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Corporations Flashcards

(68 cards)

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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
Who can demand distribution of assets?
ONLY BOD SH have no right to demand this
26
Consideration for Shares
shares can be issued by the corp in exchange for any property or benefit to the corp
27
Preemptive Right
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
28
SH's Power
SHs can exert control over the corp via power to: - elect/remove directors - amend bylaws - approve fundamental changes (merges, sale of assets, dissolution)
29
SH Rights to Records
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
What can a SH always inspect w/o proper notice
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
SH Meeting
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
SH – Notice of Special Meeting
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
SH Voting Requirements
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
SH Voting – Proxies
SH can use proxies to vote Writing needed
35
Types of SH Suits
1. Direct Suit 2. Derivative Suit
36
Direct Suit
SH suing in the SH's own name for damages --> damages go directly to SH
37
SH Approval – Quorum
For vote to be effective 1. Quorum of corp's shares (NOT SHs) 2. Represented at meeting (in person or proxy)
38
Quorum Def
majority of the corp's outstanding shares represented at the start of the meeting
39
Derivative Suit
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
When do derivative suits often arise
on essays when wrong committed by an officer or director --> asks to ID whether a breach has occurred & what SH remedies available
41
BOD Characteristics
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
BOD Meeting
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
Staggered Board
Class of Ds elected at diff times
44
BOD – Delegating Authority
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
BOD – Duties
Duty of Care Duty of Loyalty
46
BOD – Duty of Care
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
BJR
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
BOD – Duty of Loyalty
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
Duty of Loyalty – insulation from L
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
Duty of Loyalty – COI
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 23. affiliated w/ another entity to the transactions
51
Merger
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
Short Form Merger
parent corp owns < 90% stock of subsidiary --> subsidiary can be merged into parent corp w/o approval of SH
53
Mergers – Dissenter's rights
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
Dissolution
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
Voluntary Dissolution
considered a fundamental change REQ: 1. BOD approval 2. SH approval
56
Administrative Dissolution
action brought by state to dissolve corp usually due to failure to adhere to statutory requirements or formalities
57
Judicial Dissolution
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
Disposition of Property
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
LLC
Taxed like a PS Limited L like a corp Owners considered memebrs/managers
60
LLC Formation
certification of formation filed with state REQ: 1. name of LLC 2. address of registered office 3. Name/address of registered agent
61
LLC Operating K
similar to bylaws; govern doc
62
LLC Management
presumption all members manage, but can also have several managers and members
63
LLC voting
members/managers may have equal voting rights; or vote in proportion to ownership depending on operating K
64
LLC Distribuiton Rights
like a corp Operating K dictates how LLC will be managed, and how profits will be distributed
65
LLC Duties
Depends if member or manager managed member mnged --> all members owe DoC & DoL Manager mnged --> only managers owe DoC & DoL
66
LLC Good Faith & Fair Dealing
all members and managers have an obligation of good faith & fair dealing
67
Good faith fair dealing def
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
Record Date
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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