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UBE > Corporations > Flashcards

Corporations Flashcards

1
Q

Corporation Characteristics

A
  1. Centralized Mngmt – BOD delegates day to day mngmt to officicers
  2. Limited –only corp is subject to L
  3. Transferability of ownership – SHs can freely transfer their ownership interests (ie shares), unless prohibited by AIC or bylaws
  4. Continuity -changes in ownership do not affect the corp’s existence
  5. Personhood –corps considered ppl re: constitutional protections
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2
Q

Articles of Incorporation

A

Formation: when AIC filed with SOS

AIC must include:
1. Name – corp name (LLP, co, inc)
2. Shares – max # of authorized shares
3. Incorporator – name & address
4. Registered Agent – name & address

*some states require statement of purpose; most use boilerplate language

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3
Q

Bylaws

A

written rules for managing the corp–– provides for ordinary business conduct

EX:
- election of BOD
- meeting times

If bylaws conflict with AIC –> AIC trumps

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4
Q

Promoter

A

acts on behalf of a corp before incorporation to get capital commitments; usually by forming Ks with parties interested in becoming SHs

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5
Q

Promoter L

A

personally L for Ks entered into on behalf of the corp –> remains L after formation

Exception: Novation & indemnification

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6
Q

Novation

A

agreement btw parties releasing promoter & substituting corp

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7
Q

Indemnification

A

promoter may be indemnified by the corp if he is held L on the K after formation

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8
Q

Pre-Incorporation: Corp’s L

A

GR: no L based on pre-incorp K entered into by promoters

Exception: adoption of the K

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9
Q

Subscription Agreement

A

Agreement where one agrees to buy specified # of shares from a corp at a given notice

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10
Q

Ultra Vires Acts

A

Consequence for when a corp acts outside of its stated purpose (as stated in AIC)

Three Possible Consequences:
1. SH Suit – to enjoin the UVA
2. Corp Suit –sue for damages
3. State Action – action to dissolve corp

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11
Q

De Facto Corp

A

Defective corp that may still be treated as properly formed corp

  1. Good Faith Effort ––Owner must make a good-faith effort to comply with the incorporation requirements;
  2. Operate w/o Knowledge––owner operates the business as a corp w/o knowing that these reqs have not been met.

Result: owner, as de facto SH, is shielded from personal L for obligations incurred in the purported corporation’s name.

NOTE: RMBCA has abolished this doctrine

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12
Q

Corp by Estoppel

A

Person who deals with an entity as if it were a corp is estopped/barred from denying its existence and is thereby prevented from seeking the personal L of the business owner.

Limited to L agreements.

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13
Q

Piercing the Corp Veil

A

GR: SHs, Directors, Officers not L for corp obligations

PCV: once pierced, all persons composing the corp may be personally L––but usually just those in active mngmt

Why Pierce?
1. ignoring corp formalities
2. Undercapitalization
3. Fraud or illegality

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14
Q

PCV: Ignoring Corp Formalities

A

Where a SH dominates the corp to the extent that the corp is not being treated as a separate entity

corp is used as an “alter ego” or a “mere instrumentality” to the SH

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15
Q

PCV: Undercapitaliztion

A

Corp was undercapitalized/underfunded at time of incorporation

TIP: look for insolvency right after formation–> prime indicator of this factor!

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16
Q

PCV: Fraud or Illegality

A
  1. Corp may be disregarded if there is fraud;
  2. to prevent fraud or other illegality; or
  3. to prevent SH from using corp to avoid existing personal L
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17
Q

Debt Securities

A

aka BONDS

corp borrows funds from an outside creditor and promises to repay creditor

Holders of bonds have no ownership interest

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18
Q

Equity Securities

A

aka STOCKS

instrument that represents investment in the corp––holders become part owners of the corp

Types of stocks:
1. Authorized
2. Issued
3. Outstanding
4. Reacquired/Buy back

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19
Q

Authorized Shares

A

max # of shares a corp may issue

this is # authorized in AIC

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20
Q

Outstanding Stock

A

Shares issued & in possession by SH

Outstanding shares is what is voted on!!

