Business Orgs [Finals] Flashcards
(340 cards)
1
Q
______ : Artifical legal person that can own property, owe debts, sue, and be sued.
A
Entity [Dartmouth v. Woodward college]
2
Q
T/F) Names of roles/persons in an entity is just a default rule. Thus, entities can choose their own terminoligies.
A
True
3
Q
2 or more corporations of this state may merge into single surviving corp.
Rule?
A
Enabling
4
Q
The _____ _____ : The deal by which the investors and managers associate.
Examples:
1. Corp. = Articles of Incorp
2. LLC = C.O.O.
3. LP = Cert. of LP
4. Partnership = P agreement
A
Business deal
5
Q
4 main questions related to business deal?
A
A.O.I, C.O.O. Partnership agreement, etc.
- Money [who put in? What they get in return? ]
- Decision making
- Transfer of shares
- Fiduciary duties
6
Q
Assets =
A
Debt + Equity
7
Q
Equity =
A
Assets - Debt
8
Q
What duties to managers owe to the entity and its investors?
A
- Duty of care
- Duty of loyalty
- Duty of GF
Note: This relates to BJR. If they demonstrate above + act rationally for a business related decision, the BJR will protect them from liability.
9
Q
Who can “alter” the duties of care and loyalty if not “manifestly unreasonable?”
A
P, LPs, LLCs
10
Q
The ___ ___ rule: If the conditions of the rule are satisfied, managers are not liable to shareholders for their decisions, no matter how bad.
A
The Business Judgment rule [True]
11
Q
Five conditions to use BJR to protect manager?
A
- BJR
- Loyalty [core duty]
- GF [core duty]
- Care [core duty]
- It was rational
12
Q
Are entity investors liable in their capacities as investors for the entities obligations?
A
No, not without piercing the corporate veil.
13
Q
Per ______, individual board members have no binding authority. Thus, the entire board [acting together] has power to bind the corporation.
A
Baldwin
14
Q
The general rule is that a board must “meet” to take action. Exception?
A
Unanimous consent [writing] to act without a meeting.
15
Q
T/F) Barring the written consent exception, failure of a board to properly meet invalidates the action taken.
A
True
16
Q
Can board members delegate duties to officers?
A
If written into the Articles of Incorporation.
17
Q
When does a CEO have [actual] authority to bind a corporation?
A
When acting in the “ordinary course of business.” [Beware apparent authority]
18
Q
Who can bind a partnership?
A
Any partner when “acting in ordinary course of business.”
19
Q
Who can bind an LLC?
1. Member managed =
2. Manager managed =
A
- Member managed = Members acting together
- Manager managed = Only manager
20
Q
Which entity is not required to register entity + pay registration fees?
A
Partnership
21
Q
T/F) Entity type designator is an insufficient distinction.
IE: Smith Corp. v. Smith LLC
A
True.
22
Q
T/F) Differences in punctuation / typography not sufficient.
IE: A.B.C. Insurance v. ABC Insurance
A
True
23
Q
T/F) Differences as little as one letter can distinguish.
IE: Brown Corp. v. Browne Corp.
A
True
24
Q
Is a corporate name an intellectual property right ?
A
Nope
25
______ name: A name used by an entity to identify his or its business. May also use a fictitious name.
Trade name
26
T/F) Starbucks can't do squat. The entity behind Starbucks is the actual entity.
True
27
_____ authority = authority to do an act on behalf of principal.
A. Exists when 3rd party reasonably believes
B. Based on principal's manifestations
Apparent authority
28
_______ = K in which a franchisor authorizes a franchisee to operate a business designed by franchisor.
Franchise
29
T/F) The franchisee is usually liable for injuries at their locations, not franchisor.
Exceptions if true?
True, unless franchisor had direct control over day to day operations. [Mobil Oil v. Bransford & eTeam]
30
T/F) The mere use of franchise logos and related advertisements does not indicate franchisor has control over franchise.
True
31
Which case showed that franchisor can be held liable when they exercise too much control?
eTeam v. Hilton
32
This case showed apparent agency is established when P proves he looked to he principal [hospital] for services and the principal [hospital] selected the services [Doc]and provided them.
Popovich v. Allina health
33
Is an office center who leases space to several different businesses liable for tenant's malpractice?
No. [Eads v. Borman & William Spince center]
34
____ ____ = matters peculiar to the relationships among the corporation and its officers, directors, shareholders.
A. Governed by formation state
Internal affairs
35
The law of what state governs an entities internal affairs?
Formation state
36
Lennar home construction
1. HQ in SC
2. Formed in DL
3. Sued in SC
What law applied?
SC will apply DL law b/c of "internal affairs" doctrine which is the law in all 50 states.
37
T/F) The SC has strongly endorsed the I.A.D.
True. [CTS Corp. v. Dynamics Corp.]
38
A corporation is "_________" in its state of incorporation and "_________" where it operates.
Domestic & foreign
39
3 rationales for the I.A.D.?
1. Consistency = all states use same standard
2. Certainty = formation state is unambiguous
3. Consent = you know where your corp. was formed so you consent to that law
40
1. _____ rules = rules that apply if fundamental docs don't change em.
2. _____ rules = rules that fundamental docs can't change.
3. _____ rules = rules that enable business to do what they could not in absence of rule.
1. Default
2. Mandatory
3. Enabling
41
T/F) The requirement of a corporation to have a board of directors is a [mandatory] rule.
False. It is a default rule.
42
In an LLC, the operating agreement requires unanimity. Can it be changed?
Yes, but only by majority rule.
