Corporations Flashcards
(378 cards)
1
Q
What is a de jure corporation?
A
Incorporator validly complies with the requirements of state incorporation laws
2
Q
The articles of incorporation should list the maximum number of shares that __________.
A
A corporation is authorized to issue
3
Q
To be a valid corporation, articles of incorporation must include:
A
- Number of authorized shares
- Purpose
- Address of the corporation’s initial registered office
- Name of registered agent
- Name of incorporation
- Name of corporation
4
Q
A corporation may only engage in activities which ________.
A
Fall within the stated business purpose in its articles of incorporation
5
Q
If there is no statement of purpose, what is the default purpose of a corporation?
A
Purpose of engaging in any lawful business
6
Q
General corporations of perpetual ______ are valid.
A
Duration
7
Q
What is the ultra vires doctrine?
A
When a corporation has a narrow business purpose, activity beyond that purpose is unenforceable
8
Q
______ may sue to enjoin ultra vires activity.
A
Shareholder
9
Q
___________ and ________ who enter into an ultra vires transaction can be held personally liable by the corporation for losses caused by the ultra vires activities
A
Directors
Officers
10
Q
A state may _________ to dissolve a corporation for committing an ultra vires act.
A
bring an action
11
Q
A corporation’s name must indicate _______.
A
Corporate status
12
Q
Unless a delayed effective date is specified, the corporate existence begins when ________.
A
The articles are filed
13
Q
The Secretary of State’s filing of the articles of incorporation is conclusive proof that ___________.
A
The incorporators satisfied all conditions precedent to incorporation
14
Q
The Secretary of State’s filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation unless:
A
In a proceeding by the state to:
1. cancel/revoke the incorporation OR
2. involuntarily dissolve the corporation
15
Q
A corporation’s initial bylaws may contain:
A
Any provision for:
1. Managing the business AND
2. Regulating the affairs of the corporation
…that is consistent with the law/articles of incorporation
16
Q
A de facto corporation may be found where:
A
- There is a valid general corporation law
- The incorporation made a colorable good-faith attempt to comply with the statute
- The incorporator wasn’t aware that the attempt to comply with the statute was invalid AND
- Corporation took some action indicating that it is considered itself a corporation
17
Q
A de facto corporation has all the rights and powers of ______ corporation.
A
De jure
18
Q
What are the requirements of a de facto corporation?
A
- Valid corporation law
- Colorable good faith attempt to comply
- Unaware that attempt was invalid AND
- Corporate action
19
Q
De facto corporations do protect shareholders from personal liability, these corporations are vulnerable to _________ proceedings brought by the state that can dissolve de facto corporations.
A
quo warranto proceedings
20
Q
Corporation by estoppel does not apply to _____.
A
Tort victims
21
Q
Corporation by estoppel results when:
A
A corporation:
1. Holds itself out to the public as a corporation
2. Acts as such
3. Enters into contracts under that banner
…but is not actually a corporation at the time
22
Q
A corporation by estoppel is estopped from ___________.
A
Claiming that it was not a corporation when it entered into those contract
23
Q
If a person deals with an invalid corporation believing it was a validly formed corporation, then that person is estopped from ________.
A
Attacking corporate existence
24
Q
Corporations are considered “domestic” corporations only where?
A
In the state of incorporation
25
In all states other than the one in which it is incorporated, a corporation is considered __________.
A foreign corporation
26
A foreign corporation doesn't have authority to conduct business in another states unless ___________.
It obtains a certificate of authority from that state's secretary of state
27
In terms of standing, what does it mean that a corporation fails to obtain a certificate of authority in a foreign state?
It cannot sue; it can still BE sued
28
If properly formed, the corporation becomes a separate legal entity empowered to _______. It is also now ________.
Enter into its own contracts
Liable for its own debt
29
Corporate status provides limited liability for _________.
Shareholders
30
Shareholders are not personally liable for _____ or ______ of the corporation.
Debts
Obligations
31
The corporate form will be ignored by courts in some circumstances to avoid _____ and _____.
Fraud
Unfairness
32
The corporate veil can only be pierced against corporate shareholders, not _________.
Passive investors who acted in good faith.
33
Even if a corporation's shareholders have abused the corporate form, a court will not pierce the corporate veil unless ______ requires it.
Justice
34
Courts are generally more willing to pierce the corporate veil for the benefit of _____ creditors than ______ creditors.
Tort
Contract
35
What are the main theories for piercing the corporate veil?
1. Fraud or avoidance of existing obligations
2. Undercapitalization
3. Alter ego
36
What is the fraud or avoidance of existing obligation theory for piercing the corporate veil?
Corporate veil may be pierced when necessary to prevent
1. Fraud
2. A shareholder from using the corporate form to avoid personal obligations
37
What is the undercapitalization theory for piercing the corporate veil?
Inadequate capitalization is determined by looking at whether a corporation had adequate funds to meet its prospective liabilities at time of formation.
38
When is a corporation an alter ego>
Where there is a serious lack of corporate formalities
39
What is the doctrine of double taxation?
A corporation is considered a separate entity that is distinct from its owners and thus is taxed like one.
40
Being an S corporation means _______.
The corporation may be taxed like a partnership
41
What are the requirements for an S corporation?
1. Max 100 shareholders
2. One class of stock AND
3. Shareholders must be individual
42
What does LLC stand for?
Limited liability corporation
43
What is a limited liability corporation?
Limited liability of a corporation combined with favorable partnership tax treatment
44
How many owners may there be for an LLC?
No limit
45
What are the formalities of an LLC?
