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Corporations Flashcards

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1
Q

Corporations

A

Legal entity separate from its owners

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2
Q

Characteristics of corp

A

Management, limited liability, transferability, continuity, personhood

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3
Q

Management

A

Centralized BoD who delegate day to day to corporate officers

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4
Q

Limited Liability

A

Only corp itself is liable

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5
Q

Transferability

A

Shareholders can freely transfer ownership interest unless prohibited

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6
Q

Continuity

A

Exist in perpetuity

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7
Q

Personhood

A

Considered people and retain certain constitutional protections

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8
Q

Articles of Incorporation Must Include

A

Name, shares including max number authorized to issue, and name and address of registered office and agent

Some states also require statement of purpose, which cannot be exceeded

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9
Q

Bylaws

A

Written rules for managing corp and provide for ordinary business conduct like elections, times for meetings, etc.; can also contain provisions for managing and regulating corp’s affairs if legal

Must be incorporated by incorporators or BoD

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10
Q

Amending bylaws

A

Shareholders can amend initial bylaws

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11
Q

Promoter

A

Pre-incorporation action that are on behalf of not yet formed corporation for capital commitments, usually by forming Ks with parties interested in becoming shareholders, and corp planning and formation

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12
Q

Promoter Liability

A

Promoter liable for Ks entered into on behalf of not-yet-formed corp and remains liable after unless (a) novation, or (b) indemnification if held liable on K after formation

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13
Q

Pre-incorp liability of corp

A

Generally, no liability based on pre-incorp Ks entered into by promoters unless corp adopts K

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14
Q

Subscription Agreement

A

One agrees to buy specified number of shares from corp at given price

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15
Q

Ultra Vires Act

A

Where corp acts outside stated purpose

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16
Q

Consequence of Ultra Vires Act

A

(A) shareholder suit to enjoin
(B) corp suit against officer or director responsible
(C) state action to dissolve corp

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17
Q

De facto corp

A

Where corp formation fails to adhere to proper formalities but carries itself as corp, may still be treated as one

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18
Q

Reqs for de facto

A

(1) corp law exists under which entity could have become legally incorporated
(2) good faith effort to comply with state’s incorporation laws, and
(3) business acted like corp

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19
Q

Corp by estoppel

A

Persons who treated business as corp are estopped from denying entity is corp, especially if to avoid liability

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20
Q

Piercing corporate veil

A

Generally, shareholders, directors, and officers are not personally liable but can be held under this doctrine in which case corp entity disregarded

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21
Q

Acts justifying piercing

A

(1) ignoring corp formalities to extent corp is not being treated as separate entity
(2) inadequate capitalization where under capitalization at time of incorporation
(3) fraud or illegality, either already exists or to prevent

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22
Q

Liability post-piercing

A

All persons composing corp may be personally liable, but only those involved in active management will be held liable

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23
Q

Corp security

A

Corps get funding through issuing securities of which there are two (1) debt, and (2) equity