43
T/F) While partnerships cannot eliminate duty of care and loyalty, they may modify it.
True but with restrictions. They cannot authorize conduct involving bad faith, misconduct, or illegal shit.
44
T/F) The requirement that an LLC be governed by the law of the formation state cannot be eliminated.
True
45
Can a corporation change when directors are elected from one year to three? What if in DL?
Yes, they can agree in writing on these new terms unless in DL then no.
46
General formation steps? [Corporation]
1. Choose entity type / state
2. Choose and reserve name
3. Hire agents
4. File fundamental docs
5. Buy entity kit
6. Organizational meeting to elect directors and issue shares
47
Where must entity pay registration / operating fees?
State where registered and state where operating
48
Deleware requires that every corporation maintain a registered office. How do you comply if not in delaware?
Hire an agent to staff that office.
49
What should be in your filed article / certificate of incorporation?
1. Name
2. Registered office
3. Purpose
4. Amount of stock / sale price
5. Name / address of incorporator
6. how governed
50
______ kit: Addresses concerns of intangibility.
*corporate seal
*Share certificates
*Stock register
*EIN number application
Corporate kit
51
Who calls the first organizational meeting?
Incorporator
52
First corp. organizational meeting?
1. Adopt bylaws
2. Elect directors
3. Appoint officers
4. Adopt corp. seal
6. Resolution for bank account
7. Issue shares
53
When does an entity come into existence? [Corp]
When incorporator files articles of incorporation
54
When does an entity come into existence? [LLC]
When organizer files certificate of organization C.O.O. and at least 1 person becomes member.
55
When does an entity come into existence? [LP]
When person filed certificate of L.P. and at least one person becomes GP and one LP.
56
_______ = formed by the association of two or more persons for profit... whether or not they intended to form one. [MacArthur v. Stein]
Partnership
1. Manifest assent
2. Control
3. Contribute
4. Share
57
Partnership establishment factors? [MacArthur v. Stein]
1. Manifest Intent to associate
2. Contribute
3. Control
4. Sharing profits
58
Which case for partnership formation?
MacArthur v. Stein
59
T/F) The filing of a partnership agreement with the state is neither required nor sufficient to form partnership.
True
60
How does partnership then become an LLP?
1. Elect to become one
2. File statement of qualification
61
________ = a person who participates in the org. of a business prior to formation
Promoter
62
T/F) The promoter who knows the corporation does not exist is liable.
True
63
How to get around promoter liability problems?
Use best signature practices!
64
Entity may ratify contracts made before its formation how?
Does ratification release the promoter?
1. By formal decision
2. or acquiescence or acceptance of benefits
Promoter is released when novation is granted.
65
______ Corporation:
1. GF attempt to incorporate
2. Unintentional omission of essential requirements to form
3. GF exercise of corporate functions
[Doctrine largely obsolete]
DeFacto Corporation
66
Corporation by ___________ :
1. Business held itself out as a corp.
2. 3rd party dealt with it assuming it to be one.
Estoppel. The 3rd party should get what it bargained for.
67
________ = Blue corp acquires shares of red corp and controls red corp.
Acquisition
68
_______ = 2 corporations become one. Typically, the SHs of both own the surviving corporation
Merger
69
Rights reserved to SHs in mergers and acquisitions?
1. Right to vote against
2. Right to sell shares to surviving corp. for appraised price [appraisal rights]
3. right to sell to 3rd party
4. right to prevent / report illegal
70
_____ ____ = right of dissenting investor to be paid the pre-transaction value of its shares by the surviving or resulting entity in merger.
Appraisal rights
71
Rationale behind appraisal rights?
Transactions in question are fundamental changes in nature of SH investment, they should be allowed to opt out.
72
Generally, who are appraisal rights not available to? Why?
Investors in partnerships, LLCs, and LPs. These entities require UNANIMOUS consent for merger or acquisition.
73
T/F) Appraisal rights not available for corporations over 2000 shares.
True
74
How is merger approved?
1. Board devises plan
2. Submits to SHs for approval [absolute majority]
3. Files cert. of merger
4. Appraisal rights
5. Merger
6. Creditors dragged along
75
Merger approval requires ______ majority.
Absolute.
76
Red corp buys Blue corp, giving blue $50 per share in cash. Once paid, blue shareholders no longer have control of new entity, purple.
Cash out merger
77
SHs of target company get cash for their shares. They no longer have any ownership in the new company.
Cash out merger
78
SHs of target company get shares prior to the transaction. They then become part-owners in the new company. IE: SHs of each company own purple stock.
Stock for stock merger
79
__ ___ merger = PAC MAN. Big eat little. Only the target (little) entity SHs vote and have appraisal rights. (Walgreen buying local pharmacy. WG SHs don't vote.)
Small scale merger
80
_____ ____ merger = Parent-subsidiary. Parent can absorb 90% of the subsidary just by filing paperwork. Parent dictates terms.
Short-form merger
81
When are SHs entitled to a vote when the board wants to sell company assets?
When they are selling "all or substantially all" corporate assets at once.
82
Difference between asset sale and merger?
Asset sale = selling all your assets to company for shares. You then pay your creditors and dissolve and become SHs in the buying company. Your company no longer exists.
Note: No appraisal rights.
83
___ ____ ___ Doctrine: A sale of all assets for stock has much the same effect as a merger. [Rejected in Deleware]
Case?
De facto merger - preserves SH rights.
[Farris v. Glen Alden]
84
_________ = when a person or company offers to buy shares directly from shareholders, usually at a premium price, to gain control of the company.
