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Flashcards in Corporations Deck (92):

What are "promoters"?

person's acting o behalf of corporation not yet formed


The CORPORATION becomes liable on a promoter's pre-incorporation contract when the corporation adopts the contract by either:

1) Express BoD resolution OR;
2) Implied adoption, knowledge of the contract AND acceptance of its benefits


The promoter remains liable on a pre-incorporation contract until there has been a NOVATION, what is a novation?

an agreement between the promoter, the corporation and the other contracting party that the corporation will replace the promoter under the contract


Who is liable if the promoter enters a contract, and the corporation is never formed?

Promoter alone is liable personally on the contract


Who is liable if the promoter enters a pre-incoporation contract, and the coporation merely adopts the contract?

Both, the corporation and the promoter are liable on this contract, at the election of the third party.


Promoters are __________ of each other and the corporation. Therefore, propmoters cannot make a ______ ______ on their dealings with the corporation

fiduciaries; secret profit (i.e. sale to corporation of promoter's own property at profit without disclosure to the corp)


If promoter acquires property _____ becoming a promoter and sells to corporation at a profit; profit recoverable only if sold for

BEFORE; Fair Market Value

* cannot sell AFTER acquired property


What are subscribers? and what is the VA revocability rule?

Persons or entities who make written offers to buy stock from a corporation not yet formed. Such offers are irrevokable for 6 mos under VA law.


What are the absolute corporation formation requirements?

1) Incorporators must sign and file Articles of Incorporation with State Corporation Commision (SCC)
2) articles must include:
*Authorized shares (max# of shares of each class of stock the corp is authorized to issue).
*Preferences (priorities and rights assigned to each class of stock)
*Agent ( identify person and registered office - this is corps official legal rep)
* Incorporators (names and addresses)
* Name of corporation (must contain some indication of corporate status)

3) BY laws need not be in artcile, but corp MUST adopt By-Law. - BOARD has power to adopt and amend, unless articles give this power to shareholders


What is the liability rule for shareholders of corporations?

Generally SH are not liable for corporate debts and obligations, only liable for the price of stock.
EXCEPT: court will pierce the corporate veil in order to render SH liable to 3rd party victim to avoid fraud or unfairness


When will the court pierce the corporate veil?

* Render shareholders liable to 3rd party victims to avoid fraud or unfairness:
-alter ego ( a controlling SH will fail to observe sufficient separate corporate formalities) OR
- Undercapitalization (Corp has insufficient money to cover forseeable liabilities) - look for companies that are involved in inherently dangerous activities but have no liability insurance


Courts are generally more williong to pierce the corporate veil for a _________ than for a ____________

tort victim; contract claimant


Foreign corporations transacting business in VA must qualify. How do they do so?

Qualify by getting a certificate of authority from SCC that includes (same info required for AoI A-PAIN)
*if you fail to qualify you can't initiate a lawsuit in VA


When corporations issue stock, they must receive:

at least Par Value (minimum issuance price)


Can a corporation acquire property with par value stock?

Yes, any valid consideration (including property) can be received if the BoD values the consideration, in good faith, at at least par value.


What is No Part stock?

Stock with no minimum issuance price; any valid consideration can be received, as long as deemed adequate by the board. (i.e. treasury stock)


What are the consequences of issuing par stock for less than par value?

1) Directors are liable personally for authorizing below par issuance
2) Buyers of below par stock are also liable (SH are liable up to par value of stock)
*SHs must elect who to recover from, can't recover from both)


Preemptive right is the right of___________ to maintain her percentage of ownership by buying stock whenever there is a ________ of stock for ____

an existing shareholder; new issuance; cash
*IN VA preemptive rights to not exist unless expressly granted in articles


What is the liability of directors to their own corporation?

1) Duty to manage the company
2) Business Judgment Rule
3) Fiduciaries------> duty of care (prudence unless limited by articles) + loyalty (no unfair benefits unless disclosed + independent ratification)


What are Shareholder rights for each of the following:
1) Derivative Suits:
2) Voting:
3) Proxies:

1) Derivative Suits: must have contemporaneous ownership at time claim arose + adequately represent corps interests + make a demand

2) Voting: Only record date shareholders can vote

3) Proxies: ok. Revokable unless, labeled irrevokable + coupled with an interest


What are Shareholder rights for each of the following:
4) Quorum:
5) Vote:
6) Cumulative Voting:

4) Quorum: (majority of all shares represented, not shareholders)

5) Vote: Cast in favor must exceed votes cast against

6) Cumulative Voting: Shares times # of slots = # of available votes


What are Shareholder rights for each of the following:
7) Dividends:
8) Eliminating Formalities:
9) LLC:
10) Virginia Business Trust:

7) Dividends: priority of distribution (preferred=first, common=last, particular=twice; cumulative= add on)

8) Eliminating Formalities: Non-public corporation + unanimous agreement of SH + valid for 10 years = no piercing (even if you fail to observe formalities) + S corp status

9) LLC: Limited liability + Limited life + limited liquidity + limited tax

10) Virginia Business Trust: filed perpetual limited liability trust


What is the business judgment rule?

a presumption that the directors manage the corporation in good faith and in the best interest of the coporation and it's shareholders. *D's not liable for innocent mistakes of business judgment


What are the statutory requirements for Directors in VA?

