Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

2024 DC Bar Exam - UBE > CORPORATIONS > Flashcards

CORPORATIONS Flashcards

(90 cards)

Start Studying
1
Q

What is required to form a de jure corporation?

A

Revised Model Business Corporate Act (RMBCA)

1) Articles of Corporation
- Corporation’s name
- Shares (authorized for issuance)
- Agent’s name + address
- Incorporators’ name + address
- Other provisions consistent w/ RMBCA

2) Lawful business purpose
- Related activities

3) Organizational meeting
- Directors’ election (by SHs)
- Officers’ appointment
- Adoption of bylaws (by Ds)

4) Incorporators must file Articles with Secretary of State
- Corporation then exists

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Can a corporation be formed if the business purpose is not lawful (ultra vires)?

A 
Common law (no)
- Void

RMBCA (yes)

  • Enjoin purpose
  • SH/State sues Corporation
  • Corporation sues D/Employee
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the difference between Articles of Incorporation and Bylaws?

A

Articles
- Deals with formation of Corporation

Bylaws
- Deals with daily management of Corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which takes precedence between conflicting Articles of Incorporation and Bylaws?

A

Articles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How can members avoid liability to third parties for actions before Corporation was incorporated?

A

De Facto Corporation (common law)

1) Existing statute (Corporation could have been formed under)
2) Liable SH made good faith attempt to comply
3) Business conducted under Corporation’s name/corporate privilege
- Contract + Tort victims

Corporation by estoppel (case-by-case)

  • TP dealt with corporation as if Corporation existed
  • TP estopped from denying Corporation’s existence
  • Contract victims
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How can members be liable to third parties for actions before Corporation was incorporated?

A

Member knew corporation did not exist at the time of transaction => Jointly + severally liable with Corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is required for modifying/repealing bylaws?

A

Majority vote of SHs/Ds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Promoter

A

A person who takes actions to set up a new business before an entity formally comes into existence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What fiduciary duties do promoter owe Corporation?

A

Loyalty (Fair disclosure)

1) Disclose all material facts
2) Approved by independent Board
3) NO fraud misrep/failure to disclose

Care (good faith)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Is a promoter liable to TPs?

A

Before + After incorporation (joint + several liability with Corporation) (RMBCA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How can promoters avoid liability to TPs?

A

Novation (express/implied)
- The substitution of a new company for the promoter by assent of all affected parties. Can relieve a promoter of liability for a contract

- Agreement between Promoter + Corporation + TP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Is a corporation liable to TPs?

A 
Express adoption (by directors)
- Knowledge of material facts

Implied adoption (by employees)
- Knowledge of material facts + Acceptance of benefits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Can employees subscribe to Corporation’s shares?

A

RMBCA

  • Long period of stock subscription (at least 6 months)
  • NO broker commission fee
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How can stock subscriptions be revoked?

A

Subscription grant provides revocation

Unanimous vote by subscribers to revocation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Board of Directors

A

The group of persons tasked with setting the overall strategic vision for the corporation and possessing the power to hire and fire the officers that manage the corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Officers

A

Agents of the corporation identified in the bylaws (such as the president, secretary, treasurer, and CEO) who enable the corporation to interact with the rest of the world

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How can directors approve decisions without board meetings?

A

1) Unanimous vote (Directors)

2) In writing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How can directors approve decisions with board meetings?

A

1) Meeting
- Regular
- Special (2 days’ notice re date + time + place of meeting to ALL directors/Notice to Director by alternative method + Director votes at meeting)

2) Quorum
- Majority of Ds attend meeting/attend by alternative method and able to hear each other + Majority of attending Ds approve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How can directors lose approval of decisions?

A

Director objects to meeting

Director leaves meeting (breaks quorum)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Duty of Care

A

The fiduciary obligation that requires directors and officers to utilize a reasonable decision-making process when taking actions on the part of the corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Duty of Loyalty

A

The fiduciary obligation that requires a fiduciary to subordinate the fiduciary’s own interests to those of the corporation and to act in a manner that the fiduciary reasonably believes to be in the corporation’s best interests

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How can a director comply with duty of care?

