Corporations

Question 1

Who is in charge of management?

Answer 1

Board of directors

Question 2

Agents that carry out corporations policy

Answer 2

officers

Question 3

Requirements of a corporation

Answer 3

person - incorporator
paper - articles of incorporations
act - deliver articles w/ requires fees to SOS
(once accepted - FORMED)

Question 4

What must the paper (articles of incorporation include?)

Answer 4

-magic words - corporation, company, incorporation, limited
-name & address of registered agent & address of office
- info re: stock (authorized stock)

Question 5

Organizational meeting

Answer 5

1. adopt bylaws (internal docs - board/shareholders can amend)
2. appoint officers

Question 6

Consequences of forming a corporation

Answer 6

Limited liability - shareholders generally only liable for their stock.
double taxation
entity status
internal affairs rule - law governed by state of incorporation

Question 7

Corp borrows money?

Answer 7

Bond

Question 8

Corp sells ownership interest

Answer 8

stock

Question 9

requirements for directors

Answer 9

• adult natural persons
• one or more
• initial directors names in articles/elected by incorporators
• shareholders elect thereafter

Question 10

methods of board action

Answer 10

• unanimous agreement in writing
• at a meeting

Question 11

notice for meetings?

Answer 11

regular meeting? no notice
special - 2 days written notice, time, place, date

Question 12

Meeting requirements

Answer 12

Quorum - majority of all directors
majority of those present required to pass resolution

Question 13

fiduciary duties of directors to corporation

Answer 13

• Duty of loyalty
• Duty of care

Question 14

Duty of loyalty

Answer 14

discharge duties in good faith and reasonable belief that actions are in best interest of the corp.
- self-dealing/interested director transaction
- competing ventures
- corporate opportunity (expectancy)
Usurp - tell board and wait for them to reject.

Question 15

duty of care

Answer 15

burden on the plaintiff
- nonfeasance - director does nothing (liable only if hurt corporation…causation must be shown)
- misfeasance - board makes decision that hurts corp.
use the care that a person in the like position would reasonably believe appropriate under circumstances

Question 16

Can corp make a loan to director?

Answer 16

only if reasonably believe for it to benefit corp.

Question 17

Can one person hold multiple positions

Answer 17

yes

Question 18

officers are selected and removed by

Answer 18

the board

Question 19

who hires and fires directors

Answer 19

shareholders

Question 20

indemnification*

Answer 20

(1) corp cannot indemnify (D/O) held liable to corp or improper benefit
(2) corp must indemnify (D/O) successful in defending merits otherwise
(3) corp may indemnify (D/O) shows acted in good faith.
- Articles can eliminate d/o liability only for duty of care cases.

Question 21

When can shareholders manage?

Answer 21

Closely help (close) corp.
- Small # of shareholders
- stock not publicly traded
- shareholders can manage directly
- special duty - utmost good faith (shareholders to other shareholders)

Question 22

Professional corporation

Answer 22

pc, ca
- corp where directors, officers & shareholders are licensed professionals
- not liable for each others malpractice.

Question 23

Gen rule for shareholder liability to debt

Answer 23

shareholder not liable for corporation debt unless piecing the corporate veil!

Question 24

Piercing the corporate veil*

Answer 24

only for close corp.
- shareholders have abused privilege of inc.
- fairness requires holding them liable/

2 common fact patterns
- alter ego
- undercapitalization
(courts may be more willing to piece the veil for tort victim than for a contract claimant).

Question 25

derivative suit

Answer 25

shareholder sues to enforce corporations claim

Question 26

derivative suit outcome if plaintiff wins

Answer 26

money goes to corporation plaintiff recovers costs and fees only

Question 27

requirements to bring a derivative suit

Answer 27

stock ownership when claim arose adequate representation on corp's interest written demand on corp. ct. approval required to settle or dismiss.

Question 28

authorized stock

Answer 28

max number of shares a corp can sell

Question 29

issued stock

Answer 29

number of shares corp. actually sells

Question 30

outstanding stock

Answer 30

shares issued & not reacquired

Question 31

record shareholder

Answer 31

person shown as stock owner in corporate records

Question 32

record date

Answer 32

voter eligibility cutoff date

Question 33

when do you have a vote?

Answer 33

when you own a stock on record date.

Question 34

Proxy

Answer 34

writing authorizing another to vote the shares (11 month generally) revoked by - writing or attend meeting and vote.

Question 35

irrevocable proxy

Answer 35

must say interest in stock other than voting

Question 36

voting trust

Answer 36

req. - writtten agreement controlling how shares will be voted - give copy of agmt. to corp. - transfer legal title to voting trustee - give og shareholders trust certificates

Question 37

voting (pooling) agreements

Answer 37

in writing & signed

Question 38

shareholder voting

Answer 38

mtg (req) unanimous vote

Question 39

notice for shareholders

Answer 39

writing delivered by 10-60 days before special - purpose

Question 40

How they vote? shareholders

Answer 40

Quorum - majority of shares - not broken - to elect director (plurality) - remove director (majority)

Question 41

cumulative voting

Answer 41

method to give small shareholders better chance of electing someone to the board. - number of shares x number of directors to be elected

Question 42

are restrictions on stock transfer allowed

Answer 42

yes if not an absolute restraint on alienation

Question 43

right to inspect

Answer 43

shareholders right to review corp's books and records on written demand

Question 44

distributions

Answer 44

payments from corp. to shareholders (in boards disctrtion) - corp cannot do if it would render corp insolvent

Question 45

who is liable for impropert distribution

Answer 45

directors and corp. joint and several. exception - good faith

Question 46

Fundamental corporate changes

Answer 46

-amending articles - mergers and consolidations - transfer of all or substantially all assets - conversion - voluntary dissolution

Question 47

Requirements of fundamental corporate changes

Answer 47

1. board action 2. written notice to shareholders 3. shareholder approval.

Question 48

dissenting shareholders right of appraisal

Answer 48

right to force corp to buy stock at fmv - exists in close corporatios

Question 49

fundamental corp changes

Answer 49

includes amending articles - requires a majority of shares (entitled to vote) Mergers & consolodations -merger - one corp absorbed into another -consolidation - 2 corps become one new corp. Conversion - corp converts into another business entity dissolution - voluntary req. board action and shareholder approval. Involuntary? req. ct. order

Question 50

successor liability

Answer 50

corps creditors can sue survivor

Question 51

winding up

Answer 51

written notice.