Flashcards in Business Associations Deck (79):
What are the requirements of an irrevocable proxy?
1. Must be labeled as such and coupled with an interest
How long does a proxy agreement last?
11 months unless otherwise agreed
When may a self-dealing transaction be permitted?
Where there is full disclosure and independent ratification
What must a corporation do before making a fundamental change?
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
What are the requirements for the establishment of a valid proxy agreement?
3. Delivered to corp’s secretary
4. State they are delegating authority to vote
What constitutes a fundamental corporate change?
3. Amendments to AOI
4. Sale of all or substantially all business assets
How much a decision by a board of directors be approved?
1. At a board meeting, with quorum met and a majority vote
2. Unanimous written agreement of the board
What happens if a director enters into a transaction where there is a conflict or no approval?
The transaction can be rescinded and the director be liable for losses to the shareholders.
What is a de jure corporation?
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
When is there a de facto corporation?
Corporation could have legally been formed
Attempt at incorporation
Use of corporate power
What is a corporation by estoppel?
A person who deals with a business believing it to be a corporation may be estopped from denying corporation status
What kind of case does corporation by estoppel apply in?
When can the corporate veil be pierced?
When may the corporate veil be pierced under the fraud theory?
Corp exists for shareholders to avoid existing obligations
When may the corporate veil be pierced pursuant to estoppel?
Shareholder represents he will be personally liable for corporate debts
What is the deep rock doctrine?
When corporation is insolvent, shareholder claims subordinate to creditors claims
What is an ultra vires act?
Corporation acting outside it’s stated propose.
Uv acts generally enforceable.
Modernly, when is an ultra vires act at issue?
State moves for dissolution
Corporation sues officer
Shareholder sues to enjoin an act
What is a stock subscription agreement?
Subscriber agrees in writing to buy a specified number of stock
What is the effect of a post incorporation subscription?
Immediately binds both parties
What is the effect of a pre-incorporation subscription?
Irrevocable for six months
Must be accepted by Corp to be valid
What must a Corp do before issuing different classes of stock?
Identify limitations of various classes of stock before issuance
What type of consideration is not permitted for the exchange of stock?
1. Future services
2. Pre-incorporation services
3. Unsecured debt
What is par value?
Minimum issuance price of a stock
What are preemptive rights?
Shareholder can maintain percentage ownership when new stock are issued.
Modernly shareholders do not have preemptive rights.
What do promoters do?
Before incorporation, they raise capital, contract for a location, materials, equipment
Are promoters liable for pre incorporation contracts?
Yes unless parties didn’t intend for it, or there has been a novation
Under what theories do promoters have the right to reimbursement?
When is a corporation liable for preincorporation contracts?
It adopts the contract
Accepts benefits of the contract
What are promoter duties?
No secret profits
Must corporations have a director?
At least one, may have more
How are board of directors elected?
Initially stated in aoi
Vacancy filled by shareholder vote
How are officers chosen?
Appointed by board
What is officer authority?
Act on behalf of corporation pursuant to agency law
How may a director be removed?
Majority shareholder vote, with or without cause
How may an officer be removed?
By the board with or without cause
When may a bod take action?
Majority directors present
Properly noticed meeting
How must quorum be achieved?
Majority of disinterested directors present
How may a director break quorum?
Withdrawing from a meeting
May bod vote by proxy?
No, some states allow teleconferencing
May bod have voting agreements?
When may a bod action be valid without a meeting?
Unanimous written consent
What duties to directors and officers owe a corporation?
What is the bjr?
Directors and officers operate in good faith and best interests of the corporation
When may a director or officer act personally on a business opportunity?
First offering it to corp
Good faith rejection
What is the remedy for usurping a corporate opportunity?
Disgorgement of profits
What are the rights of directors and officers?
What are general meetings?
Occur 1x year
Most shareholder voting occurs then
What are special meetings?
Called upon reasonable notice of
Business tone discussed
What are the two types of stock a shareholder can have?
If articles do not specify, which class of stock has voting rights?
Both common and preferred
What is a revocable proxy?
An agency relationship between shareholder and proxy
How is shareholder quorum established?
Majority of outstanding shares represented, in person or by proxy
How may a shareholder action pass?
Majority of votes cast
How may a shareholder vote pass for a fundamental corporate change?
Majority vote of all outstanding shares
What is straight voting?
Each shareholder casts one vote per share held.
Shareholder with more than 50% vote controls
What is cumulative voting?
Shareholder multiplies # of shares by number of directors to be elected, may cast all votes for one or more directors
When may a shareholder inspect corporate books?
Upon showing of proper cause
What are dividends?
Distribution of cash, property or stock from the corp to the shareholder
What are discretionary dividends?
Given at board’s discretion
Can’t be given if leads to insolvency or if not allowed by aoi
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
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
What kind of lawsuits can shareholders bring?
What is a direct suit?
Shareholder brings suit for breach of fiduciary duty to shareholder
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
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
What duty do shareholders owe to corporations?
Modernly, controlling shareholders owe a fiduciary duty and minority shareholders owe duty of care and loyalty.
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
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
Are shareholders liable for the actions of corporations?
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
What happens to short swing profits?
Disgorged to the corporation
Who is a corporate insider?
Shareholders who hold 10% stock
What does 10b5 prohibit?
Trading based on non public, corporate information
What are the elements of securities fraud?
Intent to defraud
Material misrepresentation or omission
Purchase or sale of securities
How may 10b5 be violated?
Direct trading by insider
Tippers sharing info for personal gain
How may an insider avoid a 10b5 violation?
Disclose material, non public information
Or refrain from trading
How may a tipper violate 10b5?
Share inside info for personal gain
Need not do the trading himself