Corporations Flashcards
(179 cards)
1
Q
Merger or consolidation considered recognized by VI?
A
When filing of a certified and acknowledged copy of agreement is filed in office of Lt Gov
2
Q
Domestic & foreign corp merge or consolidates
A
Same procedure:
1) Written agreement outlining terms of merger of consolidation
2) presented to a meeting of SH for 2/3 approval vote
However, Foreign Corp would follow procedure of foreign jursidiction
3
Q
Who receives service if survivor corp is foreign corp?
A
if survivor corp is foreign corp and is to be governed by laws of foreign jurisdiction - must appoint Lt Gov to receive service of process in VI
Lt Gov must send any service of process to resulting corp at provided address
4
Q
Stamp Tax and Merger or Consolidation
A
A transfer of property pursuant to merge or consolidation is exempt from stamp taxes.
5
Q
Successor Liability in Regards to merger and consolidation
A
The surviving or new entity is subject to the liabilities (debts and lawsuits) and is vested w/ all property rights of the predecessor corporation.
6
Q
Sale of Assets
A
A corp may by board resolution and as authorized by vote or written consent of majority of SH may sell, lease, or exchange all of its property and assets (including goodwill (positive rep))
- Not responsible for debts and lawsuits
- Articles may require a supermajority but cannot require more than 3/4
7
Q
Corporate existence in sale of assets
A
Does not change. Consequently the purchasing corp does not become liable for debts and liabilities including torts of seller except where:
1) purchaser assumes liability
2) transaction amounts to merge or consolidation
3) transaction is fraudulent and intended as an escape from liability
4) purchaser is a mere continuation of selling company
8
Q
Polius (3rd circuit case)
A
Rejected other minority exceptions since they would tort liability to an entity w/ no causal relationship to the harm
- product line exception
- continuity of the enterprise
- company name, key personnel, assets necessary for ordinary business operations
9
Q
Voluntary Dissolution
A
A majority of directors may call for dissolution by:
a) Calling SH meeting and obtaining 2/3 SH vote
b) by written consent of all SH
No certification of dissolution will be issued until corp is current on all taxes due to VI govt.
10
Q
Distribution of assets
A
Upon dissolution net assets are to be distributed among SH in proportion to their shared ownership subject to liquidation preferences and security holders
ie preferred stock
11
Q
Judicial Dissolution
A
A SH, creditor, or VI Govt may sue to dissolve a corp where a corp is:
1) Insolvent
2) was incorporated fraudulently
3) has suspended business for at least one year
4) has surrendered its corporate right privilege and franchises
5) is involved in restraint of trade
6) has otherwise violated law
12
Q
Defacto Dissolution
A
The determination of a corporate dissolution is based on the corp’s actual condition and not the formal status
- Liquidation
- Bankruptcy (Title 7)
13
Q
Dissolution and failure to pay franchise tax
A
Failure to pay franchise tax for 1 year after due date is prima facie evidence of insolvency of the corp and it may be involuntarily dissolved on this basis.
14
Q
Abandonment of corporate name
A
When a corp name or trade name has been abandoned through dissolution or otherwise for 3 consecutive years, Lt Gov shall make it available to any business desiring to use it.
15
Q
Liquidating Trustees
A
Upon a corporation’s dissolution, directors become liquidating trustees w/ the power to wind up the affairs of the dissolved corp.
Liquidating trustees are jointly and severally liable to corp creditors for the value of the assets wrongfully distributed.
16
Q
Dissolution and stamp tax
A
Transfer of property pursuant to dissolution exempt from stamp tax
17
Q
Three years after dissolution
A
A dissolved corp does not cease to exist for all purposes. It continues to exist for a period of 3 years to prosecute and defend actions to settle its affairs, to dispose of property, and to divide capital stock.
18
Q
Revocation of dissolution
A
Up to 3 years after VOLUNTARY dissolution, a corp may seek to revoke dissolution by either
1) Directors calling a SH meeting and obtaining a 2/3 vote
2) by written consent of all SH
19
Q
Restoration of articles
A
A corp may procure extension restoration renewal or revival of articles where corp’s
1) existence is about to expire
2) Articles have become inoperative
3) Articles have expired for failure to renew
4) Articles renewed but corp failed to comply w/ statutory provisions
20
Q
Lawsuits & Service
A
Serve corps designated agent or if not found, the Lt Gov
21
Q
Legal Counsel
A
Corporations must have legal counsel.
Except: Small claim division of superior court where no party may be represented by counsel. If party is corp, it must have a personal representative (eg an officer; even if such officer is an attorney)
22
Q
Appointment of receiver
A
Court may appoint corp receiver where corp fails to cooperate or obey court order
Superior court has broad remedial powers to protect the rights of a corp’s creditors and has jurisdiction to control conduct of directors, officers and trustees.