A

(Burden of proof => Plaintiff)

Business judgment rule (show intentional basis for Ds’ decisions - very deferential standard to directors)

1) Discharge in good faith
2) Ordinary prudent person in same position would do
3) Act was reasonably believed to be in Corporation’s best interests

Good faith reliance

1) Opinions/Reports/Statements
2) Officers/Employees/Directors’ committee/Lawyers/Accountants
3) Reasonably believed to be competent by Director
4) NOT related to Director

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How can a director comply with duty of disclosure?

A

Disclose material corporation info to directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Self-dealing Transaction

A

A conflicting-interest transaction between a director or officer and the corporation where the director or officer had knowledge and a direct or indirect material financial interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
How can a director be liable for breaching his duty of loyalty by conflicting interests?
1) Director/Related person 2) Engages with someone who will be reasonably expected to influence Director's judgment/Receive beneficial financial interest 3) Director knows of this 4) Director should have brought this to Board's attention
26
How can a director comply with his duty of loyalty by conflicting interests (safe harbor)?
Burden of proof => Director Disclosure of all material facts 1) Material facts (ordinary prudent person would consider important with processing transaction) 2) To disinterested Directors/Shareholders 3) Disinterested Directors/Shareholders consent by majority vote Fair transaction 1) At the time 2) To Corporation 3) Adequate consideration/Corporate need/Financial position/Alternatives
27
What remedies are available against a director for conflicting interests?
Damages Set aside transaction Enjoin transaction
28
How can a director be liable for breaching his duty of loyalty by usurping corporate opportunities?
Burden of proof => Director 1) Not give Corporation an opportunity to act first 2) Opportunity has interest/expectancy (within Corporation's line of business) (not Corporation's lack of financial ability)
29
What remedies are available against a director for usurping corporate opportunities?
Accounting for profits Force conveyance of opportunity for amount director paid (constructive trust theory)
30
How can a director be liable for breaching his duty of loyalty by competing ventures?
Burden of proof => Director 1) Engage with competitor 2) Derive benefit
31
What is the difference between directors, shareholders and officers?
Directors - Make decisions on Corporation's governance Shareholders - Vote for Directors through elections Officers - Make decisions on Corporation's daily management
32
How can directors limit their liability?
Articles of Incorporation Exculpatory provisions - Not for non-entitled financial benefits - Not for intentionally inflicted harms - Not for unlawful distributions - Not for intentional violation of criminal law
33
What duties do officers owe to the corporation?
Reasonable care Good faith Bylaws
34
How may Corporation be liable to TPs for officers' acts?
Principal-Agency relationship 1) Actual/Apparent authority/Ratification/Adoption/Estoppel 2) Acts within scope of authority
35
What type of distributions can Directors make?
Dividends - Payment to SHs Redemption/Repurchase of shares Distribution of assets upon liquidation
36
Who can declare distributions?
Directors (at their own discretion) Majority SHs - Protect minority SHs affected by improper distributions
37
Who is entitled to distributions?
Record SHs | - Same priority as unsecured creditors
38
How may distributions be limited?
Dividends - By Articles - Only majority votes entitled to issued shares may approve By Articles Solvent Corporation - Corporation can pay debts due - Assets exceed liabilities
39
What are directors liable for if they improperly declare distributions?
Amount exceeding proper distribution
40
How may directors limit liability for improper distributions?
NO oppression of minority SHs Approved distributions in good faith - Reasonably accurate financial statements - Reliance on information from non-related officers/lawyers/accountants Claim contributions from - Directors who approved/liable for distributions - SHs who knew of breach
41
How can shareholders vote for decisions without meetings?
1) Unanimous vote | 2) In writing
42
How can shareholders vote for decisions with meetings?
1) Meeting - Annual - Special (Notice within 10-60 days re Date + Time + Place) 2) Record Shareholder - Holds outstanding shares at record date (decided by directors 70 days before meeting/delivery of notice) - 1 vote per share (unless articles state otherwise) 3) Quorum/Majority vote
43
How can shareholders delegate voting powers?