Tender Offer
85
_________ = A business changes from one entity to another. LLC > Corporation or Corporation becomes LLC.
[The entity stays the same but its legal form changes.]
Conversion
86
_______ = A business moves from one state to another while keeping the same legal form.
Domestication
87
_________ = A company takes part of its business and creates new independent company. Shares of new company go to current SHs.
[Divides entity into 2]
Spin off
88
_____ ______ = A company splits into 2 by transferring assets and liabilities to new entities. [Treated like a merger]
Divisive merger
89
3 ways an entity can change its state of incorporation?
1. Merge
2. Convert / domesticate
3. Sell assets to shell entity in destination state
90
Which companies benefit from limited liability?
All but general partnership / partnership
91
Limited liability is an ______ to or negation of vicarious liability.
Exception
92
Arguments FOR limited liability?
1. Encourages capital formation
2. Encourages risk
3. Tort liability is out of control [Recall McDonald coffee case]
93
Arguments against limited liability?
1. Judgement proof entities can violate laws with impunity
2. Discourages financial responsibility
3. Not LL, its NO liability
94
_______ = A legal theory under which courts may in certain circumstances disregard the entity to hold the investors liable.
Veil Piercing
95
T/F) VP applies to all entities.
False, only those entities that benefit from LL. [So basically everyone except GPs and Partnerships]
96
VP 2 prong test? [Folger v. Cottle]
1. Entity lacks separate existence from owners; and
2. Recognizing the entity would cause fraud / injustice
97
Case for VP two prong test?
Folger v. Cottle
98
Overall list of factors courts consider when VP?
1. Lack of formalities
2. Undercapitilization
3. Commingling assets
4. One person entities [Nelson v. Adams]
5. doing illegal shit
6. Identity of managers [Best Foods]
99
_________ = means holding meetings, keeping minutes, voting on resolutions, etc.
Formalities
100
________ = the amount contributed by investors as equity. An important factor in VP but alone not enough.
Capitalization
101
2 types of commingling?
1. With records
2. without records
102
The fact alone that a director / manager serves wears multiple hats across entities is not enough to VP.
US v. Bestfoods
103
"One-person corporations are authorized by law and should not lightly be labeled sham."
Nelson v. Adams Inc.
104
Is it OK for boards to meet [sequentially] as the boards of several corporations?
Yes. That is the usual way to meet when directors of affiliated corps. are the same ppl.
105
__________ = Another theory of entity disregard. This theory holds "controllers" liable. IE: Persons who have control by personal ties, family ties, control of resources, etc. [Bushman]
Equitable ownership
106
What case for equitable ownership?
Bushman
107
_______ VP = Is holding the entity liable for the investors debts. Unlike traditional VP which holds investors liable for entity debts.
Reverse VP
108
RVP:
1. If investors initiate the pierce?
2. If investor's creditors initiate?
1. Inside RVP
2. Outside RVP
109
T/F) The grounds for RVP and VP and factors used / result achieved is the same.
True
110
VP 2 prong test?
1. Entity lacks sep. existence [too much unity of interest]
2. Recognizing entity would cause fraud or injustice
111
VP factors?
1. Undercapitlization
2. Lack of formalities
3. Manager roles [best foods]
4. illegal shit
5. commingling
6. one person entities [Nelson v. Adams] - alone not enough
112
_______ VP is holding the entity liable for the investors debts.
Reverse VP
113
_________ is a fiduciary relationship that arises when
1) Principal manifests assent to another
2) To act on their behalf
3) That agent then manifests assent to do so
Agency
114
Can the entity be an "agent" for its investors? What about parent and subs.?
Yes. If the parent tells the Sub what to do, Parent is liable for what the sub does.
115
Ratification may only occur when?
When the actor "purported to act as agent on person's behalf."
116
What's notable about a Parent and Subsidiary working together for a profit?
They can be labeled as partners. [MacArthur v. Stein] If so, they are now both liable for what the other does.
117
Partnership by _______ = when someone represents or allows themselves to be represented as a partner in a business even if no partnership exists.
Partnership by estoppel
118
______ _______ = Combining the assets and liabilities of 2 or more entities into a single bankruptcy estate.
Substantive consolidation [subject to Bonham test]
119
What is the Bonham test? Substantive consolidation appropriate if:
1.
2.
1. Creditors dealt with the entities as single economic unit
2. The affairs of debtor so entangled that consolidation benefits all
120
The test is used to help determine whether substantive consolidation of seperate legal entities in bankrupty is appropriate.
Bonham test
121
_____ _____ = Combines assets and liabilities of 2 entities when 1)creditors dealt with the entities as single unit and 2) so entangled that consolidation benefits all.
Substantive consolidation
122
In this case, despite notable accounts of human rights abuse overseas, the veil was not pierced.
"Ps have not submitted evidence sufficient to demonstrate inequity would result from recognition of corp. form."
Bowoto v. Chevron Texaco
123
______ ownership = A theory where someone who doesn't formally own a company is treated as an owner due to control of company.
Equitable ownership [Bushman]
124
_______ _____ = When a court holds a corporation liable for debts of its SH.
Reverse VP
125
_______ liability =A theory that treats affliated corporations as part of a single business enterprise. If they act as one, one may be liable for the others debts.
Enterprise liability
126
_____ ______ = A bankruptcy doctrine where multiple related entities assets + debts consolidtaed for creditors to treat as one.