23
Q
Officer, directory, SH liability
A
No suit may be brought against officer, directory, or SH for any debt or liability of corp until judgment is obtained against corp.
- Nor after 3 yrs after date of such judgment
- Officer, director, SH may assert any defense that the corp may have asserted
24
Q
Suit for maladministration
A
Suit for maladministration of duties may be brought against director, officer, or SH while corp in dissolution or liquidation w/o a judgment already being rendered against corp
25
Defective organization
Neither the corporation, person transacting business w/ corp, nor defendant in suit for injuring corporate property may use corporation's defective organization as a defense in any action
26
Usury
A corp may not use usury defense in action seeking payment on indebtedness
Rationale: purpose of usury preclusion is to stimulate greater business activity by allowing businesses to freely negotiate loans
27
Foreign corp qualified to do business
1) File w/ office of Lt Gov
a) charter or cert of incorporation
b) name of authorized agent in VI for service of process
c) sworn statement of assets, liabilities, and capital stock as of last physical year
As of filing and payment of requisite fee, Lt Gov will issue a certificate authorizing foreign corp to do business in VI
28
Franchise Tax
Every foreign corp qualified to do business in VI must pay franchise tax of $1.50 per $1000 of capital stock (min of $150 per year on 6/30 along w/ annual report)
29
Foreign Corp's failure to register w/ Lt Gov
May subject the corp to statutory fines
must look to whether has an office in the territory and whether "doing business" in the territory constitutes a significant enough portion of the corp's overall business to subject it to VI laws
30
Foreign corp has limited activity in VI
Foreign corp is not considered to be doing business in the VI and does not have to qualify to do so when:
1) Mail order business - shipping goods to VI
2) Contracts outside the VI to deliver construction erection, installation services of skilled employees not generally available on VI
31
Surrender of authority
A foreign corporation may surrender its authority to do business in the VI by filing
1) Certification of surrender and withdrawal
2) Certified copy of certificate of dissolution issued by state of incorporation
or
3) certified copy of judicial dissolution
32
Nonprofit incorporation
Incorporators must be VI residents wishing to form a corporation for a college, seminary, church, library, or any other benevolent, fraternal, social, religious, educational, charitable or scientific association
Chief business must be in the VI
33
Tax Exemption
Non profit which intends to file for a charitable tax exemption under Section 501(c)(3) IRS code must include in its articles a provision that upon dissolution its assets are to be distributed for exempt purpose or public use.
* If it does not intend to ask to be tax exempt, no provision is necessary
34
Non-profit dissolution
A majority of the members in good standing may at any time petition the Lt Gov for a dissolution of the corp
* A trustee would be appointed to wind up the corp
35
LLC Limited Liability Corp
Uniform Limited Liability Company Act as adopted by the VI regulates th eformation and activities of LLCs
36
Features of LLC
1) Creation of statute (like a corp)
2) Treated as a complete entity (separate and distinct from owner)
3) One person may for LLC - "person" may be an artificial entity
4) LLC members have limited liability for debts and obligations
5) Pass through entity - not taxed separately . Income and losses passed through to owners just like partnership.
6) LLC is most like Limited Partnership w/o the requirement that there be a general part.
7) Filings are made to Lt Gov office
8) Key documents are: Articles of organization and operating agreement
37
Articles of organization
1) One or more "person" (another LLC, corp, part) may file articles of organization
2) LLC existence begins when articles are filed unless a delayed effective date is given
3) Contents:
a) Name and physical mailing address for LLC and agent for service of process
b) capital of at least $1000
c) name and address of each organizer
38
Purchase of shares
1) Cash
2) Property
3) Services actually rendered
Holders of shares which are fully paid and nonassessable are generally not personally liable for corporate losses.
39
Partly paid shares
Corp may issue shares, the price of which is only partly paid. Such shares are subject to being "called" for the remainder of the purchase price. The corp may also pay dividends based on the % of purchase price already paid.
Where assets are insufficient to satisfy creditor's claims SH will be liable to the extent they have not paid full price on their shares.
40
Issuance of stocks
A corp may issue shares to raise capital up to the number of shares authorized in its articles or through board resolution
41
Par value
The dollar amount stated as the value of the shares. It is usually a nominal amount bearing little relation to the selling price of the shares. However, shares cannot be sold for less than par value.
Selling price is set by board of directors.
42
Issuance of shares w/o Par value
No par value purchase price fixed by board unless Articles reserve such power to SH
If SH fix purchase price such power shall be exercised by SH by either written consent or 2/3 SH vote.