Outstanding = (issued - treasury)

Most important one

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21
Q

Reacquired Shares

A

those that the corp buys back

aka treasury shares

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22
Q

Issued Shares

A

Number of shares issued from the authorized pool that the directors have actually sold

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23
Q

Classes of Shares

A

corps can have diff classes of stock shares; each class can have diff rights (voting, economic)

AIC must authorize:
1. # of shares of each class
2. Name/distinguishing designation of each class
3. Rights/preferences/ limitations per class

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24
Q

Distribution of Rights

A

corp can distribute assets via:
- dividends
- redemption of shares
- liquidating distributions upon dissolution

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25
Q

Who can demand distribution of assets?

A

ONLY BOD

SH have no right to demand this

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26
Q

Consideration for Shares

A

shares can be issued by the corp in exchange for any property or benefit to the corp

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27
Q

Preemptive Right

A

Right to acquire stock to maintain the % of the ownership any time new shares are issued

GR: no preemptive right for SHs, unless in AIC or negotiated

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28
Q

SH’s Power

A

SHs can exert control over the corp via power to:
- elect/remove directors
- amend bylaws
- approve fundamental changes (merges, sale of assets, dissolution)

29
Q

SH Rights to Records

A

Right to inspect books/records for any purpose upon written notice

Proper Purpose – reasonably related to interest as SH

Notice – 5 days written notice

30
Q

What can a SH always inspect w/o proper notice

A

SH can always inspect these w/o proper notice:
1. AIC
2. Bylaws
3. Annual reports
4. Meeting minutes
5. BOD resultions re share classification
5. Corp comm to SH

31
Q

SH Meeting

A

2 types: annual & spcial

Annual –> corp must hold annual meetings for election of directors & other special matters

Special Meeting –> called to conduct business that requires SH approval

***MUST HAVE NOTICE

32
Q

SH – Notice of Special Meeting

A

Notice REQ:
1. Must be given between < 10, but 60 >, days before meeting date
2. time
3. date
4. location
5. Purpose of meeting

SH may waive notice either in writing or by attending the meeting.

33
Q

SH Voting Requirements

A

Unless AIC says otherwise, each outstanding share is entitled to 1 vote

REQ:
1. Quorum must be present (maj of outstanding shares_
2. Vote effective if:
- votes in favor
- exceed
- votes against

34
Q

SH Voting – Proxies

A

SH can use proxies to vote

Writing needed

35
Q

Types of SH Suits

A
  1. Direct Suit
  2. Derivative Suit
36
Q

Direct Suit

A

SH suing in the SH’s own name for damages –> damages go directly to SH

37
Q

SH Approval – Quorum

A

For vote to be effective

  1. Quorum of corp’s shares (NOT SHs)
  2. Represented at meeting (in person or proxy)
38
Q

Quorum Def

A

majority of the corp’s outstanding shares represented at the start of the meeting

39
Q

Derivative Suit

A

SH suing on behalf of the corp–alleged harm harms the corp as a whole

  1. Standing –– must have been a SH at time of the harm
  2. Recovery –– goes to corp; but SH can recover atty fees
  3. Written Demand Requried
    - SH must make a written demand on the corp –> wait 90 days before filing suit; unless:
    (a) corp rejected demand; or
    (b) irreparable injury to corp will happen if wait 90 days
40
Q

When do derivative suits often arise

A

on essays when wrong committed by an officer or director –> asks to ID whether a breach has occurred & what SH remedies available

41
Q

BOD Characteristics

A

Responsible for corp affairs & mngmt

of Ds ––at least one required; bylaws or AIC can dictate a #

Election –– SH elect Ds at annual meeting

Removal ––can remove w/ or w/o cause by SHs, unless AIC provide otherwise
—–> EXCEPTION: Staggerd Board

42
Q

BOD Meeting

A

Types: regular & special

Notice –– no notice needed for regular meetings; 2-day notice needed for special meeting

Quorum –– majority of Ds, unless AIC says otherwise

Action w/o Meeting –– can happen only if all Ds give written consent describing action taken

43
Q

Staggered Board

A

Class of Ds elected at diff times

44
Q

BOD – Delegating Authority

A

BOD delegates mgmt to officers & executives

Committes –– BOD can create committees; have <1 one D w/ power to oversee corp affairs

Committee cannot make major corp decision that needs all BOD consent

BOD entitled to rely on expertise of the committee, or other officers/experts/employees