Substantive consolidation
127
Assets =
Equity =
A = Debt + Equity
E = Assets - debt
128
_____ ____ = The combination of debt and equity by which the corporation is financed.
Capital structure
129
_______ account = An account in the equity portion of the balance sheet.
Captial account
130
3 types of distribution sharing concepts?
Per share = paid per amount shares owned.
Per capita = all paid same
Per contribution = paid proportional to what you put in
131
[Distribution sharing concepts]
Per ______ = The entity issues shares. Each share receives the same distribution. Same dollar amount to each share. [IE: You paid per share that you own.]
Per share
132
[Distribution sharing concepts]
Per _______ = Each investor receives same distribution.
Per capita
133
What does per share distribution mean?
Each share gets the same dollar amount.
134
What does per capita mean?
Each investor gets same dollar amount, no matter how much they invested. [Partnerships and LLCs]
135
What does per contribution mean?
Each investor gets money back proportional to what they put in.
136
__________ of contributions = Each investor gets a one time return of its contribution.
Return of contribution
137
What is the default rule for MBCA and DGCL before and after dissolution for distribution sharing?
Per share
138
Default rules for distribution sharing for RUPA and ULLCA?
1. Before dissolution?
2. After?
1. Per capita
2. Return contributions
139
T/F) By provisions in the entities fundamental docs, investors can modify any of the default rules regarding distribution sharing.
True
140
T/F) For corporations, the distribution default rule is "per share" b4 and after dissolution.
True
141
T/F) For Partnerships and LLCs, the default distribution rule is "per capita" before dissolution and "return of contributions" after dissolution.
True
142
What is the default distribution rule ($$) b4 dissolution for LPs?
Per contribution
143
What is the default rule for LPs distribution after dissolution?
Return on contribution
144
What's the difference between partnerships and LPs distribution sharing before distribution?
P = Per capita
LP = Per contribution
145
Can investors modify the default rules regarding distribution sharing?
Yes
146
T/F) Entities may not render distributions that would render the entity insolvent.
True
147
Having assets less than liabilities is known as what? [Hint: Balance sheet]
Balance sheet insolvency
148
_________ insolvency = the inability to pay debts when they become due.
Equitable insolvency
149
T/F) If a distribution leaves the entity insolvent, the entity creditors may void the dividend.
True!
150
Can directors / managers who authorize unlawful dividends be held personally liable to the corporation for the amount distributed?
Yes, they must be careful!
151
In a partnership, who is entitled to profits made during the year?
Each partner is entitled to [equal share] of the partnership distributions. Remember, partnerships b4 dissolution are per capita.
152
In an LLC, who is entitled to profits made during the year?
Remember, LLC is also [like partnerships] per capita before dissolution. So each member gets equal shares.
153
In a LP, who gets the profits of distribution sharing?
Before distribution it is "per contribution." You get what you put in. After dissolution, it is ROC one time payments to all.
154
Who entitled to profits of corporation in distribution sharing across one year?
You get paid per number of shares you own. "Per share" both b4 and after dissolution.
155
Are partners entitled to renumeration for services performed for the partnership?
Nope
156
Must creditors be paid before investors can share in the distributions?
Duh.
157
___________ = Ability to convert assets into cash when necessary.
Liquidity
158
__________ = Ability of investors to work together in a business. [Marriage analogy]
Compatibility
159
________ sale = Agreement between Investor & Entity/Promotor.
Private sale
160
_______ sale = IPOs [Private company > Initial Public Offering on the stock exchange.]
Public sale
161
__________ = THE END. Be aware of the "zombie" effect. When the entity is _______, which implies it no longer exists, but continues to exist for purpose of winding up.
Dissolution
162
___ dissolution = entity chooses to dissolve.
____ dissolution = State as method of enforcement.
_____ dissolution = court orders it.
1. Voluntary
2. Administrative
3. Judicial / court ordered
163
What is required to approve dissolution for corporation?
Board action and SH approval
164
After dissolution the entity may operate for a "reasonable time." What is that?
Three years.
165
4 part dissolutions steps?
1. Dissolution
2. Winding up [sell all shit/close stuff down]
3. Settlements [pay creditors]
4. Cert. of dissolution
166
An _______ is the partnership, LLC, and LP's equivalent of a corporations "share."
What does it consist of?
Interest, which consists of control and distribution rights. Distribution rights are freely transferable and control rights are not.
167
[Interests] Distribution rights are freely transferable and control rights are too. [T/F]
F, only distribution rights.
168
What is a transfer of interest in a partnership or LLC?
When a partner /member sells, assigns, or gives ownership interest [management / economic rights] to another person.
169
T/F) Partner-transferor retains rights and duties of that type of partner.
True
170
T/F) A transferee/assignee may only receive economic rights. Management / control rights are not transferable from partnerships and LLCs.
True
171
Can a transfer cause dissolution?
Sometimes. In a partnership, transfer of whole interest may trigger dissolution.
172
T/F) [Dissolution] Any partner can leave at any time.
True
173
T/F) Like a P and LLC, distribution rights are likewise freely transferable in and LP but control rights are not.
True
174
_______ = Is a termination of the partner or member's association with the entity.
Dissociation
175
Notably, in a partnership, when a partner dissociates they still are no longer a partner BUT they continue to own...
Continue to own distribution rights. At that point the partnership decides whether or not to buy the dark side partner's interest or dissolve.
176
T/F) Partner power to dissociate is a default rule.
F. Mandatory rule
177
T/F) On dissociation from LLC, members no longer have distribution rights.
F. They have them and are no longer "members" but "Transferees."
178
T/F) In an LLC or LP, the LLC does not have to buy the dissociating member's interest.