Directors may set purchase price for first issuance of stock - no more than 10% of entire amount of stock.
43
Preferred stock
SH entitled to preference in payment of dividends and assets upon dissolution of corp after bond holders but before common stockholders.
44
Convertible securities
Bonds, debentures, or preferred stock which may be exchanged by its owner for common stock or other security of the corp
45
Rights and Limitations of preferred stock
The rights and limitations of preferred stock and terms of exchange of convertible securities are to be stated in the articles or in the board resolution providing for issuance of such stock as well as on the face or back of the stock certificate.
46
Options
Corps may issue options or rights to purchase its securities upon terms of not more than 15 years
No option may be issued which entitles a holder to purchase more than 40% of the authorized capital stock of the corp
47
Treasury Shares
Corp owns its own shares, such are called treasury shares.
Corp may hold, purchase, sell its own stock unless such would impair the corps capital
Cannot be voted upon directly or indirectly.
48
Dividends
Only by a declaration of Board of Directors only out of surplus (assets in excess of capital)
1) Cash
2) Property
3) additional shares of capital stock
Directors are jointly and severally liable for illegal distribution of dividends for full amount of unlawful dividend plus interest up to 6 years.
49
How directory may exonerate himself from unlawful dividend
1) by entering his dissent into board minutes
| 2) publishing dissent in newspaper
50
Pre-emptive rights
Rights of existing shareholders to purchase additional shares that corp proposes to issue
This prevents dilution of shareholders equity interest.
51
Shares not subject to pre-emptive rights
Unless articles specify otherwise:
1) Shares issued or optioned to effect a merger or consolidation or pursuant to a bankruptcy
2) Shares issued to purchase property or extinguish corp debt
3) Shares issued to satisfy outstanding conversion or option rights
4) Treasury shares
5) Shares originally authorized which are issued or optioned w/in 2 years of filing articles
52
SH Meetings
After first meeting of incorporations SH meetings are to be held annually
53
Voting
Unless articles provide otherwise, each share is entitled to one vote by proxy or otherwise
54
Proxy
A proxy is good for one year unless specified otherwise
55
Cumulative Voting
Articles may provide for election of directors by cumulative voting
* Allows SH to cast as many votes for directory as he has shares times the number of directors to be elected
For example, 100 shares x 3 directors = 300 votes
56
Super majority
The articles of bylaws requiring anywhere from 60-90% of SH to be present to vote on important changes
57
Voting Trust
A SH may transfer by written agreement his stock to a voting trustee conferring the right to vote thereon for a period not to exceed 10 years
58
Share holder list
All shareholders have a right to inspect a list of those SH who are eligible to vote. The list should be available prior to the vote for 10 days.
59
Debt holders
A corp may confer voting powers to bond and debenture holders in its articles
60
Shareholder consent in lieu of meeting
If SH consent to the action to be voted on the meeting may be dispensed with. The consent must be in writing, and majority rules.
61
Notice requirements
Notice requirements may be waived in writing by those who are entitled to notice
62
Changes to capital before payment of capital
Incorporators or directors may amend articles by filing a certificate of amendment w/ Lt Gov office.
Such amendment is effective as of the date of the original articles were filed.
63
Changes to capital after payment of capital
Articles may be amended by certificate of amendment to:
1) Increase corp powers
2) Increase/decrease auth capital stock
3) Change the rights and restrictions of shares
Such amendment is to be effected by Board Resolution:
1) Set forth proposed amendment
2) declaring its advisability
3) calling SH meeting to consider and vote on amendment (majority votes needed)
64
How to reduction of capital
1) Written consent by all SH w/ voting powers
2) Board resolution along w/ majority SH resolution
No reduction of capital is allowable unless assets of corp are sufficient to pay any unpaid debts
65
Merger
One corp joins w/ another and only one corp survives
66
Consolidation
Two or more corporations combine and forma third corp which is an entirely new entity
67
Procedure for merger or consolidation
Board action which would have to be approved by the SH of both corps. Dissenting SH would have right of appraisal.
68
Right of appraisal
Enabled dissenting SH who opposes (in writing) a merger or consolidation to have his interest purchased by the new or surviving corporation
69
Domestic Corp Merger Agreement
Directory desiring to merge or consolidate 2 or more domestic corporations shall enter into an agreement outlining the terms and procedures for such. Such agreement is to be submitted to each corps respective SHs at a meeting called for such purpose.
