Corporations Flashcards
Business judgment rule
director’s decision may not be challenged if the director (1) acted in good faith (2) with the care that an ordinarily prudent person would exercise in a like position and (3) a manner reasonably believed to be in the best interest of the corporation.
Directors can ordinarily rely on the opinions of experts and corp. insiders.
Duty of loyalty (conflict of interest) / exculpatory clause in articles of incorp.
conflicting interests transaction cannot be set aside if (1) director disclosed material facts to disinterested board members or shareholders and they approve or (2) transaction was fair at the time made.
corporations’ articles of incorporation may limit or eliminate the director’s personal liability for damages to shareholders or corporations for actions taken. Exception (1) received a benefit to which not entitled (2) intentional harms to corp or shareholders or (3) approved unlawful distributions or (4) intentionally committed a crime
votes required (articles vs bylaws/votes of shareholder rules)
The vote required at a meeting can be set in the articles or bylaws. when articles and bylaws conflict articles control.
only shareholders of record on the record date may vote at the shareholder meeting. A shareholder may give another a written and signed proxy to vote.
Proxies are generally revocable unless they say that they are irrevocable and are coupled with an interest (purchased the shares and paid for proxy) Proxies may be revoked by shareholders by showing up to vote in person. The shareholder may attend and vote shares personally.
Only outstanding shares may be voted. Shares that were issued and outstanding but have been repurchased are not outstanding and cannot be voted.
Authority (officers/directors/shareholder)
president’s power to bind corp. governed by agency law (ordinary day-to-day contracts involve day-to-day operations). pres. needs express authority to enter into extraordinary transactions
Fundamental Change to corp. / appraisal if dissent
Outside the scope of ordinary business is a fundamental change. approval requires board and shareholder approval. (the board cannot delegate authority).
Implementation of fundamental change requires (1) director resolution and plan and (2) approval of the plan by shareholders.
after approving the resolution the directors would call a shareholder meeting giving notice to the shareholders of the proposal.
Shareholders who dissent from a fundamental change can force corporations to purchase their shares at a fair price through appraisal. The shareholder must (1) file an objection to the transfer before or at the shareholder’s meeting (2) not vote in favor of the plan and (3) send the corp written demand for the fair value of shares and (4) deposit shares with corp as directed. (If corp and shareholders cannot agree on fair value the corp must file an action requesting the court to determine fair value. )
Promoter Liability
A promoter is a person who procures commitments for capital and instrumentalities on behalf of the corporation to be formed.
generally, promoters are personally liable on K’s they enter into on behalf of the corp to be formed. Promoter liability continues after the corp is formed and even if the corp also becomes liable on the K by adopting it.
Exception: promoter will not be liable on a pre-incorporation K if the agreement between the parties expressly indicates that the promoter is not to be bound. (release if novation)
Cannot be an agent if the sign on behalf b/c principal must exist.
corp not liable on K entered into by promoter unless adopts, expressly or impliedly (if accept the benefit of K).
Directors
Directors are generally vested with the power to manage corporations. Directors may act by a majority vote at a meeting at which a quorum is present if directors (1) manage corp to the best of their ability in good faith (2) with the care that an ordinarily prudent person in a like position would exercise and (3) in a manner reasonably believed to be in the best interest of corporation (4) court will not second-guess decisions. A person challenging director action has the burden of proving standard not met.
Shareholder meeting
validity of shareholder’s meeting a quorum must be present. Quorum requires presence of majoirty of outstanding shares entitled to vote. Directors elected by a plurality.
Shareholder meeting
validity of shareholder’s meeting a quorum must be present. Quorum requires the presence of a majority of outstanding shares entitled to vote. Directors elected by a plurality.
Books of Corp
shareholders generally have the right to inspect their corp’s books and records for the proper purpose. Proper purpose = related to shareholder status. The shareholder has to give corp five days’ written notice stating reason; can bring attorney, accountant or other agents to facilitate inspection.
Derivative action
a shareholder may bring derivative action or direct action. Derivative action seeks to vindicate wrongs done to corporations. Direct action seeks to enforce duties that a corporation owes to shareholders. Shareholders must make a demand on board for derivative action but not for direct action.
Dividend
The shareholder has no right to receive a dividend until declared by the board. The decision to declare is at the sound discretion of the board. if the board decides in good faith not to declare dividends courts will not disturb the decision. the shareholder has the burden of proving bad faith
Controlling shareholder
generally, shareholders are free to act for their own benefit. Exception: controlling shareholders must refrain from using control to obtain a special advantage or to cause corp to take action that unfairly prejudices minority shareholders. Controlling shareholders must disclose material information to minority shareholders.