1. Must file articles of organization
2. May adopt operating agreement
46
The articles of an LLC must include the following:
1. Statement that entity is LLC
2. Name of the LLC
3. Address of registered office
4. Name of registered agent
5. Names of all members
47
Profits and losses are allocated in an LLC on what basis?
Member's contributions to the LLC
48
Who manages an LLC?
Presumably, all members
49
Managers of an LLC owe the company duties of ____ and ____.
Care
Loyalty
50
Are members/owners personally liable for the debts/obligations of an LLC?
No
51
An LLC is taxed like ________.
A partnership
52
What is the limited liquidity concept of LLCs?
1. Assignment only assigns member's right to profits and losses, not general losses.
2. Member interests are not freely transferable
3. Consent of all members ie required for new members
53
Dissolution of an LLC requires __________.
Consent of all members of an LLC
54
Does the dissociation of an LLC member result in the LLC's dissolution?
No
55
What are professional corporations?
Corporation of licensed professionals
56
What professions may apply for professional corporations?
1. Architects
2. Attorneys
3. CPAs
4. Engineers
5. Medical professionals
57
What are the filing requirements for a professional corporation?
1. Articles of incorporation
2. Purpose is to render professional services
3. Shareholders must be licensed professionals
58
A professional corporation must include what in the title?
Either:
1. Professional coporation
2. Professional association
3. Service corporation
4. PC
5. PA
6. SC
59
How many corporations may be practiced by a professional corporation?
Only one
60
A professional in a professional corporation remains personally liable for _____________.
Own malpractice/misconduct while providing professional services
61
A shareholder in a professional corporation will not be personally liable for the ______ of their fellow shareholders.
Malpractice
62
A close corporation is entitled to _______
Operate without the strict formalities normally required for corporate conduct
63
Shares in a close corporation are subject to restrictions related to __________.
Resale
64
In a close corporation, _________ are key instruments used to protect minority shareholders.
Shareholder agreements
65
The purpose of shareholder agreements in close corporations is to ________.
Give the minority shareholder the ability to participate in the management or decision-making process of the corporation
66
Close corporation shareholder agreements typically contain buy-sell provisions that ________.
Give existing shareholders first rights of refusal with respect to subsequent sales or transfers of shares
67
All persons purporting to act as or on behalf of a corporation, knowing __________, are jointly and severely liable for all liabilities created while so acting
There was no incorporation under the RMBCA
68
Who is a promoter?
Person/thing acting on behalf of a corporation not yet formed
69
A promoter is a fiduciary of _____ and _____.
The corporation
Other promoters
70
When a corporation has multiple promoters, the promoters are considered __________ and thus have _________.
Joint venturers
Fiduciary duty to one another
71
Promoters breach their fiduciary duty to other promoters if ________.
They secretly pursue personal gains at the expense of other promoters and the coroporation
72
What is the secret profit rule?
Promoters may not secretly profit from transactions with/on behalf of the corporation
73
A corporation may recover any profit made by a promoter while _________.
Acting as a promoter.
74
If property sold to corporation is acquired before someone becomes a promoter, the profit is recoverable by the corporation only if ________.
The property was sold for more than its fair market value
75
If property sold to corporation is acquired after someone becomes a promoter, the profit is recoverable by the corporation only if ________.
...actually, it's always recoverable in this situation.
76
Until such time as a corporation ______ and ________, it does not have a separate legal existence and cannot enter contractual obligations.
Complies with all formalities of incorporation
Files its articles of incorporation
77
A corporation is liable on a promoter's pre-incorporation contract when the corporation adopts the contract by either ____ or _____ adoption
Express
Implied
78
Express adoption occurs via _______
Express board of director's resolution
79
Implied adoption occurs via:
1. Knowledge of contract AND
2. Acceptance of benefits without protest
80
What effect does adoption have on a promoter's liability?
Mere adoption by the corporation doesn't relieve promoter of liability
81
A promoter remains personally liable on a pre-incorporation contract unless:
1. Novation
2. Lack of liability in contract
82
If _______ is never formed, there cannot be a subsequent novation.
Corporation
83
What is novation?
All parties agree to substitute the corporation for the promoters as the party liable for the contract
84
What happens to a promoter's liability if there is adoption of a corporation but no novation?
Promoter remains liable for pre-incorporation contracts
85
Who is a subscriber?
Person/entity who offers to buy stock in a corporation not yet formed
86
A subscription agreement entered into after incorporation is a contract between _____ and _____.
Subscriber
Corporation
87
An offer to purchase stock in a corporation not yet formed must be held open for _______.
6 months
88
Unless specified in a subscription agreement, _________ may determine the payment terms of subscription for shares that were entered into before incorporation
The board of directors
89
Payment for subscription is due upon __________.
Demand by board
90
In subscription, a call for payment by the board cannot be ________
Discriminatory
91
If a subscriber defaults in payment, the corporation may ________.
Collect the amount owed as any other debt
92
If a subscriber defaults in payment, what can a corporation do 20 days after corporation sends written demand for payment?
Corporation may
1. Rescind the agreement AND
2. Sell the shares
93
Who is an incorporator?
Person/entity who signs and files the articles of incorporation with the state
94
What are authorized shares?
Number of shares set forth in articles
95
What are outstanding shares?
Shares that have been issued but unredeemed
96
What are redeemed shares?
Shares repurchased or redeemed by the corporation
97
Redeemed shares can be:
1. Cancelled OR
2. Held as treasury stock for potential reissue
98
Before shares can be distributed to a class, the class must be set forth in ______.
The articles
99
What can be consideration?
1. Any tangible property
2. Any intangible property
3. Any benefit to the corporation
100
What is a par value?
Minimum issuance price specified in corporation's articles?