True
179
When a partner leaves....
Partnership must buy those interests back or dissolve. [LLCs don't have this rule]
180
In an LLC, the power to dissociate is a mandatory rule. [T/F]
False - mandatory rule in partnerships.
181
3 possibilities when attorney sets up business for 3 persons who don't get along?
1. Freezeout
2. Buyout
3. Sell to 3rd party
182
Why must entities fix the method of buyout at time of investment and not later on?
Because later on, whoever the minority is will have no leverage.
183
What are some methods of setting the buyout price?
1. Book value
2. Auction
3. Appraisal
4 Texas offer
5. Right of first refusal
184
[Buyouts] _______ ________ = Any party may fix a company value at which the party agrees to buy our sell. The others must buy or sell at that value.
Texas offer
185
[Buyouts] _____ ____ _____ ______ = A contractual right that gives existing owners the option to buy members/partners interest before it is sold to a third party.
Right of first refusal
186
_______ offer = A mechanism where co-owner offers to buy out the other at specified price. Recipient must accept or buy out the offeror at that price.
Texas offer
187
In a corporation, what happens to SH shares when that SH dies...
It goes to the spouse.
188
In a partnership, what happens when partner dies? Does spouse get those interests?
Remaining partners must purchase those interests or risk dissolution.
189
In a LLC, what happens when member dies? Does spouse get those interests?
Spouse is a transferee but cannot vote. She has distribution rights only.
190
In a LP, what happens when GP dies? Does spouse get those interests?
Remaining LPs remain on and vote for new GP. Spouse only has transferable interest.
191
Can a majority SH in a corporation simply sell off their majority shares?
Yup.
192
Can a partner just leave? If he does, how can remaining partners get around issues that arise?
Yes. If they do, this will force winding up unless other partners buy him out. They could sell to themselves lol.
193
Would you advise a GP that they could just take their interests and leave?
No! The LPs will elect new GP and freeze you out.
194
Montana courts order the sell of yellowstone after dissolution between Jamie and Beth. If Beth has 600K cash, how much can she bid?
1.2 million. [Half of that is credit]
195
Difference between 1 and 2 tier decision making?
1 = Investors make decisions
2 = Investors & managers make em
196
What is the default decision making rule for Ps and LLCs?
1 tier
197
3 ways investors and managers share decision making?
1. by issue
2. by role
3. by recency
198
All SHs vote in one election on four matters =
1. Directors
2. Fundamental changes
3. Bylaws
4. Resolutions
199
Meeting of SHs shall occur _______ to elect directors.
Annually
200
T/F) Any director or entire board of directors may be removed with or without cause by holders of majority shares. If true, exceptions?
True, except in corporations with classified boards.
201
Corporate __________ = the internal rules adopted by a corporation which determines how it governs / operates.
Bylaws
202
What can be in bylaws?
Any provision NOT inconsistent with law or certification of incorporation.
203
Can articles of incorporation override DGCL? What about bylaws?
Yes. Bylaws cannot override DGCL.
1. AOI
2. DGCL
3. Bylaws
204
T/F) Certificate / articles of incorporation can contain just about anything so long not contrary to the laws of the state.
True
205
Hierarchy of authority between A.O.I., DGCL, and bylaws?
1. A.O.I
2. DGCL
3. Bylaws
206
This case showed that bylaws cannot preclude directors from fully discharging their fiduciary duties to the corporation and SHs.
CA v. A"FS"CME
1. Ratification actions
2. mergers and acquisitions
3. Insider trading [Special facts doctrine]
207
T/F) Bylaws must allow directors a "fiduciary out."
True!
208
Where do bylaws come from?
The incorporators / board shall adopt them.
209
Once made, who can change the bylaws?
SHs have the "irrevocable" right to make bylaws. Generally, directors can too when that right included in AOI which it usually is. They may need approval if signficant change to corporate structure involved.
210
SH _________ = The SHs "own the corporation" and delegate power to directors who are their "agents."
Director ________ = SHs have little power to amend bylaws or approve cert. amendments.
Primacy
211
If shareholders amend the bylaws, can directors override?
Yes
212
MBCA) Who can change the bylaws?
1. Default rule and customary rule?
2. Certificate
What's the default rule in DL?
1. Shareholders and directors
2. SHs only
DL = SHs only
213
SH _________ = A proposal by one or more corporate stock holder to change company policy or procedure.
Binding = requires action taken by corp.
Non binding = recommendation to directors that they take action.
Resolution
214
T/F) Binding resolutions that take any action other than election or removal of director likely invalid.
True. It is duty of directors to manager the corp., not the SHs.
215
If you and 3 law friends start business... what entity governance structure best?
You want one tier so go partnership or LLC.
216
Can a LP sell off the entity when 25% of LPs oppose the sale?
No. LP requires "consent of all partners" to sell all or substantially all property or assets.
217
________ = a grant of authority. A person who is authorized to vote another's stock shares. Given through proxy cards.
Proxy
218
Proxy ________ = One SH asking another for their voting rights.
Solicitation
219
Proxy ___________ = Info doc that comes with proxy solicitation.
statement
220
Proxy __________ = Groups of SHs competing for votes.
Contest
221
Basis for excluding SH proposals?
1. Illegal
2. Personal grievance
3. Relates to operations less than 5% of the business
4. Relates to "ordinary business ops."
5. Director elections
6. Conflicts with company proposal
7. Sets specific dividends
222
Can a corporation exclude SH proposal from its proxy statement calling for no sell of guns? The corp. is general retailer.