* 2/3 SH vote to approve agreement
70
Articles of incorporation
1) Name of corporation
2) Corporate purpose
3) # of authorized shares, par value, and rights and limitations
4) Minimum capitalization (at least $1000)
5) Names and addresses of:
* principal office or place of business
* principal agent for service of process
* resident agent may be individual or corp residing in or located in VI
6) Incorporators - names and places of residence
7) Period of existence (if not perpetual)
8) # of directors - min 3 or statement than # to be set by bylaws
* Information regulating corp affairs and limiting its powers, limiting SH preemptive rights and requiring super majority SH vote for certain actions
71
Advantages to corp
1) Limited liability
2) perpetual existence and succession
3) centralized management
4) ready transferability of interests
5) power to sue and be sued in corp name
6) power to take hold and convey property in entity's name
72
Disadvantages to corp
1) Double tax on corp income and shareholder dividend
2) Highly gov regulated
* Filing articles
* annual reports
* paying franchise taxes and annual taxes
* giving notice of meetings and keeping minutes
73
Jurisdiction of corp
1) place of incorporation
or
2) Principal place of business
74
Individual in foreign co
1) pursuant to international agreement
2) Other means reasonably calculated to give notice
3) As directed by the court
75
Limitation on stocks in articles
The articles must state:
1) The total # of authorized shares
2) Their par values
3) Classes rights and limitations
76
Methods for reducing capital
1) Retiring or reducing outstanding shares
2) SH exchanging shares for a reduced # of shares
3) Exchanging shares w/ par value w/ those w/o or vice versa
4) Reducing par value (requires majority vote of affected SH)
5) Retiring shares owned by corp
Retired shares shall take on status of authorized unissued shares.
77
Members & agency
Each member of LLC is an agent of the LLC unless the member had NO authority to act for the LLC in a particular matter and the person w/ whom the member was dealing knew or had notice that the member lacked authority. If actions were not in ordinary course of business, LLC liable only if other members authorized act.
78
Who may bind LLC to Real property transfers
Unless limited in Article of organization any member in a member managed or manager in a manager managed LLC may sign and deliver any instrument transferring or affecting the company's interest in real property.
The instrument is binding in favor of a person who gives value w/o knowledge of the lack of authority of the person signing and delivering the instrument.
79
LLC Liability
LLC is liable for loss or injury caused by wrongful act on omission of a member or manager acting in the ordinary course of business or as authorized by the LLC
80
Member Liability
Members may be liable if
1) So provided in the articles
2) Member has consented in writing to liability
81
Member's relationship to each other and LLC
A member's obligation to make a capital contribution is not excused by death, disability, or other inability to perform personally
If a member does not make the required capital contribution ($, property, services), LLC creditor who extends credit in reliance on such contribution make seek to enforce the original obligation.
82
LLC Reimbursement to members
LLC must reimburse member or manager for payments made and indemnify member or manager for liabilities incurred in the ordinary course of business of LLC or for the preservation of its business or property
83
Payments to members or manager for service
Members are not entitled to payment for services performed for LLC except for reasonable compensation for services rendered in winding up the LLC's business
84
Foreign corporation "doing business"
Will be deemed to be doing business in the territory if it maintains an office w/in territory.
"Substantial part of the company's ordinary or customary business"
85
Management of LLC
Members or managers
The following requires unanimous consent:
1) Amendment of article or organization or operating agreement
2) Admission of new member
3) Dissolve or terminate LLC or sell its assets
4) merge the LLC
86
Distributions to members
May not make distribution that will impair its ability to pay its debts or impair its assets
* Those who voted for distribution may be personally liable for the amount of the excess distribution - only the amount which exceeded the amount that could have been properly paid
* A member sued here may implede other members - 2 year SOL
87
Member's distributional interest
Personal property and is transferable
1) Operating agreement may provide that a members distributional interest be evidence by a certificate of interest
2) Transfer of distributional interest entitles the transferee only to the distributions
* It does not entitle the transferee to exercise any rights of a member unless specified in operating agreement
3) Transferee may become member of LLC in accordance w/ operating agreement or if all members consent
4) LLC property - the transferee or a member is NOT a co-owner of has no transferable interest in property of the LLC
(#4 was a little garbled on the card)
88
Rights of creditor
Liens may be placed on a member's distributional interest and it may be foreclosed upon.
Redemption - @ anytime before foreclosure distributional interest may be redeemed.