101
Any valid consideration may be received if ___________.
The board of directors values it in good faith to be worth at least par value
102
Who may the corporation hold liable for issuing shares at below par value?
1. Directors
2. Buyers of shares
103
If there is no par value, there is no _________.
Minimum issuance price
104
If there is no par value, then any valid consideration may be received if __________.
Deemed adequate by the board of directors
105
What is treasury stock?
Stock previously issued by the corporation but later reacquired
106
________ stock is considered no par value.
Treasury
107
Debt securities are issued when a corporation:
1. Borrows funds from outside investors AND
2. Promises to pay them back
108
Holders of debt securities have no __________.
Ownership interest in the corporation
109
Shareholders own _________ interest in a corporation.
Equity
110
Shareholders are not entitled to distribution of a dissolved corporation's assets until ____________.
All debts of the corporation have been satisfied
111
Publicly held corporations are subject to _____________ laws.
Federal securities laws
112
What does section 16(b) do?
Prohibits short-swing trading
113
What is short-swig trading?
A director, officer, or >10% shareholder of a publicly traded corporation purchasing and sells stock of the corporation within 6 months
114
What is a corporation entitled to if there is short-swing trading?
Recover the maximum difference between any sale/purchase during this six-month period
115
§16(b) is applicable to large companies registered under the 1934 Act, which means companies:
1. With $10M in assets AND 500 shareholders OR
2. Listed on national stock exchange
116
Profits under 16(b) are calculated by __________.
Matching the highest sales price against the lowest purchase price in the six-month period
117
What does rule 10b-5 prohibit?
Use of an instrumentality of interstate commerce in any scheme to:
1. Defraud
2. Make material misrepresentations or omissions OR
3. In any other way use fraud in the purchase/sale of securities
118
Under Rule 10b-5, an insider must either ________ or not trade in securities.
Disclose inside information
119
An insider may be liable under Rule 10b-5 for ________ for an improper purpose.
tipping information regarding the company
120
Whare the elements of Rule 10b-5?
1. Use of instrumentalities of interstate commerce
2. Fraudulence including:
a. misrepresentation of material fact
b. failure to disclose OR
c. insider trading
3. in connection with the purchase/sale of security
4. With at least recklessness AND
5. Reliance by person on other side of transaction
121
What is scienter?
Intent to deceive, manipulate, or defraud
122
What is a material fact in regards to a Rule 10b-5 violation?
There is a substantial likelihood that reasonable investor would consider the information important to investment decision
123
Rule 10b-5 essentially prohibits _______.
Insider trading
124
What individuals will be held liable for insider trading?
1. Insiders
2. Non-insiders under misappropriation
3. Tippers
4. Tippees
125
Who is an insider?
Person who owes a fiduciary duty to the corporation
126
What is misappropriation theory in regards to insider trading?
Non-insider uses/trades information she knows/should know is material inside information.
127
A corporate insider is liable for tipping if she:
1. Has a fiduciary relationship with the corporation AND
2. Discloses material inside information to a tippee who trades on the basis of that information
128
Who is a tipper?
Person who discloses material inside information for personal benefit to someone else who trades on the basis of that information
129
When can a tippee be found liable?
If they trade on information received w/ knowledge that the tipper was breaching a fiduciary duty by disclosing that information
130
For the purposes of Rule 10b-5, damages are limited to ___________.
Difference between
1. The price paid AND
2. The average share price during the 90-day period after the market is corrected
131
What is the Sarbanes-Oxley act?
Federal law that set new/enhanced standards for all US public company boards, management, and public accounting firms
132
To what companies is the Sarbanes-Oxley Act applicable?
1. $10M in assets AND 500 shareholders OR
2. Listed on a national stock exchange
133
Sarbanes-Oxley created the ___________ board.
Public Company Oversight Board
134
Sarbanes-Oxley created the Public Company Oversight Board to:
1. Register public accounting firms that prepare audit reports for issuers AND
2. Establish/adopt rules for standards relating to the preparation of audit reports for issuers
135
A company's audit committee is responsible for:
1. Appointment
2. Compensation AND
3. Oversight
...of the work of any registered public accounting firm employed by the company for preparing an audit report
136
Under the Sarbanes-Oxley Act, CEOs and CFOs must certify that:
1. Officer has reviewed the report
2. Report doesn't contain any material untrue statements/material omission, nor is it misleading
3. Financial statements fairly present the financial condition/results in all material respects AND
4. Signing officers are responsible for internal controls and have evaluated those controls w/in the previous 90 days
137
if a company is required to restate materially mistated financial reports, it can ____________.
Recoup any benefit during a 12-month period after the false reports were filed with the SEC
138
A corporation can recoup benefits gained by directors/officers from purchasing/selling shares during ________ periods.
Fund black-out
139
What is a pension blackout period?
Period of at least three consecutive days when at least 50% of employees participating in the company's retirement plan are prohibited from selling company securities in the plan
140
What punishment for the destruction, alteration, or falsification of records in federal investigations and bankruptcy?
Fine/imprisonment; max 20 years
141
What punishment for the destruction of corporate audit records?
Fine/imprisonment; max 10 years
142
What is the SoL for securities fraud?
1. Two years after discovery of facts constituting the violation OR
2. 5 years after violation
143
What protection is created by Sarbanes-Oxley for whistleblowers?
Creates a statutory cause of action for any employee discriminated against for reporting conduct that violates securities laws
144
What punishment for defrauding shareholders of publicly traded companies?
Fine/imprisonment; max 25 years
145
The power of direct control of the day-to-day management of a corporation is delegated to ___________.
Officers of the corporation
146
How can shareholders control day-to-day operations?
by entering into management agreements
147
What kind of control do shareholders have?