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24
Q

Debt security

A

Bonds

Corp borrows funds from outside creditor and promises to repay

Holders of bonds have no ownership interest

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25
Equity securities
Stocks Instrument that represents investment in corp and shareholders become part owners
26
Types of shares
Authorized: max number that corp can issue, as in incorporation articles Issues/outstanding: shares sold to investors Reacquired: shares that corp buys back, reverting from issued to authorized
27
Classes of shares
Corps may choose to issue different classes and each can have different series within class
28
Reqs for class of shares
Articles must authorize each class and set forth (1) number of shares in each (2) name or distinguishing designation (3) describe rights, preferences, and/or limitations afforded to each class
29
Varying rights in shares
Shares authorized by corp can have different rights, preferences, and limitations depending on class of shares which could include rights to distribution or dividends, nature of voting rights, etc.
30
Distribution Rights
Corp can distribute assets in form of dividends, redemption of shares, or liquidation upon dissolution This is up to board discretion, no general right to demand
31
Consideration
Shares can be issued by corp in exchange for any tangible or intangible property or benefit to corp
32
Shareholder Authority
Exert control through power to elect directors, amend bylaws, and approve fundamental changes (A) directors: remove and elect (B) bylaws: amend or repeal (C) fundamental: must approve, including mergers, sale of assets outside ordinary business, and dissolution
33
Inspection rights with proper purpose
Shareholders may inspect corp’s books and records for any proper purpose upon written notice Proper purpose: if reasonably related to person’s interest as shareholder Notice: 5 days provided to corp, stating purpose
34
Inspection rights without proper purpose
Allowed if articles and bylaws, annual reports and meeting minutes, BoD resolutions of share classifications and corp communications
35
Meetings of shareholders
Corp must hold annual meetings for election directors and other special matters Notice of meeting must be sent to shareholders eligible to vote
36
Special meetings by shareholders
May be called to conduct business requiring shareholder approval
37
Shareholder voting
Unless articles provide otherwise, 1 share = 1 vote and quorum is required to begin a vote If votes cast within quorum favored action then action approved
38
Shareholder voting in BoD elections
Directors are elected by plurality Cumulative: allowed if in articles each share can cast as many votes as BoD vacancies and multiple votes can be cast for one seat
39
Proxies
Shareholders can vote shares via proxy IF executed in writing but generally revocable unless coupled with interest and clear statement that not revocable
40
Shareholder lawsuits
May sue corp either directly or through derivative action to enforce corp’s rights
41
Direct suit
Occurs where corp, its officers, or director caused harm to, or breached duty owed to, a particular shareholder and recovery is for benefit of shareholder or its class
42
Derivative suit
Shareholder sues to enforce corp’s rights when corp has cause of action but fails to pursue
43
Derivative suit requirements
Standing: shareholders at time of alleged wrong Written demand: by shareholder to corp required, and then must wait 90 days before suing unless (i) corp already rejected demand, or (ii) irreparable harm Recovery: goes to corp, shareholder may get legal costs
44
Director’s response and authority
Corp BoD generally responsible for corp affairs and management
45
BoD characteristics
Number of directors: based on bylaws or articles, at least one Election: elected by shareholders at annual meeting Removal: with or without cause unless provided for differently in articles
46
Delegated authority
BoD does not run day-to-day of corp but rather delegates to officers and executives
47
Committee
BoD may created, each comprised of 1+ BoD with power to oversee corp affairs but cannot make major corp decision without full BoD consent
48
Duty of care
Directors and officers owe corp fiduciary duty of care and in determining whether duty was breached, courts apply Business Judgment Rule
49
Business judgment rule
Courts will not second guess poor or erroneous decision made by officer/director IF decision was made (1) in good faith (2) with care that person in like position would reasonably believe appropriate under similar circumstances, and (3) in manner director/officer reasonably believed to be in best interests of corp
50
Liability of director/officer
If director/officer breaches duty of care, held personally liable for damages Articles can limit but exceptions include (a) intentional violations of criminal law, (b) unlawful corp distributions, (c) receiving unentitled financial benefits, or (d) intentionally inflicted harm on corp or its shareholders
51
Duty of loyalty
Directors/officers owe duty of loyalty which prohibits them from profiting at expense of corp Arises in scenarios of conflict of interest or usurpation of corp opportunity
52
Safe harbors for conflict of interest
Officer/director with potential conflict of interest will not be personally liable if transaction is either (a) fair to corp given circumstances existing at time, or (b) approved after material facts have been disclosed by either disinterested shareholders, or majority of disinterested BoD members
53
Corporate opportunities
Fiduciary duties prevent officers/directors from diverting business opportunity to themselves where (a) corp would have interest or expectancy, and (b) officer/director does not give corp an opportunity to act first
54
Mergers
Occurs when 2 or more companies combine One company may be absorbed or new company entirely can be created
55
Reqs for merger approval
Mergers considered fundamental corp changes and, as such, generally require each corp to get approval of by (a) board, by whatever vote authorized, and (b) shareholders, votes for exceed against
56
Exception to merger approval
No significant change to surviving corp so no need to approve
57
Effect of merger
Surviving corp owns all property and assumes all obligations of prior separate entities
58
Short form merger
Where parent corp owns more than 90% stock of subsidiary, can be merged without approval of either corp’s shareholders
59
Dissenters’ rights
Can challenge merger or demand payment for shares at fair value Must be mutual notice to dissent and, then, if approved, corp must pay dissenters fair market value for their shares
60
Dissolution
Termination of corp’s existence, which means corp continues to exist only to wind up and liquidate Can be voluntary (fundamental change), administrative brought by state, or judicial via AG or shareholders
61
Disposition of property
Where corp sells, leases, or otherwise disposes of all—or substantially all—property outside regular course of business Considered fundamental change
62
LLC
Entity that allows for taxation for its owners like partnership but limited liability similar to corp
63
Formation of LLC
Certificate filed with state needing name, address of registered office, and name and address of registered agent
64
LLC operating agreement
Government document like corp’s bylaws that govern relations between members, rights and duties of members and managers, conditions for amending operating agreement, etc.
65
Presumptions of LLC
All members manage Equal voting rights Operating agreement dictates distribution
66
Type of LLC management
Member-managed Manager-managed
67
Duties of LLC members
Member-managed: all members owe duties of care and loyalty to each other and LLC Manager-managed: only managers owe duties of loyalty and care to LLC and members All members and managers: good faith and fair dealing

MEET Topics (7 decks)

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