1) by the judgment debtor
2) by another member w/ property other than LLCs property
3) w/ LLC's property if permitted by Operating Agreement
89
Member's right to information
LLC must provide its members and former members and their agents and attorneys access to its records @ the company's principal office or other reasonable location
90
Member lawsuits
1) Member's rights under Operating Agreement
2) Member's rights under LLC Statute
3) Other rights of the member
91
Derivative action LLC
Member of LLC may maintain derivative action if the members or managers having authority to do so refuse to bring the lawsuit OR it would be futile to try to cause those members or managers to sue
92
Expiration of LLC's term
If LLC continues doing business after the expiration of its term it continues as a at will company
93
Member Dissociation
1) member withdraws, dies (if an individual), terminates (if an entity)
2) members expulsion, insolvency, incapacity
3) Occurrence of event in operating agreement
4) transfer of distributional interest (other than a lien)
94
Power To Dissociate
Unless otherwise provided in operating agreement, a member may dissociate at any time
* If dissociation is wrongful (in breach of operating agreement), member may be liable to LLC for damages
LLC must purchase departing member's distributional interest (ct may decide fair value)
95
Distribution of assets
1) Creditors first
| 2) excess distributed among members return of capital then divide surplus
96
Administrative Dissociation
Lt Gov may dissolve LLC for nonpayment of fees, taxes, or penalties or for failure to file annual report
* May file to be reinstated w/in 2 years after effective date of dissolution
* 30 days to appeal to court if denied
97
Partnership of Limited partnership conversion
May convert to LLC - new entity must file Articles of Organization w/ Lt Gov
98
Merger of LLC
Can merge into any other entity
Plan of merger must be approved as follows
all members of LLC (unless otherwise specified in operating agreement)
* articles of merger must be filed
* if foreign LLC survives, it must apply to do business in the VI
99
Foreign LLC
Must apply to Lt Gov for a cert of authority to transact business
* Lt Gov may revoke cert if it makes a material misrepresentation, fails to pay fees, taxes, file annual report, or have agent for service of process
* w/o cert may not bring lawsuit in VI BUT may be sued in VI
100
Professional Corporation
Enable professional persons the benefits of practicing in corp form (Doctor, lawyers)
* File certified copy of cert of incorporation w/ Lt Gov as well as appropriate licensing authority
* Must end w/ PC or PLLC
101
SH of PC
May issue shares only to people legally authorized to practice profession in VI
102
Directors and officers of PC
Directors and officers of PC must also be authorized by law to practice the profession in the VI and must also be a SH or be engaged in the practice of his profession
103
Intervivos transfer of and bequest of personal property
The restatement provides that the validity and effect of an intervivos conveyance of chattel is determined by the law of the state w/ the MSR to the parties, property and conveyance. Further in the absence of an effective forum selection clause greater weight will be given to the location of the property at the time of the conveyance than to any other contact.
104
Changes in capital after payment of capital
After payment of capital articles may be amended by certificate of amendment to increase corp powers, decrease corp powers, increase or decrease authorized capital stock, change rights and restriction of shares
1) Board resolution
2) Setting forth proposed amendment, advisability
3) Calling SH meeting to consider and vote
Amendment adopted -> filed w/ Lt Gov
105
Changes in capital before payment of capital
Incorporators of directors may amend articles by filing a certificate of amendment w/ Lt Gov's office.
Effective on date of original articles were filed.
106
Shares not subject to preemptive rights
1) Shares issued or optioned to effect a merger or consolidation or pursuant to bankruptcy or reorganization
2) Shares issued for value other than case (eg shares issued to purchase property for corp or to extinguish corp debt)
3) Shares issued to satisfy outstanding conversion or option rights
4) Treasury shares, when corp reissues treasury shares
5) Shares origin auth which are issued w/in 2 years after filing articles of incorporation
107
Annual reports
Annual reports due on June 30th each year and pay filing fee
108
How to register foreign pro
An individual would register certified copy of order w/ clerk of superior court either directly or via attorney general
109
Corp may reduce capital by:
1) Written consent of all SH
2) Board resolution along w/ majority SH resolution
Methods:
1) Retiring or reducing outstanding shares
2) SH exchanging shares for reduced # of shares
3) Exchange shares w/ par value w/ those that don't or vice versa
4) Reducing par value of shares (majority vote)
5) Retiring treasury stock (authorized and unissued)
110
Sale of assets
Written consent of a majority of SH
Articles may require a supermajority but can't require more than 3/4
111
Judicial dissolution
SH, creditor, gov
1) Insolvent
2) Incorporated fraudulently
3) has suspended business for at least one year
4) has surrendered its corporate right, privilege, and franchises
5) is involved in restraint of trade
6) has otherwise violated the law
112
Foreign corporation qualify to do business
File in the office of Lt Gov