Indirect
148
How do shareholders exercise indirect control?
By voting on certain matters
149
What power do shareholders have over directors?
Electing/removing directors with/without cause
150
What powers do shareholders have over bylaws?
1. Adopt
2. Amend
3. Repeal
151
Shareholders must approve fundamental corporate changes, such as:
1. Merger
2. Sale of assets outside ordinary course of business
3. Dissolution
4. Other extraordinary corporate matters
152
A shareholder direct action occurs when __________.
A shareholder brings a suit against the corporation
153
Any recovery from a shareholder direct action goes to _________.
The shareholder, not the corporation
154
What is a derivative action?
Lawsuit started by a shareholder to enforce a corporate cause of action
155
Any recovery from a derivative action goes to ______.
The corporation
156
What are the requirements for standing in a derivative action?
1. Stock ownership when cause of action arose AND
2. Can fairly and adequately represent the interests of the corporation
157
What is the written demand for a derivative action?
Shareholder must
1. make written demand to board of action to take suitable action AND
2. wait 90 days for answers
158
A shareholder must give the board of directors 90 days to respond to a written demand requirement before initiating derivative suit unless:
1. Notified of rejection by board OR
2. Irreparable injury`
159
A derivative proceeding shall be dismissed by the court on a motion the corporation if:
A majority of directors has, after conducting reasonable inquiry, determined in good faith that the derivative action is not in the best interests of the corporation
160
If a corporation brings a motion to dismiss a derivative suit, a shareholder must show that either:
1. A majority of the board didn't consist of independent directors at the time determination was made OR
2. Dismissal was not made in good faith after a reasonable inquiry
161
If the majority of the board was not independent upon making an inquiry that led to a motion for dismissal of a derivative proceeding, then ________.
The corporation has the burden of proving that dismissal was made in good faith after reasonable inquiry
162
A derivative proceeding may not be discontinued/settled without ____________.
Court approval
163
If a derivative action resulted in substantial benefit to the corporation, the court may order _________
Corporation to pay P's reasonable expenses
164
If a derivative action was commenced/maintained without reasonable cause or for improper purpose, the court may order _________
D's reasonable expenses
165
Every corporation must hold an annual meeting of ____________ according to ______.
Shareholders
the bylaws
166
Who can call a special meeting?
1. Board of directors
2. Other authorized persons
3. 10% of the votes entitled to be cast at the meeting
167
What is the purpose of a special meeting?
1. Proposals
2. Fundamental changes
168
If no place is stated in the bylaws, where may corporate meetings be held?
At corporation's principal's office
169
What are the requirements for notice relating to a corporate meeting?
1. Between 10-60 days notice AND
2. Include time/place of meeting
170
What additional requirement exists for notice of special meetings?
Statement of purpose
171
How does a shareholder waive notice?
1. In signed writing delivered to the corporation OR
2. By attending the meeting unless objection is made at the beginning of the meeting
172
Each outstanding share is entitled to one vote unless ___________.
Otherwise specified in articles of incorporation
173
A shareholder may vote her shares via:
1. In person OR
2. By proxy
174
Only ______ owners of stock shares on ________ date may vote.
Registered
Record
175
What is the record date?
Any day set by board within 70-day window before the meeting
176
If the board does not set a record date, the record date is _________.
The day notice of the meeting is sent out
177
What does a proxy do?
Delegates a shareholder's right to vote to another person
178
What are the requirements for valid proxy?
1. In writing
2. Signed by record owner
3. Sent to corporation's secretary
4. Authorizes vote on owner's behalf
179
How long are proxies valid?
11 months, unless provided otherwise
180
Proxies are revocable unless:
1. Conspicuously states that proxy is irrevocable AND
2. Coupled with an interest in shares themselves
181
What proxies have an interest in shares themselves?
1. Pledgee
2. Purchaser
3. Creditor
4. Employee
5. Voting agreement
182
A quorum must ______ before a vote may validly be taken.
Attend a meeting
183
What is required to have a quorum?
Majority of all outstanding shares entitled to vote must be represented when meeting begins
184
Once a share is represented for any purpose at a meeting, how long is it deemed present for quorum purposes?
1. Remainder of meeting AND
2. For any adjournment unless a new record date is/must be set for the adjourned meeting
185
Unless articles require a different voting requirement, an action is approved if ________.
Votes cast in favor exceed the votes cast in opposition by one share
186
Unless articles specify otherwise, directors are elected by _______.
Plurality of the votes
187
What is a plurality?
Largest number of votes received by any director
188
What is cumulative voting?
Each shareholder gets one vote per open director slot; there is one open slot.
189
When is cumulative voting allowed?
When expressly granted in the articles
190
What is class voting?
Typical quorum and voting rules, but applied separately to each class of shares
191
Action required/permitted to be taken at a shareholder's meeting may be taken without a meeting if:
1. The action is taken by all shareholders entitled to vote AND
2. Is evidenced by signed writing describing the action taken and delivered to the corporation
192
If a shareholder wants to make an inspection, she must give written notice of her demand at least _______ before the date of inspection.
Five business days
193
A shareholder is entitled to a purposeless inspection of:
1. Articles
2. Bylaws
3. Board resolutions regarding classification of shares
4. Minutes of shareholder meetings from the past 3 years
5. Communications sent to shareholders over the past 3 years
6. Names/addresses of directors/officers OR
7. Copy of annual report
194
If shareholders need a purpose for inspection, they must:
1. Make demand in good faith and for proper purpose
2. Describe purpose with reasonable particularity
3. Describe with reasonable particularity the records she desires to inspect AND
4. Records are directly related to your purpose
195
What records require a purpose before a shareholder may inspect them?