Proxy vote (11 months valid) 1) Writing 2) Signed
44
How can proxy votes be revoked?
1) Notice to secretary of Corporation | 2) Proxy vote holder votes for revocation
45
How can proxy votes not be revoked?
1) Proxy stated as 'irrevocable' | 2) Proxy coupled with interest other than voting/security
46
How can directors be elected?
Directors are elected by the shareholders at the annual shareholders’ meeting and may be elected by straight or cumulative voting and by one or more classes of stock
47
How can shareholders remove directors?
With cause Without cause
48
How can shareholders vote on amendment of articles?
Amendment affects specific SHs' class of stock => Specific SHs can vote on amendment - NO voting process required
49
How can Shareholders sue Directors?
Direct Suit (for SH) - Injury separate and apart from any injury done to the corporation - Breach of fiduciary duty to SH Derivative Suit (for Corporation) - Shareholder’s injury arises from an injury to the corporation 1) Stock ownership at time of suit/under bylaws 2) Adequate fair representation of Corporation's interests 3) Written demand to Corporation (NOT futile bequest) 4) Suit commences after 90 days
50
What is Shareholder entitled to if he wins/loses derivative suits?
Win - Corporation receives damages - SH receives legal costs Loss - SH must pay legal costs to Defendant
51
How can derivative suits be dismissed/settled?
Not in corporation's best interests 1) Majority vote of directors 2) Directors made reasonable inquiry (independent investigation) into the issue 3) Directors acted in good faith (legal costs exceed SHs' recovery costs) Court approval
52
How can controlling SH (Parent) be liable to Subsidiary for breach of duties?
Care Loyalty
53
What is the difference between voting trusts and voting agreements?
Voting Trust - A voting arrangement in which one or more shareholders agree to transfer their shares to a trustee, who is assigned the power to vote the shares Voting Agreement: - Voting arrangement in which shareholders who own shares in the same corporation enter into contracts with one another regarding voting, typically to vote for certain individuals as corporate directors, and under which the shareholders vote their own shares
54
Piercing the Veil
Exception to the general rule that shields a company’s owners from personal liability for the company’s debts, thereby allowing a plaintiff to sue the company’s owners personally for the company’s debts
55
How may active SHs be jointly and severally liable with Corporation to TPs?
1) TP is tort victim/creditor - NOT contract victims unless they had no chance to investigate under contract 2) Pierce the Veil - Ignorance of corporate formalities (Alter Ego) - Lacking capital at time of formation - Fraud - Avoiding current liabilities (NOT future) - Self-dealing - Commingling
56
How may active SHs be personally liable to TPs?
Negligence Absence of De Facto Corporation By SH agreement Breach of care/loyalty (by SH/Parent) Oppression of minority SHs - Unfair prejudice - Not disclose all material facts - Pay no dividends (affecting ALL SHs in same way)
57
What are the advantages of using a voting trust?
Avoid share control in hostile takeover Avoid conflict of interests
58
What are the different types of shares?
Authorized Shares - Shares the Corporation is authorized to issue Outstanding Shares - Shares of stock authorized and issued by the Corporation that have not yet been reacquired, redeemed, converted, or canceled - Voting rights Reacquired Shares - Issued shares reacquired by the Corporation through repurchase or redemption - NO voting rights
59
Shareholder's Preemptive Right
An option that a corporation may grant to shareholders, allowing them to buy shares in a future issue of common stock before the shares are offered for sale to the public
60
Types of Stock
Common Stock: - A basic ownership interest that entitles the owner to vote on corporate governance matters Preferred Stock: - Carries special rights - Has preference over other stock with regards to distributions
61
What is the difference between debt and equity?
Debt - NO ownership by Corp Equity - Ownership by Corp
62
What type of debts are there?
Bonds - Secured Debenture - NOT secured
63
What type of equity is there?
Sold - Issued shares - Outstanding shares Reacquired (redemption/reacquired) - Authorised shares - NOT issued shares
64
How are value of shares determined?
By directors (as they deem appropriate) (RMBCA) ``` Par value (Articles) - Generally eliminated by RMBCA ```
65
What is required for consideration to pay equities?
1) At Directors' request 2) NOT discriminatory 3) Tangible/Intangible 4) Beneficial to Corporation
66
What happens if SH fails to pay consideration for equities?
Liable for unpaid amount
67
What is required for shareholder to exercise their pre-emptive rights?