45
Q

BOD – Duties

A

Duty of Care

Duty of Loyalty

46
Q

BOD – Duty of Care

A

Fiduciary duty

Standard ––D must act w/ care that a person in a like position would reasonable believe appropriate under similar circumstances

Courts apply the Business Judgment Rule to determine if duty of care breached

47
Q

BJR

A

Business Judgment Rule –> Officers/ BOD

Ds protected from legal L if decision was made:
1. in good faith
2. w/ care of RPP in like position would
3. in manner director/officer reasonably believed to be in the best interest of the corp

If breached duty –> can be personally L for damages
–Note: AIC can limit personal L

48
Q

BOD – Duty of Loyalty

A

GR: cannot receive a benefit to the detriment of the corp w/o effective disclosure & ratification

Includes:
- self dealing
- usurping or stealing corp opp

49
Q

Duty of Loyalty – insulation from L

A

A self-interested transaction may be upheld if it is (1) disclosed and (2) ratified by:

(a) maj of interested directors; or
(b) maj of disinterested SH

50
Q

Duty of Loyalty – COI

A

when an officer/director has a personal interest in a transaction and knows that a he or a family member is:

  1. party to transaction
  2. has beneficial interest or closely linked to transaction –> can influence how direcotr/officer votes
  3. affiliated w/ another entity to the transactions
51
Q

Merger

A

2+ corps blend into a new corp; or when a corp absorbs other corps

REQ FOR APPROVAL:
1. BOD vote ––either maj, or whatever AIC stips
2. SH vote ––majoirty

52
Q

Short Form Merger

A

parent corp owns < 90% stock of subsidiary –> subsidiary can be merged into parent corp w/o approval of SH

53
Q

Mergers – Dissenter’s rights

A

dissenting SH can challenge merger or demand payment for their shares at FMV

Mutual Notice REQUIRED –before vote is taken:
1. corp must give notice to SH –>
2. SH must give notice of intent to demand payment

54
Q

Dissolution

A

Termination of corp’s existence

Effect: corp continues to exist while it winds up and liquidates its affairs ––but no other business allowed to continue

Types:
1. Voluntary Dissolution
2. Administrative Dissolution
3. Judicial Dissolution

55
Q

Voluntary Dissolution

A

considered a fundamental change

REQ:
1. BOD approval
2. SH approval

56
Q

Administrative Dissolution

A

action brought by state to dissolve corp

usually due to failure to adhere to statutory requirements or formalities

57
Q

Judicial Dissolution

A

Action by AG or SHs

Attorny General – can act to dissolve corp on the ground that it abused its authority, committed fraud

SH –– can seek judicial dissolution where:
1. BOD deadlocks or SH threaten irreparable harm
2. corp abandoned business and failed to dissolve
3. corp assets are wasted for non corp use

58
Q

Disposition of Property

A

where corp sells, leases, otherwise disposes of all or substantially all property outside the reg court of business

Fundamental change –> BOD & SH approval needed

59
Q

LLC

A

Taxed like a PS
Limited L like a corp
Owners considered memebrs/managers

60
Q

LLC Formation

A

certification of formation filed with state

REQ:
1. name of LLC
2. address of registered office
3. Name/address of registered agent

61
Q

LLC Operating K

A

similar to bylaws; govern doc

62
Q

LLC Management

A

presumption all members manage,

but can also have several managers and members

63
Q

LLC voting

A

members/managers may have equal voting rights; or

vote in proportion to ownership depending on operating K

64
Q

LLC Distribuiton Rights

A

like a corp

Operating K dictates how LLC will be managed, and how profits will be distributed

65
Q

LLC Duties

A

Depends if member or manager managed

member mnged –> all members owe DoC & DoL

Manager mnged –> only managers owe DoC & DoL

66
Q

LLC Good Faith & Fair Dealing

A

all members and managers have an obligation of good faith & fair dealing

67
Q

Good faith fair dealing def

A

Good faith and fair dealing are legal principles that govern contractual relationships and require the parties to act honestly, fairly, and in a manner that upholds the reasonable expectations of the parties.

68
Q

Record Date

A

Holder of the outstanding shares as of the record date (as set by BOD) is entitled to vote

UBE (14 decks)

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