1. Any corporate record not in the "purposeless inspection" list
2. Accounting records of the corporation OR
3. Record of shareholders
196
What are a shareholder's preemptive rights?
Right to maintain existing ownership percentage when the corporation issues new shares of stock
197
Shareholders of a corporation do not have a preemptive right to ________ except to the extent provided for in the articles of incorporation.
Acquire the corporation's unissued shares
198
Even if granted in the articles, shareholders do not have a preemptive right with respect to:
1. Shares issued as compensation to directors, officers, agents or employees of the corporation
2. Shares issued within 6 months of incorporation
3. Shares sold for consideration other than cash
4. Shares w/o voting rights but with distribution preference
199
A restriction on the transfer of shares is authorized for what purpose?
1. To maintain corporation's status
2. To preserve exemptions under federal/state securities law OR
3. For any other reasonable purpose
200
A restriction on transfer of stock must be _______ noticed.
Conspicuously
201
A restriction on transfer of stock is valid/enforceable against the holder/transferee of the holder if:
1. It is authorized AND
2. Its existence is noted conspicuously on the front/back of the certificate
202
A restriction on transfer of stock is only enforceable against a third party who _______________.
Had knowledge of restriction
203
What does a voting trust do?
Confer on a trustee the right to vote or otherwise act for them
204
In broad strokes, how is a voting trust created?
Signing an agreement
1. Setting out the provisions of the trust AND
2. Transferring their shares to the trustee
205
What are the requirements for a voting trust?
1. In writing
2. Names & addresses of all owners of beneficial interests in the trust
3. Number and class of shares, each transferred to the trust AND
4. Deliver copies of the list & agreement to the corporation
206
How long are voting trusts good for?
10 years
207
A voting agreement is also known as a __________.
Pooling agreement
208
How long are voting trusts good for?
10 years
209
A voting agreement is also known as a __________.
Pooling agreement
210
What does a voting agreement do?
Provides for the manner in which they will vote their shares
211
What are the requirements of a voting agreement?
1. In writing
2. Signed by shareholders entering the agreement
212
Upon whom is a voting agreement enforceable?
All signors
213
What is a shareholder management agreement?
Agreement regarding almost any aspect of the exercise of corporate power
214
To be valid, a shareholder management agreement must be ________.
Included in
1. Articles
2. Bylaws OR
3. Written agreement by all shareholders at time of adoption
215
What is required for the amendment of shareholder management agreements?
Unanimous consent by shareholders at time of amendment
216
How long is a shareholder management agreement valid?
For 10 years
217
A shareholder management agreement will terminate upon:
1. Listing on National Securities Exchange OR
2. Becoming otherwise regularly traded
218
_______ have no right to distributions.
Shareholders
219
The board of directors has unlimited discretion to decide whether to distribute any value to the shareholders UNLESS:
1. Unable to pay debts OR
2. Dividend will render corporation insolvent
220
What is a defense of good faith reliance?
A board may base a determination that a distribution wasn't prohibited either on:
1. Financial statements prepared on the basis of accounting practices
2. Principles that are reasonable in the circumstances
221
______ may restrict the board's ability to declare distributions.
Articles
222
What are the restrictions on share dividends?
May not be issued unless:
1. Authorized by the articles
2. Majority of class/series approves the issue OR
3. No outstanding shares of the class/series to be issued
223
Preferred stock means that ______.
Preferred stockholders are paid dividends first
224
Cumulative preferred stockholders have the right to _________.
Recieve prior unpaid dividends payments before dividends can be paid to common stock
225
Participating preferred stockholders are paid dividends both as ______ and as ______.
Preferred stock
Common stock
226
Common stockholders are _______ last and are ______ equally.
Paid dividends
Paid dividends
227
Once a distribution is declared, shareholders are treated as _________ with respect to their claim for distribution.
general unsecured creditors
228
If the board does not fix the record date for determining shareholders entitled to a distribution, what date is used?
The date the board of directors authorizes the distribution
229
Are shareholders liable for a corporation's debts or obligations?
No
230
The general rule is that shareholders have no fiduciary duty to ______ or _______.
The corporation
Other shareholders
231
Controlling shareholders have a fiduciary duty to avoid:
1. Using their control to obtain a special advantage OR
2. Forcing the corporation to take an action that unfairly prejudices minority shareholders
232
Controlling shareholders who sell controlling interests to someone who subsequently ___________ will be liable for damages.
Loots the corporation to the detriment of minority shareholders
233
What defense is available to controlling shareholders against liability for sale & subsequent looting?
There was a reasonable investigation of character & reputation
234
Shareholders in close corporations owe their shareholders duties of:
1. Loyalty
2. Utmost good faith
235
If shareholders have agreed to vest control of the corporation in __________, they will be subject to director liability.
Themselves
236
Every corporation must have a board of directors with at least one _____.
Member
237
How do you know how many individuals should make up a board of directors?
Look at the number specified in/fixed in accordance with the articles/bylaws
238
Unless articles state otherwise, there are no _____ or _____ requirements for a director.
Residency
Shareholder
239
The number of directors may be changed via _______.
Amendment to articles/bylaws
240
When are directors elected?
Annual shareholder meetings
241
Despite expiration of a director's term, she continues to serve until:
1. Her successor is elected and qualifies OR
2. There is decrease in the number of directors
242
When do the initial directors expire?
First shareholder meeting at which directors are elected
243
How can the terms of directors be staggered?
By dividing total number of directors into 2-3 groups, each containing 1/2 or 1/3 of the total
244
Unless the articles provide otherwise, shareholders or directors may fill a vacancy on _______.