1) Authorised by Articles 2) Issued in cash 3) Issued at least 6 months after incorporation 4) SH has voting rights => SH can purchase at same % ownership in corporation
68
What is required to approve fundamental corporate changes?
1) Directors' resolution 2) Written notice to SHs 3) SH's resolution 4) Changes incorporated into Articles 5) Articles filed with Secretary of State
69
When is SHs' resolution not required for mergers?
Merger (Corporation + Surviving Corporation) (NO Surviving SH's resolution required) 1) Surviving Corp's articles remain the same 2) Surviving SHs' hold same shares + rights 3) Issued shares' voting power is max. 20% of Surviving Corp's voting power before merger Merger (Parent + Subsidiary) (NO Subsidiary SH's resolution required) 1) Parent owns +90% of outstanding shares 2) Parent mails merger plan to Subsidiary SHs
70
When is SHs' resolution not required for share exchange?
Only acquired SHs' consent required
71
What is required for asset lease/sale/exchange?
1) +75% assets involved 2) NOT in ordinary course of business Seller - Liable for own obligations Buyer - Liable - Liable (disguised merger) (de facto theory)
72
What is required for amendment of Articles?
Amended provisions would be lawful in original Articles
73
Dissenting Shareholder's Right of Appraisal
The right of shareholders to sell their shares to the corporation for a fair value when they do not consent to a merger or acquisition; also known as appraisal rights
74
What type of changes may SHs exercise their right of appraisal?
Not Amendment of articles
75
Which SHs may exercise their right of appraisal?
Merger (Corp-Corp) - SHs entitled to vote Merger (Parent-Sub) - Subsidiary SHs Asset sale/lease/exchange - SHs entitled to vote
76
Voluntary Dissolution
The dissolution of a corporation by majority vote of the directors and the shareholders
77
What happens after voluntary dissolution?
1) Dissolution 2) Continue corporate existence 3) Carry on business (as appropriate during winding-up)
78
Administrative Dissolution
The dissolution of a corporation by the secretary of state
79
Judicial Dissolution
By Attorney General - Corporation fraudulently obtained Articles - Corporation abused its authority By SHs - Directors' deadlock (SHs cannot break + irreparable injury to Corporation) - Directors conducted fraud/illegal activity - Directors misapplied assets - SHs failed to elect Directors after at least 2 consecutive annual meetings + SHs' deadlock By Creditors 1) Insolvent Corporation 2) Unsatisfied judgment/Corporation admitted written notice re Creditors' claim due
80
Quorum
The minimum number of shares that must be present at a shareholder meeting for any actions taken to be valid
81
Regular Voting
The shareholder voting method where a normal action is approved when the number of votes cast in favor of the action exceeds the number of votes opposing the action
82
Straight Voting
The shareholder voting method for electing directors where each seat on the board is treated as a separate election, so that a slim majority of votes may win the vote on each board seat
83
Cumulative Voting
The shareholder voting method for electing directors where a shareholder multiplies the number of shares the shareholder owns by the number of board seats being contested, and then allocates those votes among the candidates as the shareholder sees fit; candidates who receive the most votes are elected to the board
84
Proxy Voting
The shareholder voting method in which a shareholder can appoint someone to vote the shareholder’s shares at a shareholder meeting
85
Close Corporation
A corporation with just a few shareholders, typically a small business where all stock is owned by a single family
86
Share Transfer Restriction
A limitation on the ability of a corporation’s shareholders to sell their shares, which may be written into the articles of incorporation, the bylaws, or an agreement (either among the shareholders or between the shareholders and the corporation)
87
Right of First Refusal
A share transfer restriction requiring the shareholder to offer to sell his shares to the corporation (or another specified buyer) before selling them to anyone else
88
Member-Managed LLC
The owners typically operate the entity on a day-to-day basis. Each member is empowered to bind the LLC to contracts for carrying on the ordinary business of the company
89
Dissociation
A member can dissociate from an LLC at any time; must provide notice - Reliquishes the right to participate in the LLC - Interests and liabilities are not discharged - Member may not have rights to distribution unless agreed upon by continuing members
90
Liability of LLC Members
No member or manager becomes liable to an outside party on the debt, obligation, or liability solely by reason of acting as a member or manager

2024 DC Bar Exam - UBE (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions