vote

2. Unanimous written agreement of the board

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8
Q

What happens if a director enters into a transaction where there is a conflict or no approval?

A

The transaction can be rescinded and the director be liable for losses to the shareholders.

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9
Q

What is a de jure corporation?

A

One that meets requirements, articles of incorporation include

# of shares 
Propose of Corp
Register agents name and address 
Incorporators name and address 
Name of Corp

A pain

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10
Q

When is there a de facto corporation?

A

Corporation could have legally been formed
Attempt at incorporation
Use of corporate power

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11
Q

What is a corporation by estoppel?

A

A person who deals with a business believing it to be a corporation may be estopped from denying corporation status

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12
Q

What kind of case does corporation by estoppel apply in?

A

Contracts

Not torts

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13
Q

When can the corporate veil be pierced?

A

Alter ego
Undercapitalization
Fraud
Estoppel

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14
Q

When may the corporate veil be pierced under the fraud theory?

A

Corp exists for shareholders to avoid existing obligations

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15
Q

When may the corporate veil be pierced pursuant to estoppel?

A

Shareholder represents he will be personally liable for corporate debts

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16
Q

What is the deep rock doctrine?

A

When corporation is insolvent, shareholder claims subordinate to creditors claims

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17
Q

What is an ultra vires act?

A

Corporation acting outside it’s stated propose.

Uv acts generally enforceable.

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18
Q

Modernly, when is an ultra vires act at issue?

A

State moves for dissolution
Corporation sues officer
Shareholder sues to enjoin an act

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19
Q

What is a stock subscription agreement?

A

Subscriber agrees in writing to buy a specified number of stock

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20
Q

What is the effect of a post incorporation subscription?

A

Immediately binds both parties

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21
Q

What is the effect of a pre-incorporation subscription?

A

Irrevocable for six months

Must be accepted by Corp to be valid

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22
Q

What must a Corp do before issuing different classes of stock?

A

Identify limitations of various classes of stock before issuance

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23
Q

What type of consideration is not permitted for the exchange of stock?

A
  1. Future services
  2. Pre-incorporation services
  3. Unsecured debt
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24
Q

What is par value?

A

Minimum issuance price of a stock

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25
What are preemptive rights?
Shareholder can maintain percentage ownership when new stock are issued. Modernly shareholders do not have preemptive rights.
26
What do promoters do?
Before incorporation, they raise capital, contract for a location, materials, equipment
27
Are promoters liable for pre incorporation contracts?
Yes unless parties didn’t intend for it, or there has been a novation
28
Under what theories do promoters have the right to reimbursement?
implied adoption | quasi contract
29
When is a corporation liable for preincorporation contracts?
It adopts the contract | Accepts benefits of the contract
30
What are promoter duties?
Fiduciary Good faith No secret profits
31
Must corporations have a director?
At least one, may have more
32
How are board of directors elected?
Initially stated in aoi | Vacancy filled by shareholder vote
33
How are officers chosen?
Appointed by board
34
What is officer authority?
Act on behalf of corporation pursuant to agency law
35
How may a director be removed?
Majority shareholder vote, with or without cause
36
How may an officer be removed?
By the board with or without cause
37
When may a bod take action?
Majority directors present | Properly noticed meeting
38
How must quorum be achieved?
Majority of disinterested directors present
39
How may a director break quorum?
Withdrawing from a meeting
40
May bod vote by proxy?
No, some states allow teleconferencing
41
May bod have voting agreements?
No
42
When may a bod action be valid without a meeting?
Unanimous written consent
43
What duties to directors and officers owe a corporation?
Loyalty Care Disclosure
44
What is the bjr?
Directors and officers operate in good faith and best interests of the corporation
45
When may a director or officer act personally on a business opportunity?
First offering it to corp Full disclosure Good faith rejection
46
What is the remedy for usurping a corporate opportunity?
Disgorgement of profits
47
What are the rights of directors and officers?
Compensation Indemnification Inspection
48
What are general meetings?
Occur 1x year | Most shareholder voting occurs then
49
What are special meetings?
Called upon reasonable notice of Time Place Business tone discussed
50
What are the two types of stock a shareholder can have?
Common | Preferred
51
If articles do not specify, which class of stock has voting rights?
Both common and preferred
52
What is a revocable proxy?
An agency relationship between shareholder and proxy
53
How is shareholder quorum established?
Majority of outstanding shares represented, in person or by proxy
54
How may a shareholder action pass?
Quorum | Majority of votes cast
55
How may a shareholder vote pass for a fundamental corporate change?
Majority vote of all outstanding shares
56
What is straight voting?
Each shareholder casts one vote per share held. Shareholder with more than 50% vote controls
57
What is cumulative voting?
Shareholder multiplies # of shares by number of directors to be elected, may cast all votes for one or more directors
58
When may a shareholder inspect corporate books?
Upon showing of proper cause
59
What are dividends?
Distribution of cash, property or stock from the corp to the shareholder
60
What are discretionary dividends?
Given at board’s discretion | Can’t be given if leads to insolvency or if not allowed by aoi
61
What is a voting trust?
When a shareholder agrees in writing to transfer shares to a trustee who votes and distributes dividends in accordance with trust
62
When are restrictions on stock transfers upheld?
Where they are reasonable, like right of first refusal Absolute restrictions not reasonable Third party bound if had knowledge or restriction conspicuously noted
63
What kind of lawsuits can shareholders bring?
Direct suit | Derivative suit
64
What is a direct suit?
Shareholder brings suit for breach of fiduciary duty to shareholder
65
What is a derivative suit?
Shareholder brings action on behalf of Corp for harm done to Corp Corp gets recovery, shareholder gets expenses of litigation
66
What qualifies a shareholder to bring a derivative suit?
Own stock at time claim arose and throughout litigation Make a demand on directors to bring suit or redress injury and demand is rejected or would be futile
67
What duty do shareholders owe to corporations?
Generally, none. Modernly, controlling shareholders owe a fiduciary duty and minority shareholders owe duty of care and loyalty.
68
What restrictions on a controlling shareholder selling shares to a looter?
Controlling shareholders can’t sell shares to looters if they know buyer intends to harm company
69
May a controlling shareholder sell shares at a premium?
Yes so long as good faith and fair. Controlling shareholder may not sell controlling shares and receive a personal benefit for the sale of a corporate asset or office
70
Are shareholders liable for the actions of corporations?
No
71
What is a short swing profit?
An insider receives a profit from trading within a six month period. Applies where corp 1. Listed on national exchange 2. Has $10 mil in assets and 500 shareholders
72
What happens to short swing profits?
Disgorged to the corporation
73
Who is a corporate insider?
Officers Directors Shareholders who hold 10% stock
74
What does 10b5 prohibit?
Trading based on non public, corporate information
75
What are the elements of securities fraud?
``` Intent to defraud Material misrepresentation or omission Reliance Purchase or sale of securities Interstate commerce ```
76
How may 10b5 be violated?
Direct trading by insider Tippers sharing info for personal gain Tippees Misappropriators
77
How may an insider avoid a 10b5 violation?
Disclose material, non public information Or refrain from trading
78
How may a tipper violate 10b5?
Share inside info for personal gain | Need not do the trading himself
79
When is a tippee liable for a 10b5 violation?
Tipper breached fiduciary duty | Tippee knee of breach (scienter)

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