The board of directors
245
Meeting is required for all board action unless ____________.
Unanimous written consent of the directors to act without a meeting
246
No notice is required for _____ meetings.
Regular meetings
247
What notice is required for special meetings?
At least 2 days
248
Board actions are valid only when _________ is present.
A quorum of the board
249
While a corporation can establish a smaller number for a quorum, it cannot be fewer than _________.
1/3 of the directors
250
What means of communication can be used for board member participation in meetings?
Any communication by which all members may simultaneously hear each other
251
Directors can break a quorum by ______.
withdrawing prior to a vote
252
What voting requirement exists for a binding board action?
Majority of directors present
253
No _____ are allowed for votes for binding board action.
Proxies
254
Are conference calls allowed for binding board actions?
Yes
255
Every individual board member is presumed to have concurred with the Board's action unless:
1. Director objects at beginning of meeting
2. Dissent/abstention taken is entered in the minutes of the meeting OR
3. Delivers written notice of her dissent or abstention
256
Committees created by a board of directors have the powers of ___________.
The board
257
Creation of a committee (and appointment of its members) must be approved by whichever is higher:
1. Majority of all directors in office when action is taken OR
2. Number of directors required by the articles/bylaws to take binding board action
258
A committee may not:
1. Authorize/approve distributions
2. Approve/propose shareholder action required to be approved by shareholders
3. Fill vacancies on the board of directors or any of its committees OR
4. Adopt/amend/repeal bylaws
259
What are a director's primary duties?
1. Duty to manage
2. Duty of care
3. Duty of loyalty
4. Duty to disclose
260
Directors may delegate their duty to manage to ____________.
A committee of 1+ directors
261
What is the business judgment rule?
There is a presumption that the directors manage the corporation with:
1. Good faith
2. Rational basis
3. Reasonable investigation
262
A director who takes action that __________ will be liable to the corporation unless the business judgment rule applies?
harms the corporation
263
What is the standard of conduct under the director's duty of care?
Each member of the board shall act:
1. In good faith AND
2. In a manner the director reasonably believes to be in the best interests of the corporation
264
When does a director act in a manner she believes to be in the best interests of a corporation?
When she acts with care that a person in like position would reasonably believe appropriate under similar circumstances
265
A director may rely on information prepared by:
1. Officers/employees of the corporation
2. Legal counsel/public accountants OR
3. Committee of the board of directors of which the director is not a member
266
Which party must prove that a director's action didn't meet the standard of conduct?
Party asserting liability
267
What is a director's duty of loyalty?
1. Must act in best interests of corporation AND
2. May not receive an unfair benefit to the detriment of the corporation/its shareholders
268
Does the presence of an interested director at the meeting at which approval is sought affect approval?
No
269
When does self-dealing occur?
When a director/family member reaps personal advantage at the expense of the corporation
270
What are the defenses to self-dealing?
1. There was material disclosure and independent ratification
2. Transaction was fair to the corporation at time of transaction
271
Material disclosure and independent ratification is a defense to self-dealing.
In this context, what is independent ratification?
1. Majority vote of independent directors
2. Majority vote of committee with at least 2 independent directors OR
3. Majority vote of shares held by independent shareholdersWhen has a director usurped corporate
272
A director must present any ____________ to the corporation first.
Corporate opportunities
273
A director can only pursue corporate opportunities if _________.
Board decides not to pursue them on behalf of the corporation
274
A director cannot usurp corporate opportunities. This applies to what opportunities?
Business opportunities that the director reasonably believes the corporation would be interested in
275
A director cannot usurp corporate opportunities.
What test is used in order to determine whether an opportunity is one the director should reasonably believe the corporation is interested in?
The corporation must have:
1. Interest OR
2. Expectancy
276
That a director learned of a corporate opportunity in ______ capacity is no defense to usurping corporate opportunities.
Personal
277
Even if the corporation lacks __________, the director must present an opportunity to the corporation first.
Adequate financing to pursue an opportunity
278
Directors have a duty to disclose _______ to other board members.
Material corporate information
279
The board of directors has the power to _____ and _____ officers.
Appoint
Fire
280
Unless articles/bylaws provide otherwise, the board of directors may fix the ________ of directors.
Compensation
281
________ compensation will be a breach of the director's fiduciary duties to the corporation.
Unreasonable
282
Directors can be held personally liable to the corporation for injuries caused from _______.
Breach of their duties
283
Articles cannot eliminate director liability for duty of care in regards to:
1. Financial benefits received but not entitled to
2. Intentionally-inflicted harm on the corporation or shareholders
3. Unlawful corporate distributions
4. Intentional violation of criminal law
284
Action for unlawful distributions may be brought within _______ of the date that ________.
2 years
The distribution was determined to be unlawful
285
A director held liable for unlawful distributions is entitled to:
1. Contribution from every other director who also could have been held liable for the unlawful distribution
2. Recoupment from each shareholder of the pro rata portion of the amount of the unlawful distribution the shareholder accepted knowing the distribution was unlawful
286
The SOL for contribution from other directors for liability for unlawful distributions is _________.
One year after liability is fully adjudicated
287
The SOL for recoupment from shareholders who knowingly accepted unlawful distribution is _________.
1 year after liability fully adjudicated
288
Indemnification is never available where the director is found liable on the basis of ___________.
Improper financial benefit
289
Indemnification is always available if ______
Director wins
290
Indemnification is permissive if _________.
The director makes a showing of good faith
291
A director's eligibility for permissive indemnification is determined by:
1. Good faith & reasonable belief OR
2. Permitted by articles of incorporation
292
A director's eligibility for permissive indemnification is determined by good faith & reasonable belief. In their official capacity, that means _______.