Yes. Board has right and duty to manage the corp.
223
Can a corporation shut down SH proposal calling for removal of a director?
yup
224
Shares = what
Votes
225
One share = one vote [T/F]
True
226
T/F) Corporations may authorize shares with whatever voting rights they choose.
True
227
T/F) Each corporation must authorize at least one share. Why if true?
True. If the initial AOI didn't authorize stock, you need SHs later to amend articles so you can issue stock.
228
Why must each corporation authorize at least one share?
BC if the initial AOI did not authorize stock, you need SHs to amend the articles later on. If not, you can't issue stock.
229
Default rules for shares?
1. 1 share = 1 vote
2. Voting rights are coupled to shares & transferred with them
230
How does share voting work?
If you have 800 shares and their are 8 candidates and only 4 seats you fill you put those 800 shares behind the 4 you like.
1. Straight voting [above]
2. Cumlative [add up onto one candidate - helps minority SHs]
231
T/F) Each share may vote for as many candidates as there are seats.
True.
232
________ SH voting allows SHs to concentrate their votes on one or more candidates instead of spreading them evenly. [This is helpful for minority shareholders]
Cumlative.
233
234
_________ voting = A voting system where only a specific class of SHs votes on matters that uniquely affect them.
Class voting
235
When is absolute majority needed in voting matters?
SH approval of fundamental transactions
236
T/F) Absolute majority is required for SH approval of fundamental changes / transactions.
True
237
What is the default rule for election of directors?
Win by plurality. IE: Got more votes than other candidate.
238
______ vote = received more than half of all votes present.
_____ _____ vote = Received the vote of a majority of the stock entitled to vote.
________ = candidate received more votes than competiting candidate.
1. Majority
2. Absolute majority
3. Plurality
239
Is quroum required for voting?
Duh
240
Public company voting procedure?
1. Board set meeting and record date
3. SH list produced [10 days] and ballots mailed [10 -60 days]
5. Proxy statement filed
6. MEET AND VOTE
241
Default rule for electing directors in a corporation?
Plurality vote
242
SHs voting to amend the AOI to issue more shares requires what vote?
Absolute majority because changing the fundamental doc
243
If you have corporate SHs who don'g get along but maybe have majority of shares so a coalition makes sense in voting.... what options for them?
Voting trust = allow trustee to vote as their majority instructs.
244
If SHs for a voting trust, must they tell the other SHs?
No. But the trustee MUST register shares in trustees name on stock ledger and disclose to corporation...
245
If 3 SHs have 52% of the votes, could they agree among themselves that they all must vote as the majority of them choose?
Yes!
246
T/F) Entity laws provide default rules for information access.
F. Mandatory rules
247
Under MBCA and DGCL, what information must be provided "on demand?"
Any recorded information for any "proper purpose." It is less broad than partnerships but must provide access to the "books."
248
Under DGCL and MBCA, what information must be provided without demand?
The three fiduciary disclosures.
1. Ratification
2. SH decisions
3. Purchase / sell of shares
pp 272
249
What entities need only comply with info requests if the request has been made in writing?
Which entites can comply with oral requests?
1. Corporations
2. Manager managed LLC
3. LP
Oral = partnerships & member managed LLC
250
When is the only time a partnership or LLC need not provide info on demand?
When "unreasonable or improper."
251
What type of info get investors get? Written request to a corporation.
1. fundamental docs
2. financials / accounting
3. SH lists & votes cast
4. Minutes of meetings
5. resolutions
Basically anything that's not for improper purpose.
252
What entity info is available to the public?
1. FED annual reports & securities filings
2. Proxy statements
3. STATE records with name, address, articles, etc.
253
What can prosecutors get?
1. Beneficiaries name and address
2. Everything
254
Without request, private corp. must disclose....bc fiduciary duties...
1.
2.
3.
1. SH vote to ratify
2. SH vote to approve transaction [IE: merger] or investment decision
3. Special facts doctrine
255
[Private corp. duty to disclose without request] bc Fiduciary duties require...
Number 3) ___ ____ doctrine: Applies to a director with non-public info selling shares in private transaction. [Prevents insider trading]
Special facts doctrine
256
The ___ ___ doctrine is a rule from corporate law that limits insider trading by corporate directors. Fiduciary duties require disclosure if this is happenning without demand.
Special facts doctrine
257
T/F) On demand, every state statute provides SHs with right to inspect the corporate books and records.
True. Must be written demand for "any proper purpose."
258
Corporations) Demands to see corporate books must....
1) Be in writing
2) For any "proper purpose."
259
T/F) Unlike corporations, for partnerships, LLCs, and LPs, the demand for info may be oral.
False. It may be oral for partnerships and member managed LLCs.
Written info requests required for:
1. Corporations
2. Manager managed LLC
3. LP
260
Info Demand must be [Oral/Written] for LLCs manager managed.
Written
261
Info Demand must be [Oral/Written] for LP?
Written
262
Info demands across P, LPs, and LLCs will fail if....
"Unreasonable or otherwise improper."
263
Corporations information disclosure:
1. On demand
2. Without demand
1. Any recorded information for a "proper purpose."
2. Only 3 fiduciary disclosures
264
Can corporations restrict information sharing rights under corporate law?
No, these are mandatory rights to information in entity law.
265
For entities other than corporations: Information sharing..
1. On demand
2. Without demand
1. On demand = Any information for any proper purpose "unless unreasonable."
2. Without demand = Information material to proper exercise of partner / members rights.
266
For LLC and Ps, what information must be provided without demand?
Information material to the proper exercise of the partner or member's rights.
267
Can entities restrict LLC and P information sharing rights?
Yes they may restrict these rights "reasonably."
268
_________ lists = Officer in charge of stock ledger shall prepare at least 10 days b4 meeting a complete list of those entitled to vote at meeting.
Important facts:
1.
2.
3.
Shareholder/Stockholder lists:
1. Prepared for meeting
2. Any SH can examine
3. Burden rests with corp if denying request to examine.
*These lists mailed out 10-60 days before meeting*
269
Who are the stockholders that are entitled to vote? Direct or indirect?
Direct holders
270
Are corporate info rights mandatory?
Yes.
271
Can partnership info rights be restricted?
Yes, reasonably.
272
1. Who has info rights in a corporation?
2. Partnership?
1. SHs and Beneficiaries
2. Partners
273
What kind of access is allowed under both corporate and partnership rules?
Right to inspect and copy records
274
Broader right of information access in a partnership or corporation?
Partnership is very broad. Corporation is lists, records, books, ledgers, etc.
275
Information requests in corporate law must be responded to in ___ days.
5 days
276
Notice requirement for partnership info request?
May stop by on "Reasonable notice"
277
1. What type of info demand is required in corporation?
2. Partnership?
[Written / Oral]
1. Written
2. Oral
278
When can a corporation deny request to access information?
When not for a "proper purpose."
279
When can a partnership deny info request?
If unreasonable or improper.
280
How could person access names of Corp. officers and directors?
Public information on the annual report
281
How could a person access corp. shareholder names?
Become a shareholder, then have access to the list.
282
How can a person access corp. AOI / bylaws?
1. AOI = Public or available from SOS
2. Bylaws = become shareholder
283
"Any stockholder shall upon written demand have right to inspect, for any purpose, and make copies of, the list of SHs."
1. Does this include a SH who wants to harass the others?
2. How would you advise him?
1. No. It must be for a "proper purpose."
2. Tell him his purpose is "improper" and remind him what purposes are proper.
284
A _______ fight occurs when a group of SHs tries to persuade another group to vote for new mgmt and directors.
Proxy fight
285
1. Corporations shall prepare, at least ____ days before every meeting og SHs, a complete list of SHs entitled to vote.
2. When do they send it?
1. 10 days
2. No less than 10 no more than 60 days
286
T/F) Each investor is free to vote in his self-interest, even if that is contrary to the entity's interests.
Any exceptions if true?
True!
Exceptions:
1. Controlling investors
287
2 exceptions for "controlling investors" not voting in their own best interests?
1. Must vote in entity best interests
2. Must vote in co-investor best interests
288
The ___ ___ rule = He owes a fiduciary duty to act in 1) entity and 2) co-investor(s) best interests.
Controlling investor
289
A. When does the controlling investor rule not apply?
B. What must they prove then?
A. When (1) self dealing or receiving extra (2) perks / benefits.
B. Then must prove "entire fairness" of the action. IE: Fair price + fair process. If pass, then valid.
290
Do partners owe fiduciary duties to other partners? What about members? What about shareholders?
Yes to all. Unless in DL or TX for corporations.
291
___________ = Unequal treatment, frustration of reasonable expectations, or freezeout.
1. Grounds for dissolution of corps. and LLCs
Oppression
292
The court may dissolve a corporation...if...directors act in manner that is illegal, _______, or fraudulent.
What about LLCs?
Oppressive. Can be used to dissolve corps and LLCs.
293
Do individual partners owe fiduciary duties to each other?
Yes! Duties of loyalty, care, and GF.
294
The fiduciary duty of loyalty means what?
1. Don't deal against partnership or compete against it.
2. Don't break the law.
295
1. If the partnership establishes an executive committee, can the partnership agreement eliminate fiduciary duties to partners not on committee?
2. What if no committee or maybe it was established but responsibility not shifted?
1. Yes if responsibilities shifted to the committee.
2. Then no.
296
Partnerships may eliminate / alter fiduciary duties if not _____ _____.
Manifestly unreasonable. IE: Don't do illegal shit.
297
Partnership agreement: "Fiduciary duties eliminated to the fullest extent permitted by law."
Valid?
Yes, that would not be "manifestly unreasonable."
298
(Scenario)
3 investors. One fired without cause. Questions to ask / arguments to make to get him remedy?
1. Fiduciary duty to co-investors by controlling investors
2. Fiduciary duty to entity by controlling investors
3. Oppression
299
T/F) No entity MUST have a board of directors.
True
300
T/F) ANY entity can have a board of directors.
True
301
One "wrinkle" to idea that no entity MUST have functioning board of directors.
In Delaware, a corporation must list a "natural person" who holds title of "director" in the 2nd annual report.
302
SHs elect and remove board members, but, can they make decisions for them?
No.
303
________ board member means the director's only relationship to the entity is the role of director and not as employee.
Independent. This is 85% of board members in S&P 500 companies.
304
Independent directors are part time really... They don't really "manage." That role is really the ________, who are full time.
Officers
305
B.O.D. rules:
1. ______ provide for regular meeting schedule and who can call it.
2. Is notice required for regular meetings?
3. Each director has how many votes?
4. _______: More than half of "whole board" must attend for board to take action.
5. Action without meeting must be....
1. Bylaws
2. Only special meetings
3. 1, must cast in person.
4. Quorum. IE: If whole board is 10, 6 must attend.
5. Unanimous consent in writing
306
Who controls?
