Corporations Flashcards
(37 cards)
Notice of Special Meeting of Board of Directors
- Must give at least two days notice
- Must contain information regarding time, location, and date
This is unless articles of incorporation or by-laws state differently.
No Proper Notice of Board Meeting regarding voting rights, etc.
If a member does not receive proper notice of a special notice of a special meeting, but still attends, the member waives such notice unless the director objects to the holding of the meeting and then does not vote.
But if no objection and votes - right is waived.
Quorum
A quorum must be present at a Board of Directors meeting.
A quorum is a majority
If a quorum is present, a majority vote wins.
All board of directors members must be able to hear one another and be heard by all.
Who Votes at Annual Shareholder’s Meeting
Only shareholders of record vote on the record date are entitled to vote at an annual shareholder’s meeting.
“Record Date” is the date the company uses to determine which individuals are officially entitled to receive a dividend or stock split, etc.
What is the “Record Date?”
“Record Date” is the date the company uses to determine which individuals are officially entitled to receive a dividend or stock split, etc.
Are Shareholder Proxy’s Revocable?
A shareholder proxy is someone authorized to vote on behalf of a shareholder.
Shareholder proxy’s are generally revocable and any action inconsistent with the grant of a proxy works as a revocation of that proxy.
Reacquired (aka repurchased) Shares: are they outstanding or not? And what does that mean?
Shares that are reacquired (repurchased) by a corporation are considered authorized but not outstanding.
If they are not outstanding, they may not be voted (can’t vote).
OUTSTANDING = can vote
NOT OUTSTANDING = cannot vote
HOW TO REMEMBER?
Reacquired = 4 syllables
Not outstanding = 4 syllables
Regarding how many shares must vote in favor of a shareholder proposal to be approved, which prevails … the Articles of Incorporation or the By-Laws?
Articles of Incorporation
What test is used when courts examine business dealings between a controlling shareholder (such as a parent corporation) and the controlled corporation (like a subsidiary of the parent corporation)?
The fairness test.
The fairness test applies to parent-subsidiary dealings only where the parent causes the subsidiary to act in a way that parent receives something from the subsidiary to the exclusion of or detriment to minority shareholders.
My notes say this is the rule in a nutshell:
If a policy . . . such as a no-dividend policy affects all shareholders equally (majority controlling shareholders and minority shareholders), it is not a self-dealing transaction in which “parent” receives something to the exclusion of other shareholders.
Business Judgment Standard
Ok if it has a rational business justification
THINK: RATIONAL!!!!
Duty of Loyalty
Requires:
No self-dealing and no usurping a corporate opportunity.
SELF-DEALING
* Must prefer corporate interests over own.
* When a duty of loyalty is breached, the burden is on the controlling directors to prove that the transaction was fair.
* If a majority of disinterested directors approve it, then no need to prove that it’s fair.
USURPING CORPORATE OPPORTUNITY
* whether something is a corporate/business opportunity is determined by several factors, one of which being whether the corporation is in the same line of business as the opportunity
Duty of Care
Ordinary prudent person standard
Business Judgment Rule:
* best interests of the corporation
* protects the director if acts in good faith
What is required for ratification of a corporate action?
Ratification of a corporate action conducted in the ordinary course of business requires:
approval of a majority of the board of directors at a meeting where a quorum is present.
Judicial Dissolution of a Corporation - what are the various ways a corporation may be judicially dissolved?
May be judicially dissolved (ways):
1. when purpose is satisfied
2. duration expires
3. when directors are incurably deadlocked
4. to avoid waste
5. when directors have breached their fiduciary duties and no other remedies are available or practicable.
What is D.C.I.T.
Directors Conflicting Interest Transaction
First of all, it’s self-dealing which is a breach of the duty of loyalty.
It is when a director has a personal interest in a transaction that is also being considered by the corporation. This potentially creates a conflict of interest and could impair the director’s objectivity.
Ex: 2 out of 3 owners of BC Corp. wanted to take a trip to Belgium at company expense; would help advance the company, but the two would also get to sightsee and have great fun.
Modern courts will uphold such a transaction if it is properly approved by informed, disinterested directors or shareholders.
Even still, could be approved if can show it was fair. Fairness = beneficial to the corporation
Derivate Suit
An action on behalf of the corporation to enforce duties owed to the corporation. It challenges allegedly illegal action by management.
A shareholder or director may bring a derivative suit to vindicate corporate rights when directors have breached their fiduciary duties to the corporation.
Member-Managed v. Manager-Managed
Member Managed = all members (owners) participate in the day to day management and decision making.
Manager Managed = one or more designated individuals (managers) who may or may not be members handle day to day operations and decision making.
Piercing the Corporate Veil
available only when the entity is insolvent and the creditor’s claims cannot be satisfied against the entity
Common grounds for piercing the veil: (FAU)
1. alter-ego
2. undercapitalization
3. fraud
LLC
Limited Liability Company
Business structure that combines the benefits of a corporation and a partnership or sole proprietorship.
* provides owners with limited liability protection, meaning their personal assets are generally shielded from business debts and lawsuits.
Name and define the three common grounds for piercing the corporate veil.
F A U
- Alter ego = member disregards corporate separateness; lack of separate corporate meetings; commingling accounts.
- Undercapitalization = company cannot afford reasonable liability.
- Fraud = member purposefully uses the LLC to avoid its own liability.
NOTE: Courts do not typically allow veil piercing in contract actions.
Corporate Merger
A business combination in which two corporations are combined into one surviving corporation, with the effect that:
* any corporation merged into the survivor ceases
* the shares of that corporation are converted into the shares of the surviving corporation, and
* the articles of incorporation of the surviving corporation become effective for the resulting entity.
How is a corporate merger adopted?
Under the MBCA, the plan must first be adopted by a majority of the corporation’s board of directors and then submitted to the corporation’s shareholders for approval. Then need a majority vote.
This is the typical practice for most fundamental changes.
SO…..
1. Majority of BoD adopts
2. SHs approve
3. Then need a majority vote
What are appraisal rights?
A shareholder’s right to dissent from certain corporate actions (ie: mergers, asset sales) and demand that the corporation purchase their shares at a fair market value.
When are shareholders entitled to appraisal rights?
When a fundamental corporate change is taking place.