1) Certified copy of charter or certificate of incorporation
2) Certificate stating name of authorized agent for service of process
3) sworn statement of its assets, liabilities, and capital stock
113
LLC articles of organization contents
1) Name, physical and mailing address of LLC and agent for service of process
2) name and physical address for each organizer
3) Capital (no less than $1000)
4) Term of LLC if to be a term company
5) Whether manager managed - physical and mailing address of each initial manager
6) Any members will be liable for its debts
7) Can be amended or restated by filing amendment or restatement
114
Operating agreement LLC
Regulates affairs of LLC
1) Doesn't have to be in writing
2) To the extent operating agreement does not otherwise provide VI LLC statute governs relations among members, managers and LLC
May Not:
1) Unreasonably restrict right to info or records
2) eliminate duty of loyalty
3) unreasonably reduce duty of care
4) eliminate duty of good faith and fair dealing
115
Professional Corporation
File certificate of incorporation w/ office of Lt Gov as well as the appropriate licencing authority
--> Supreme Court
HS - can only be ppl authorized to practice thta porfession which the corp is authorized to do
116
Domestic or foreign corp qualified to do business in VI and wanted to reduce federal income tax on export related income
May elect to be a foreign sales corp
- file article of incorporation and filing such election w/ IRS and the director of the VI IRB, flat rate franchise tax 300
117
Director Duties
1) Act intra vives - w/in legal power of authority of their office
2) to exercise due care
3) exercise fiduciary dutues
a) not to compete w/ company
b) usurp corporate opportunity
c) have conflicting interests
d) engage in insider trading
e) oppress minority shareholders
118
Specific corporate powers
1) Conduct business
2) hold, purchase, sell real property
3) sue and be sued in corporate name
4) employ officers and other agents in the corporate name
5) indemnify officers
6) make bylaws
7) have and use a corporate seal
8) windup and dissolve itself
9) make charitable donations out of surplus
119
Foreign sales corp
A domestic or foreign corp qualified to do business in the VI and who wishes to reduce federal income tax on export relate income may elect to become a foreign sales corp
* Does so in articles of incorporation and by filing w/ IRS and w/ director of VI IRB
120
Franchise tax on foreign sales corps
Flat $300 annually
121
Power to bind LLC by dissociated members
LLC remains liable for action of dissociate members for 2 years of 3rd party reasonably believed that dissociated member was still a valid member and did not have notice of his dissociation.
Statement of dissociation - if filed 3rd party deemed to have had notice 90 days after filing (dissociated member files it)
122
Winding up of LLC
Operating agreement may specify how LLC is to be dissolved.
Otherwise a member may sue to have LLC dissolved if economic purpose of LLC has been frustrated or transferee of member's interest may also sue to have LLC dissolved.
123
Articles of termination
After dissolution and winding up LLC may terminate its existence by filing articles of termination.
124
Economic development corp
Tax advantaged entities
* attract business to VI and diversify economy
* income and real property tax exemptions
* 25 persons 2/3 have to be residents of USVI
* perpetual existence 2/3 SH vote to dissolve
125
Director liability
Directors are jointly and severally liable to creditor of the corp for losses resulting from
1) watered stocks
2) reduction of capital in the guise of loans to SH
126
Business rule judgement
Court will not interfere if...
1) Action w/in powers of corporation
2) Director, officer, controlling SH acted in good faith and in best interest of the corp
127
Derivative action suits - FRCP 23.1
1) Plaintiff must have contemporaneous share ownership or have received shares by operation of law
2) The action is not collusive to confer jurisdiction
3) any efforts made by plaintiff to obtain desired action from directors or other intracorporate authority and reasons for failure or for failing to make the effort
4) Action may not be maintained if it appears that plaintiff does not fairly represent the similarly situated SH
5) Action cannot be dismissed or settled w/o approval by court
128
Indemnification in derivative action suits
expenses actually and reasonably incurred in defending or settling the matter so long as they acted:
1) in good faith
2) in a manner he reasonably believed to be in or not opposed to the best interest of the corp
NO indemnification if adjudged liable or negligent for misconduct in the performance of his duty
129
Indemnification in non-derivative action suits
corp may indemnify against expenses as well as judgments, fines, settlements
amounts actually and reasonably incurred in defending or settling matter brought against them in their representative capacity
1) Acted in good faith and in the best interest of the corp
2) w/ respect to any criminal conduct, he had no reason to believe his conduct was unlawful
130
stocks and articles of incorporaiton
1) Total # of authorized shares
2) Their par value (if any)
3) Class rights or limitations
131
Citation of agency
Agency is a consensual relationship which may be created orally, in writing by implication, or by estoppel.
- when it involves real property, statute of frauds requires agent's authority must be in writing. However, principal may ratify agents action by giving WRITTEN authorization or agreement after.
