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NY/ MBE Bar Study > Corporations > Flashcards

Flashcards in Corporations Deck (49)

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


When may a board seek judicial dissolution?

corp has insufficient assets to discharge liablility OR dissolution in best interest of corp


What level of approval is required for a board to seek judicial dissolution?



In what 3 situations may shareholders seek judicial dissolution?
What level of approval is required?

1. directors too divided to manage
2. shareholders too divided to elect director
3. other internal dissention making dissolution beneficial
-1/2 shares
=if unable to elect directors for 2 yrs, any shareholder entitiled to vote may petition


In closely held corp, what are the 10 largest shareholders personally liable for?

wages & benefits of corp employees


What is treasury stock?

stock previously issued that has been reacquired by corp
-no min amt required for sale of treasury stock


What is the main consequence of failure to give proper notice to shareholders/ board members of meetings?

action taken at meeting will be void


What constitutes an adequate waiver of notice?

1. express (written and signed)
2. implied (attendance at mtg w/o objection)


What is required for shareholders/ board to take action w/o a meeting?

written consent of whatever % of shareholders would be needed to pass the action at a mtg


What is a proxy?

authorizes someone to vote the shares of another


What is the business judgment rule?

if directors manage corp in good faith in manner direcors reas. believe in best interest of corp, ct will not punish poor/ bad investment decisions


What is an utra vires act?

act outside corps stated purpose


What is the corp opportunity doctrine?

director cannot usurp a corp opportunity that corp tangibly expects should be granted to it
-director must wait for corp to reject opportunity
=related to directors duty of loyalty & requirement that director cant compete w/ corp


What is the standard of care associated with a director of officers duty?

act in good faith w/ the degree of care an ordinarily prudent person would use under similar circumstances


In what 3 situations will a corp be deemed not to have a tangible expectation of an opportunity? (corp opp. doc)

1. corp refused/ rejected opportunity
2. corp unable to take advantage of opp
3. opp not related to corps business


What is a right of appraisal?

rights of a shareholder to force corp to buy his shares at fair value


What 3 things must a dissenter do to perfect their appraisal right?

1. file written objection before vote
2. abstain OR vote against action
3. after vote, make written demand to be bought out


What approval is req for voluntary dissolution?

only shareholder vote required not board
-before 2/22/98: 2/3
-after: majority


What must a COI for a professional service corp include?

the profession to be practiced must be included


What are professional liable for in professional service corps?

their own malpractice
-not liable for rent due on leases in corps name or other contracts of corp