Conduct in the best interests of the corporation
293
A director's eligibility for permissive indemnification is determined by good faith & reasonable belief. Outside of their official capacity, that means _______.
Conduct at least not opposed to best interests of corporation
294
A director's eligibility for permissive indemnification is determined by good faith & reasonable belief. In criminal proceedings, that means _______.
No reasonable cause to believe conduct was unlawful
295
Who determines whether permissive indemnification is appropriate?
1. Majority vote of independent directors
2. Majority vote of committee with at least 2 independent directors
3. Majority vote of shares held by independent shareholders
4. Special lawyer's opinion OR
5. Court
296
A corporation may advance expenses to a director before determination of the action if she delivers to the corporation:
1. Written affirmation that she has good faith belief that conduct met the relevant standard AND
2. Written affirmation to repay the advance if it is determined that her conduct wasn't appropriate
297
Can a corporation maintain insurance against a director's liability?
Yes
298
What votes are required for director removal?
More votes cast to remove than cast NOT to remove
299
____ have the right to remove directors, both with and without cause.
Shareholders
300
A director may not be removed if the number of votes sufficient to elect her under ________ voting is voted against her removal
Cumulative voting
301
If a director is elected by a voting group of shareholders, only _________ may participate in the vote to remove her.
Shareholders of that voting group
302
A director may be removed from the board by court order for:
1. Fraudulent conduct
2. Gross abuse of authority OR
3. Intentionally inflicted harm on the corporation
303
Before removing a director, a court must make determination that _________.
Removal would be in the best interest of the corporation
304
What officers are required for a corporation under the RMBCA?
None
305
How many offices can one individual hold in a corporation?
As many as they're appointed to
306
What gives officers the power to bind a corporation?
They're agents of the corporation
307
The rules of _______ govern the authority/powers of corporate officers
Agency
308
Express authority is also known as ______.
Duties
309
Each officer has the authority and responsibility to perform the duties set forth by:
1. The bylaws
2. Board of directors
3. Officer authorized to prescribe duties to other officers
310
Officers have implied authorization if:
1. Necessity
2. Custom OR
3. Prior dealings
311
A corporate officer has apparent authority to bind the corporation when:
1. She is held out to a third party as having such authority AND
2. Third party relies on that authority
312
What are the fiduciary duties of officers?
1. Duty of care AND
2. Duty of loyalty
313
What is the standard of conduct for an officer acting in their capacity as an officer?
1. In good faith
2. With care a reasonably prudent person would exercise AND
3. In the best interests of the corporation
314
If an officer is challenged with failing to perform her fiduciary duties, what defense is available?
Business judgment rule
315
A corporation may indemnify and advance expenses to an officer of the corporation who is ______.
A party to a proceeding
316
When may an officer resign?
At any time after giving notice to the corporation
317
If resignation is a breach of contract, the officer can be held liable for _________.
Breach of contract
318
For what reasons can a corporation remove an officer?
At any time for any cause
319
If removal is an officer is a breach of contract, the corporation will be liable for ______.
Breach of contract damages
320
Appointment of an officer by itself does not create _______ rights.
Contract
321
What are the procedural requirements for fundamental changes?
1. Board resolves to change at valid meeting
2. Special notice for special meeting
3. Shareholder approval AND
4. Notice of change filed with the State
322
What is shareholder approval in terms of procedural requirements for a fundamental change?
Majority of shareholders at meeting with quorum present
323
What occurs in a merger?
Two corporations come together, with the latter surviving and the former ceasing to exist.
324
Approval of shareholders is not required for merger if:
1. Corporation will survive the merger
2. Articles of incorporation haven't changed
3. Each shareholder holds same number of shares w/ identical preferences, limitations, and relative rights AND
4. Shares issued are no more than 20% of voting power of surviving corporation prior to merger
325
What is a short-form merger?
Parent corporation merges with its own subsidiary where it owns 90% or more of the stock
326
What are the requirements for short-form merger approval?
1. Approval by board of directors AND
2. Notice to shareholders of both companies
327
What is share exchange?
One corporation purchases all of the shares of 1+ classes/series of stock in another corporation
328
A share exchange is not a ________ change.
Fundamental
329
Who needs to approve a share exchange?
Only shareholders of acquired corporation
330
What's the difference between consolidation and merger?
Merger brings one corporation into another.
Consolidation combines two corporations into a new one
331
List the different types of fundamental changes in corporate structure.
1. Mergers & share exchanges
2. Consolidation
3. Dissolution by board of directors & shareholders
4. Amendment to articles or bylaws
5. Sale of all/substantially all of the corporation's assets
6. Conversion
332
Corporation may amend its articles of incorporation at any time to add/change a provision that is:
1. Required OR
2. Permitted
...as of the effective date of the amendment
333
Amendment before the issue of shares requires approval of:
1. Directors OR
2. Incorporators (if no board)
334
Amendment after shares are issued requires the approval of _________.
Shareholders
335
Certain general _________ amendments don't require shareholder approval.
housekeeping
336
Who may amend or repeal corporation bylaws?
A corporation's shareholders
337
A corporation's board of directors may amend/repeal a corporation's bylaws unless:
1. Articles reserve power exclusively to shareholders OR
2. Shareholders expressly provide that directors cannot amend bylaw
338
A sale, lease, exchange, or disposition of assets requires approval of the corporation's shareholders if _______________.
The disposition would leave the corporation w/o a significant continuing business activity
339
What is significant business activity?