132
Forming Corp
1) 3 or more natural persons
2) Need not be virgin islanders (unless incorporating non-profit)
3) Any lawful purpose
133
Filing of articles of incorporation
1) Name of incorporation
2) purpose
3) term if to be a term company
4) name of incorporators
5) physical and mailing address of incorporators
6) resident agent for service of process
7) # of directors, at least 3
8) Capital, at least $1000
9) # of authorized shares
134
Principal office and resident agent
Board of directors may change the resident agent or the location of the principal place of business by resolution which must be filed w/ the Lt Gov
135
Resident Agent changes address
Must file changes in his address by filing a duly acknowledged certificate w/ the office of Lt Gov
136
Resignation of resident agent
May resign office by filing a certificate in the office of Lt Gov
* If no successor is appointed by Resident Agent his resignation does not become official for 30 days from date of filing
* Corp must appoint a successor before 30 days is up or have its corp charter forfeited
137
Quorum
A majority of directors constitutes a quorum
if bylaws indicate # other than quorum needed to conduct business, cannot be less than 1/3 of the total # of directors or if only 3 there must be at least 2
138
Terms
Directors hold office until their successors are elected and qualified
139
Successors
If a director dies or resigns a majority of the remaining directors (even if not a quorum) shall appoint a successor for the unexpired term of the departing director
140
Committees
By a resolution passed by a majority of the entire board, the board may designate committee of at least 2 directors each to help manage corporate affairs
141
Classes
The articles or SH vote may divide directors into two or three classes, w/ staggered terms
142
Meetings
If authorized by the articles or bylaws, board meetings may be held outside of the VI
143
Consent in lieu of meeting
Directors or committee thereof may take any action required to be taken at a meeting by written consent, such consent is to be filed w/ the corp minutes
144
Receiver
Upon the petition of any SH the court may appoint a receiver to manage the corp's affairs if there has been a failure to elect directors due to a deadlocked vote for 2 successive annual meetings
145
Mandatory officers
Corporation must have:
1) President
2) Secretary
3) Treasurer
As chosen by directors and any other agents as appropriate
146
President power
Chosent FROM directors
Has power to bind corp with respect to ordinary business transactions. No other officers would ordinarily possess such authority.
Vice Pres - acts in place of pres in case of pres absence, disability, resignation, or death.
147
Secretary
Attends and keeps minutes at corp meetings, gives notices, certifies corp records, and keeps and attests the corp seal
148
Treasurer
In charge of the treasury, he receives and keeps the corp monies and disburses corp funds as authorized
May be required to post a bond
149
More than one office?
Sure, just not president AND secretary
150
Vacancy among officers
Should be filled as per the bylaws
If there is no provision, Board of Directors should fill the vacancy
151
Loans by corp to officers or directors
NO!
No loans shall be made by a corp to its officers or directors nor may loans made by corp be secured by its stocks
if this is done the office or director who agreed to the loan is jointly and severally liable until the loan is repaid w/ interest
152
False statements
Any director or officer who makes materially false written statements regarding the condition of the corporation's business shall be jointly and severally liable for any resulting loss or damage
153
Director liability
Directors are jointly and severally liable to the creditors of the corp for losses resulting from:
1) watered stocks (ie fraudulent issuance of corporate securities for property at more than cash value
2) reduction of capital in the guise of loans to shareholders
154
Good faith reliance
Directors are fully protected for their good faith reliance upon corporate accounts or reports made by its officers or by independent CPA or appraiser selected w/ reasonable care by the board or a committee thereof
155
Duties of directors and officers
1) To act intra vives and within their respective authorities
2) To exercise due care (hiring supervisors)
3) To observe applicable fiduciary duties
156
Fiduciary duty
Undivided duty to the corp
Duty not to:
1) compete w/ corp
2) usurp corp opportunity
3) have conflicting interests
4) engage in insider trading
5) oppress minority shareholders
157
usurpation of corp opportunity
Directors and officers may not divert for their benefit opportunities which rightfully belong to the corp
If such a duty is violated, the corp can recover such damages to it or profits realized by the offending party or attach a constructive trust for its benefit on any traceable subject matter of the opportunity
158
Business judgement rule
A court will not interfere w/ the internal management and substitute its judgment for that of the directors, officers, or controlling SH where:
1) Action was within the powers of the corp (intra vives)
2) The directors, officers, and controlling SH acted in good faith and in the best interest of the corp
Closely held salaries must be fair in light of corporate condition
159
Derivative suit
An action brought on behalf of the corp by a SH to redress a wrong done to the corp by a corp insider or outsider.
