Corporations Flashcards
(27 cards)
corporation formation requirements
File articles of incorporation with SoS
- Name of corporation
- Name/address of incorporator
- Name/address of agent
- Information about stock
Defective incorporation
de facto corporation
corporation by estoppel
de facto corporation
if there is a relevant incorporation statute, if the incorporators made a good faith attempt to form a corporation and did not know corporation was defective, and acted w/corporate power, the law will treat the defective organization as a corporation
For tort and contract suits
Corporation by estoppel
if the third party treated the defective corporation as a a corporation, the third party is estopped from denying it is a corporation
promoters
Promoter are personally liable for pre-incorporation agreements, even if the corporation adopts them post-incorporation
Exceptions:
- Novation
- Indemnification
how board of directors may act as group
Unanimous agreement in writing OR
At a meeting, which satisfies the quorum and voting requirements
board metings
Regular meetings: notice not required
pecial meetings: 2 days written notice of date, time, place is required (need not state purpose)
Failure to give notice means that actions at meeting are voidable unless absent, unnotified directors waive the notice defect (1) In writing at any time OR (2) Attend the meeting w/o objection at outset of meeting
requires quorum of directors to be present at any meeting
if quorum present, resolution requires a majority
election/removal of directors
Elected and removed at will by shareholders
Exception: staggered elections
standards for director’s fiduciary duties
Duty of care: Director must perform duties in good faith and with reasonable belief that her actions are in the best interest of the corporation
Standard: Director must use the care that a person in a similar position would reasonably believe appropriate in the circumstances
business judgment rule
directors who meet the standard of care will not be liable for corporate decisions that in hindsight turn out to be erroneous (good faith performance w/reasonable belief it is in best interest of company)
(if at time of decision, the board did appropriate homework and made reasonable decision; good faith, informed, rational basis)
director’s duty of loyalty
Conflicting interest transaction: occur when an individual or entity has competing interests or loyalties that could interfere with their ability to make unbiased decisions.
Corporate opportunity doctrine: director’s fiduciary duties prohibit them from diverting a business opportunity from the corporation to themselves without giving corporation the opportunity to act first
- Officers’ powers
(application of Agency law)
- Actual authority
- Apparent authority
- Owe duties of care and loyalty
shareholder’s management and liability in corporation and close corporations
Corporations: generally, board of directors run corporation
◊ Shareholders not personally liable
Close corporations: shareholders run the corporation directly (few shareholders, not publicly traded)
◊ Shareholders not personally liable
piercing the corporate veil (close corporations)
- the shareholders must have abused the privilege of incorporating AND
- Fairness requires holding them liable
Common scenarios:
Undercapitalization: when corporation is underfunded at the time of incorporation
Alter ego: shareholders are treating the corporation as an extension of their person by commingling corporate and personal assets
Fraud, evasion of statutory provisions, or avoidance of existing obligations
shareholder meetings
Convening meetings: shareholders take action in meeting or by unanimous written (email ok) consent
- Meeting must be for a proper shareholder purpose
Annual meetings: Corporations must hold annual shareholders meetings
Special meetings: may be called by (1) board of directors, (2) president, (3) holders of at least 10% of shares, or (4) anyone authorized to do so by articles of incorporation
notice of shareholder meetings
Timing: shareholders must be notified of meeting no fewer than 10 days and no more than 60 days before meeting
Form: notice must be in writing to every shareholder entitled to vote
Waiver: may be waived in writing or by attendance
Contents: Date, time, place of meeting
Special meeting’s notice must state purpose of meeting; can’t do anything if purpose is not state
consequences of improper notice of shareholder meeting
If proper notice is not given to all shareholders, then whatever action was taken at the meeting is voidable (or void) unless those not notified waive notice
Waiver via express waiver or implied waiver (attending meeting w/o objection
shareholder meeting content
Director election
Director removal
Fundamental corporate change
shareholder how to meet/vote requirements
quorum representation required at each meeting
votes:
One share, one vote
Shareholders will be deemed to have approved a matter if the votes in favor exceed votes cast against (unless stated otherwise, must be greater than 50%)
director vote requires plurality
fundamental corporate change:
- traditional rule: majority of shares entitled to vote
-modern trend: majority of shares actually voting
others: majority of shares actually voting
voting proxies
Person who votes on shares is the owner at record time
Proxies: shareholders can appoint proxies to vote for them if in writing signed by record shareholder and directed at secretary
Generally presumed revocable unless proxy is given a security and irrevocable nature is expressed
Revocation: revocable by shareholder, may be revoked by shareholder attending meeting, in writing, or by subsequent appointment of another proxy
Derivative suits
derivative suit is a suit a shareholder brings on behalf of corporation
Standing: stock ownership at time of wrong: shareholder must have been a shareholder or have become a shareholder through transfer by operation of law (inheritance or divorce decree)
Adequate representation: shareholder must represent corporation’s interests fairly and accurately
Demand requests: MCBA: Shareholder must make a written demand on the corporation ; may not be required if such demand would be futile
fundamental corporate changes
- Amending articles
- Merging/consolidating with another company
- Transferring substantially all assets
- Converting to another form of business
- Dissolving
voluntary dissolution
- dissolution by incorporators or initial directors
dissolution by corporate act (fundamental change procedure)
Involuntary dissolution: judicial dissolution, via court order
Action by attorney general: AG can seek judicial dissolution on grounds that corp fraudulently obtained its articles or incorporation or that corporation is exceeding or abusing its authority
Action by shareholders: Shareholders may petition for involuntary dissolution
- abuse, waste, misconduct, deadlock, irreparable injury, abandoned purpose
Action by creditors: creditors may seek judicial dissolution if:
(1) Creditor’s claim has been reduced to judgment, execution of judgment is returned unsatisfied, and corporation is insolvent OR (2) The corporation has admitted in writing that the creditor’s claim is due and owning and corporation is insolvent
Administrative dissolution: State may bring action to administratively dissolve (i.e. failure to pay fees and penalties, failure to file an annual report, failure to maintain a registered agent)