1. When stocks concentrated, _____ control.
2. When stocks dispersed, ______ control.
3. When in office for long periods, superior knowledge means _______ control.
1. SHs
2. Ds
3. Ds
307
1. Boards may appoint committees. Who may be on them?
2. Can boards delegate full power to act? Exceptions?
1. Only directors
2. Yes but can't delegate bylaw adoption or fundamental decisions.
308
Typical committees created by boards?
1. Executive
2. Financial
3. Compensation
4. Audit
5. Nominating
309
Board committes:
1. ________ = broad power to substitute for the board.
2. ________ = Communicates with auditors. Mbrs must be independent. Required by Sarbanes-Oxley.
3. ________ = Fixes pay of directors.
4. ________ = Nominates candidates for director roles.
5. _________ = Arranges borrowing and investment from outside.
1. Executive
2. Audit
3. Compensation
4. Nominating
5. Finance
310
T/F) Courts have said that committee members are "experts" and it is NOT gross negligence for 2 members who have not reviewed a matter to rely on the other 2 who did.
True. [In re Walt Disney Derivative Litigation]
1. Reasonable belief
2. GF reliance
311
Who can bind in ordinary course?
1. Corp. / Board together
2. Partnership
3. Member managed LLC
4. LP
1. CEO
2. Partners
3. Members together, no one by themselves
4. GP
312
In a LP, if the GP is a corporation, who does the board of GP owe fiduciary duties to?
The limited partners!
313
Can directors request and get access to emails among the directors about draft meeting minutes?
No, they can get formal board mins., drafts of board meeting mins., emails between secretary & directors, but NOT emails among directors.
314
T/F) Emails among directors fall outside "scope of companies books and records. If true, exceptions?
True
1.Except in LLC.
2. Can get emails between directors & secretary.
315
What case showed that personal emails about corporate business are not "books and records" that must be disclosed to other directors.
NavLink LLC
316
Typically, directors entitled to access and inspect what?
"Books and records" - Navlink LLC
317
Entity law distinguishes three kinds of director activities.
1. Becoming informed to make decisions [Liability for negligence to do so]
2. Making decisions themselves [BJR may protect]
3. Oversight of those decisions made [Bad faith liability or ignoring red flags]
318
What may protect directors when making decisions?
BJR
1. Care
2. Loyalty
3. Good faith
4. Rationale
5. Business related
319
Director liability for lack of proper oversight is what?
Ignoring the red flags. IE: Bad faith
320
Liability for failure to become informed before making a decision is what standard?
Simple or gross negligence
321
How do you define the "duty of care?"
Care that "a reasonable person in a like position would reasonably believe appropriate under similar circumstances."
322
T/F) For the BJR, the care, loyalty, and GF elements are presumed satisfied.
True
323
[BJR - Duty of "care"]
If a director fails to do any prep for a board meeting and the CEO says that the proposal is good... director relies on that... votes yes... Is director protected?
Yes. Board members are permitted to rely on information when they "reasonably believe" in that persons expertise and rely in "good faith."
324
T/F) Corporations may eliminate personal liability of a director or officer for breach of fiduciary duty.
True
325
To be protected by "reliance" on expert opinion, director must ____ _____ in the advisor's expertise. This must be in good faith.
Reasonably believe
326
In relying on expert opinion, directors need to ____ ____ in their expertise AND rely on it in ____ ____.
1. Reasonably believe
2. Good faith
327
T/F) Having a conflict of interest breaches NO duty.
True! It is only a breach of duty [loyalty] IF there is failure to disclose that conflict.
328
When Director does not disclose a conflict of interest, is the transaction automatically invalid? [DL]
1. Can be approved by majority of "disinterested" SHs / Directors.
2. IF the it is substantively and procedurally fair.
329
1. _______ Director = Not having a material financial interest in the transaction, [except through the entity itself.]
2. ______ Director = Not being controlled by, or beholden to, a person who has interest in the transaction.
DL Corporate law
1. Disinterested
2. Independent
330
The ____of _____ = refers to circumstances under which a conflict of interest [breach of loyalty] is excused.
1. Conditions of excusal
331
2 conditions of conflict of interest excusal in DL corporate law?
1. Disinterested / Independent director / SH approval
2. K is fair to the corporation "entire fairness" [Sub. and Procedural]
332
Under DL law, conflicts excused when disclosed and...
1. Majority of disinterested directors/or SHs approve the transaction.
2. Transaction is entirely fair to the corporation.
333
Conflict excusal of directors in an LLC/Partnerships?
Any LLC/ P may authorize a transaction that would otherwise breach fiduciary duty if it was fully disclosed. [Requires unanimous vote of all partners / members.]
IE: They can approve any conflict if person was honest about it.
334
T/F) Any LLC/ P may authorize a transaction that would otherwise breach fiduciary duty if it was fully disclosed.
T) [Requires unanimous vote of all partners / members.
335
SH asks to see the SH list. This request denied b/c director feels not in best interest of company... Breach of duties?
Yes. This violates the law + acting in bad faith.
336
T/F) Under deleware corporate law, directors may participate and vote even when conflicted.
True if disclosed and approved by majority + overall "fair."
337
How is MBCA director conflict interest transaction defined?
1. Director has material financial interest in transaction and is aware of this
2. OR a related person has material financial interest and is aware of it.
338
Under MBCA, what is a "qualified" director?
Director who does not have conflicting interest. Majority of these must approve a transaction when there is conflict.
339
What makes an act "fair" in the MBCA
Procedurally and substantively fair
340
T/F) Director's duty of loyalty is to the corporation they direct, not the one that elected them.
True!
