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NY/ MBE Bar Study > Corporations > Flashcards

Flashcards in Corporations Deck (49)
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What are the different rules of revocation for pre & post incorporation subscriptions?

pre- irrevocable for 3 months unless otherwise stated
post- remains revocable until corporations


What are the 2 rules that effect subscriber default of payment?

if subscriber paid...
1. < 50% of purchase price & fails to pay balance w/ in 30 days of written demand = corp may keep money (forfeiture) & cancel shares
2. > 50% of purchase price & fails to pay balance w/ in 30 days of written demand corp must try to sell stock 1st
-if no sale= forfeiture & cancellation of shares
-if sale for > purchase price, defaulting subscriber recovers excess


When is corp liable for pre-incorporation contracts? (3)

1. express adoption
2. implied adoption (corp accepts benefit knowingly)
3. novation
-corp replaces promoter in contract= relieves promoter of liability
-mere adoption not novation (promoter still liable)


In corp formation, what is necessary to establishing par value?

At least 1 class of unlimited voting & dividend rights, for stocks or bonds (respectively)


What circumstances allow a court to pierce the corp veil?

- to prevent fraud & use of corporations to cloak illegality
-excessive domination


What are the 4 mechanical requirements of forming a corp?

1. execute (sing) C.O.I.
2. deliver to secretary of state
3. pay filing fee
4. hold organizational meeting to
-adopt bylaws
-elect board


What are the requirements of a valid restriction on sale/ transfer of shares?

1. restriction on the certificate/ share
2. is reasonable under circumstances
3. not an undue restraint
-right of 1st refusal by corp. is a valid restriction if price reasonable


When is a de facto corp created?

under limited circumstances to prevent injustice & shareholders from being personally liable


What are the 3 requirements for establishing de facto corp status?

1. relevant incorporation statute
2. parties make good faith attempt to comply
3. there is some exercise of corporate privileges


What are 5 forms of allowable considerations for issuing stock? (what can you trade for stock?)

1. $
2. property
3. labor or services
4. binding promise to purchase
5. binding promise to perform future services


When can a corp not declare dividends due to insolvency?

-if paying dividends would make corp insolvent
-if corp is (already) insolvent


What are the requirements of a valid proxy?

1. writing
2. signed by record shareholder
3. directed to secretary of corps
-proxy good for 11 months & freely revocable unless it states otherwise to coupled w/ an interest


What are pre-emptive rights?

right of existing shareholder to maintain his percentage of ownership by buying stock whenever there is a new issuance for $
-before 2/22/98: such rights exist for all commonstock
-after: don't exist unless granted in COI


What does a shareholder inspection rights grant?

allowed to inspect
1. minutes
2. record of shareholers
3. list of current directors/ officers


What can corp require shareholder to disclose in an affidavit prior to inspection?

1. purpose of inspection not against interst of corp
2. shareholder has not sold a shareholder list in last 5 years


What are the 4 reqs for a shareholder to bring a derivative suit?

1. owns stock at time of claim'
2. owns stock when action brought through entry of judgement
3. adequately represents interests of corp (not self)
4. make a demand on board, unless demand futile


What 3 factors make a demand on board futile?

1. majority of board interested in transaction (or under control of interested board members)
2. board uninformed of transaction
3. action so egregious on its face that bus. jud. rule doesn't apply


How can a director be removed from he board w/o cause?

only by shareholders & if COI allows such removal


What are directors not permitted to do in terms of director voting?

1. no voting agreements
2. cant use proxies for director voting
-shareholders may enter into voting agreement for electing directors, must be provided for in COI


What must a dissenting director who misses a meeting do to avoid liability?

register written dissent w/in a reasonable time after learning of action


What is a closely held corp?

corp with few shareholders & stock is not publicly traded


In what 4 ways may a COI limit the liability of directors in breach of their duties of care/ loyalty?

liab. limited if breach not found to
1. be in bad faith (through negligence)
2. be due to intentional misconduct/ knowing violation
3. result in financial profit or other advantage
4. violate statutory liabilities


What can never be indemnified?

1. judgments for bad faith actions
-settlement amounts, attorneys fees may be reimbursed/ indem. in certain situations


What is the general rule about indemnification of a director (or officer)?

-if successfully defends (wins) gets indemnified
-if loses/ held liable, no indenmificaion


In a closely held corp, what are the 2 grounds for dissolution?

1. illegal, oppressive/ fraudulent acts towards complaining shareholders
2. wasting, diverting or looting of assets
-ct will consider whether heir are any adequate alternatives to dissolution including buying out complaining shareholder


What 3 types of amendments will grant a dissenter appraisal rights?

one that
1. alters/ abolishes preference
2. change redemption rights
3. alters/ abolishes pre-emptive rights or limits voting rights


What 4 merger/ consolidaton scenarios give dissenters appraisal rights?

1. corp merger including dissenters in a short term merger (parent w/ subsidiary)
2. corp consolidation
3. corp transfers all/ substantially all its assets
4. corps shares are acquired in a share exchange


When will a company acquiring assets be liable for the torts of the acquired company?

1. when the deal provides so
2. when purchasing company is a mere continuation of the seller
3. or deal was entered into fraudulently to escape tort obligation/ liability


What level of approval is required for changes to the board's authorities?

director & shareholder approval
before 2/22/98= 2/3 shares
after 2/33/98= majority
-board authorities= supermajority quorum, voting reqs


What level of approval is req for changes/ amends to shareholder authorities?

-director approval AND
-2/3 shareholders
-shareholder authority= voting req/ supermajority quorum