Corp must be named as well as served w/ process
160
Strike suits
Suits brought by small SH and their attorney to gain private settlement and self enrichment
To avoid these certain restrictions have been placed on derivative suits:
1) Contemporaneous ownership - plaintiff must have been a SH at time of transaction complained of and ownership must continue throughout cause of action
2) Exhaustion of intracorporate remedies demanded that board redress wrong
161
Federal rule of Civil Procedure 23.1
Provides that any complaint in a derivative action shall be verified and must allege:
1) Plaintiff was SH at time of complained of transaction (or got the shares by inheritance)
2) The action is not collusive to confer jurisdiction on a court of the US
3) Efforts made by plaintiff to have directors or officers redress wrong and reasons for failure to obtain action or to make effort to get wrong redressed.
- must represent similarly situated SH
162
Derivative Action settlement or dimissal
Must get approval by the court and notice must be given to other SH as directed by the court
163
Demand on board for corrective action
Where hostility on part of directors make the requisite demand for corrective action futile, it is excused
- May be excused where directors are the alleged wrong doers, they approved the occurrence, deny wrong doing
If the directors refuse to take action, derivative suit may be precluded under Business Judgment Rule.
164
Indemnification in Derivative Actions
Corp may indemnify directors, officers, and As only against expenses (including attorney fees) actually and reasonably incurred in defending or settling the matter so long as he acted in
1) Good faith
2) in a manner not opposed to best interests of corp
165
Indemnification in non-indemnification suits
Corp can indemnify directors, officers, As, and Es (?) against expenses as well as judgments, fines, and settlements actually and reasonably ........ ?
1) in good faith
2) manner not in opposition of corps best interests
3) no reason to believe conduct was unlawful
166
New class or series of stock
If board of directors by resolution issues a new class or series of stock whose rights and restrictions have not been set forth in the articles, a certificate setting such terms forth must be filed in the Lt Gov office
Such shares may be increased or decreased but not below the # of outstanding by filing another certificate
167
Stock certificates
SH are entitled to stock certificates evidencing ownership interest
board of directors may provide for uncertified shares or class of shares. Holders of uncertificated shares may make a written request for certificated shares, however
168
Franchise tax
Every domestic and foreign corp qualified to do business in the VI must pay an annual franchise tax
- Due date: 6/30 (same time as annual report)
Calculation $1.50 for every $1000 of capital stock (min $150)
For FSC - $300
169
Failure to pay franchise tax
May not commence or maintain any lawsuit in any court except where:
1) Corp's case sounds in tort
2) It pays taxes after filing
3) Action is incidental to corp winding up its affairs after dissolution
170
Trade Name
If corp will do business under a name other than that stated in its articles, it must register its trade name
171
Failure to register trade name
If corp fails to register trade name, corp may not bring an action in any VI court to enforce any right or obligation arising out of doing business in the USVI
* May register while case is pending
* must renew every 2 years
172
Powers of the incorporators
Until directors are elected, incorporators shall direct corp affairs (including election) of officers and may sell shares in the corp
* Call first meeting upon at least 30 days notice to each incorporator
* May adopt original bylaws (can be changed by shareholders later)
173
Corporate powers and duties
1) Conduct business w/in and outside VI
2) Hold, sell, and purchase real property
3) Sue and be sued in corporate name
4) Employ officers and other agents of the corp
5) Indemnify officers and other agents of the corp
6) Make bylaws not inconsistent with VI law
7) have and use a corporate seal
8) wind up and dissolve itself
9) make charitable donations, but only out of surplus
174
Banking
A corp may not engage in the business of banking unless it is a banking institution organized under the banking laws
175
Stock ledger accounts
A corp must maintain:
a) stock ledger at its principal place of business for inspection by any SH
b) accurate accounts
176
Piercing the corporate veil
Judicial act of imposing personal liability on corporate officers, directors, and SH for the corporations wrongful acts
177
Frequent situations in which Corp Veil has been pierced
1) Closely held corp where corp formalities are disregarded or where SH may use corp entity as a pretense for personal dealings
2) Where a parent may under capitalize a subsidiary formed to undertake risky ventures
3) Corp may be held liable for obligations of affiliated entity where affiliate is a mere instrumentality dominated by other corp.
* Closely related in conduct, purpose, directors, shareholders
178
Piercing the corporate veil
Apply the law of the state of incorporation
179
Indemnification in non-indemnification suits
Corp can indemnify D.O.A.E. (Directors, officers, ...etc?) against expenses as well as judgments, fines, and settlements actually and reasonably arising in defending matter:
1) In good faith
2) Manner not in opposition of corps best interests
3) No reason to believe conduct was unlawful