1. Greater than or equal to 25% of total assets AND
2. 25% of income/revenues
340
Certain disposition of assets do not require shareholder approval, such as:
1. Sell, lease, exchange, or otherwise dispose of in usual & regular course of business
2. Mortgage or otherwise encumber whether or not in usual & regular course of business
3. Transfer of subsidiary OR
4. Distribute assets pro rata to shareholders
341
What is corporation conversion?
Corporation converting itself into another entity
342
If a corporation approves a fundamental change, dissenting shareholders have a right to ______.
Force the corporation to buy their shares at fair value
343
Those shareholders who may dissent are entitled to _____ rights.
Appraisal
344
What shareholders are entitled to appraisal rights?
Shareholders...
1. Entitled to vote on a plan of merger
2. Of the subsidiary in a short-form merger
3. Of a corporation whose shares are acquired in a share exchange
4. Entitled to vote on asset disposition
5. Whose rights are materially & adversely affected by amendment to articles AND
6. Shareholders of corporation converting to an unincorporated entity
345
Regarding dissenter rights, what must occur before a vote?
1. Corporation must give notice of dissenters rights
2. SH must give written notice of objection & intent to demand payment
346
During a vote, a dissenting shareholder cannot vote _________.
In favor of the fundamental change
347
A corporation must deliver written appraisal notice to all dissenting shareholders within _______.
10 days
348
After a vote, dissenting shareholders must demand payment in accordance with _________.
Notice
349
When a shareholder dissents, the corporation must pay fair value/interest within _______ of demand.
30 days
350
A dissenting shareholder who is dissatisfied with the amount of payment received must communicate a notice of dissatisfaction within ________ of receiving corporation's payment.
30 days
351
If a corporation refuses to pay shareholder's estimate of fair value, it must file action in court within _____ of receiving notice of dissatisfaction.
60 days
352
The federal Williams Act regulates ______.
Tender offers
353
What are the seven requirements placed on tender offers by the Williams Act?
1. Disclosure requirements
2. Rules regulating shareholder withdrawal rights
3. "Pro rate" Rule
4. "All holders" rule
5. "Best price" rule
6. Rules governing the duration of the tender offer
7. Anti-fraud provisions
354
Under the Williams Act, what must be disclosed?
1. Bidder's identity, source of funds, past dealings with target & future plans concerning target
2. Bidder financial statements (if bidder is not an individual)
3. Any contemplated management turnover or arrangement regarding the makeup of the majority of directors
355
What is the "pro rata" rule?
Requires pro rata acceptance of shares tendered if the tender offer doesn't require the bidder to accept all shared tendered
356
What is the "all holders" rule?
Prohibits discriminatory tender offers
357
What is the "best price" rule?
Requires that the highest price paid to any tendering security holder must be paid to all tendering security holders
358
The "best price" rule only applies to shares that are ___________.
Purchased during a single tender offer
359
A tender offer must remain open for at least ___________.
20 business days
360
Common state protections against hostile takeover are known as _______ statutes.
Control share acquisition statutes
361
There may be a dissolution by incorporators or initial directors if:
1. Share not issued OR business not commenced
2. All corporate debt must be paid
362
If there is dissolution by incorporators or initial directors, the remaining assets will be distributed to shareholders if _______.
Shares were issued
363
Dissolution is typically done by __________.
Board of directors & shareholders
364
A dissolved corporation continues its corporate existence but may not carry on business except ______________.
For business to wind up and liquidate its business and affairs
365
Once a corporation is dissolved, what proceedings can be commenced regarding the corporation?
Doesn't prevent commencement of proceeding by/against the corporation
366
A dissolved corporation may dispose of known claims against it by _________.
Notifying its known claimants in writing of dissolution at any time after its effective date
367
A dissolved corporation may also publish notice of dissolution in _____________.
A newspaper of general circulation in the county where the dissolved corporation's principal office is/was last located
368
Claims against dissolved corporations will be barred unless commenced within _______ after the publication date of the newspaper notice.
3 years
369
Dissolution does not abate/suspend a proceeding that is _________.
Pending by/against the corporation
370
The secretary of state may commence a proceeding to administratively dissolve a corporation if:
1. Failure to pay franchise taxes
2. Failure to deliver annual report to secretary of state
3. W/o registered agent/office in the state
4. Failure to notify secretary of state of changes to registered agent/office OR
5. Corporation's period of duration expires
371
What is the procedure for the secretary of state seeking dissolution of a corporation?
1. Written notice to corporation of failure
2. Corporation has 60 days to correct ground for dissolution or show it doesn't exist
372
A corporation administratively dissolved may apply for reinstatement within ______ after the effective date of dissolution?
Two years
373
What are the application requirements for reinstatement following administrative dissolution?
1. Recite name of corporation & effective date of dissolution
2. Must state ground either doesn't exist or has been corrected
3. State corporate name requirements are met
AND
4. Contain certificate from taxing authority reciting that all taxes are paid
374
When reinstatement after dissolution is effective, it relates back to what date?
Effective date of administrative dissolution
375
Dissolution can occur in a proceeding by the attorney general if it is established that:
1. Corporation obtained its articles of incorporation through fraud OR
2. Corporation has continued to exceed or abuse its authority
376
Dissolution can occur in a proceeding by a shareholder if it is established that:
1. Directors are deadlocked
2. Directors' actions are illegal, oppressive, or fraudulent
3. Shareholders are deadlocked OR
4. Corporate assets being misapplied/wasted
377
Dissolution can occur in a proceeding by a creditor if it is established that:
1. Judgment unsatisfied & corporation insolvent OR
2. Corporation admits in writing that creditor's claim is due & corporation insolvent
378
Dissolution can occur in a proceeding by a corporation if it is established that:
Nothing; this is voluntary.