1) must have board with at least 1 member
2) SHs have power to elect directors
3) SHs can remove directors with or w/o cause
4) Meetings: meetings required unless ALL D's consent in writing - notice (meeting can be set in bylaws) - proxies not allowed - quorum (must have majority of all Ds to do business unless diff % required by the by-laws but never less than 1/3---to pass a resolution all that is required is majority vote of those present


When is permissive Indemnification of an officer or director allowed by a corporation?

Director of officer has such settled a lawsuit with their own corporation.

If D lost lawsuit, cannot idemnify,


What are the proxy formation requirements?

1) writing, 2) authorized by record shareholder 3) directed to secretary of corporation 4) authorizing another to vote the shares, and 5) valid for only 11 months


What is the difference Straight voting vs. Cumulative voting.

Straight voting: you get the number of votes - to your nymber of owned shares for each individual slot
CV: can pool all your available votes for one slot (CV must be granted in the articles in VA)


Corporation______award dividends or annual distributions to SHs if it is insolvent, or if the dividend would render it insolvent.



What are the procedural steps for making a fundamental (not ministerial) corporate change?

1) board resolutin to change
2) special notice (25-60 days advance)
3) more than 2/3 of all shares
4) dissenters rights
5) notice to state (file to SCC)


In VA, What are the dissenters right?

How does a shareholder perfect those rights?

What happens if the SH and the corporation cannot agree on fair value?

1) right of appraisal (right of a SH to force the corp to buy her shares at fair value)

2) a) before SH vote: notice in writing of your intent to object and demand payment b) at the vote: do not vote for change: c) after the vote must make timely demand in writing to be brought out

3) In Va, court has power to appoint expert to appraise value of shares. This appraisal becomes binding.


Who may determine whether to grant permissive indemnity?

1) Majority of D's could approve indemnity
2) committee of at least 2 independant directors
3) Majority of shares held by individual shareholders can vote OR
4) Special lawyer opinion can rescind it


Corporations are responsible for all debts and obligations incurred on their behalf, generally rendering____________________ not liable for the corporation’s debts.

individual corporate shareholders


VA C corps have a ______ tax rate than VA S corps and,____________

lower; are subject to double taxation
*pays taxes on its profits when earned, and then shareholders later pay taxes on the distributions


Ordinarily, a corporation may not conduct the business of ___________ unless it specially registers with the state.


Corporations generally may borrow and lend money, issue secured or unsecured bonds or obligations, and guarantee liabilities.


A corporation in which the sole shareholder uses the assets of the corporation to pay her personal bills, leaving the corporation unable to pay its own creditors, is an example of?

"alter ego" and subject to piercing the veil.

Also occurs when

....the corporation fails to keep separate books, hold meetings, issue stock, etc. However, the mere fact that the shareholders were sloppy in administering corporate affairs itself is not enough to justify piercing


Which of the following shares may NOT be voted in any manner?

A Shares owned by joint tenants.
B Shares called for redemption.
Shares owned by a partnership.

Shares that have been pledged.

shares called for redemption


who may vote on pledged shares?

The pledgor is entitled to vote the shares until the shares are transferred into the name of the pledgee; thereafter, the pledgee is entitled to vote the shares.


In Virginia, any shareholder has the right to inspect and copy records such as the ____________________, while only qualified shareholders with a proper purpose may inspect and copy records such as the ____________________.

Minutes of the shareholders’ meetings; minutes of the board meetings.


In general, ____________________ have the right to elect corporate officers, and ____________________ can adopt corporate bylaws.

The directors; both the directors and the shareholders.


Generally, a director may be removed ____________________ by ____________________ shareholder vote at a meeting called expressly for that purpose.

With or without cause; majority.


Except in a close corporation, board action can be taken at a meeting by formal resolution or by:

unanimous written consent


In a publically traded corporation, typically board actions must be made by formal resolution of the board of directors, unless:

All members of the board sign a written consent to the action.


What is the statute of limitations for an action against a director improperly declaring a distribution?

2 years


Directors who vote for, or assent to, a distribution that violates a statute or restrictions in the articles are generally liable in what amount?

The amount by which the distribution exceeds the amount that could have been distributed without violation of law or the articles.


In any derivative proceeding or class action, provided a director has not engaged in willful misconduct or a knowing violation of criminal or securities laws, what is the limit on her liability for any one transaction, occurrence, or course of conduct?

The lesser of the monetary limit specified in the articles or bylaws, or the greater of $100,000 or the amount of cash compensation she received from the corporation during the preceding 12 months.


A subscription agreement begins not as a contract but as a continuing offer to buy stock. The offer is typically accepted by which of the following actions?

a board resolution


Shareholders can bring personal actions against their corporation to enforce their own rights and any recovery will be _____________; shareholders can sometimes bring derivative actions to enforce the rights of the corporation, but in those cases recovery generally ______________.

for their own benefit; goes to the corporation


what is necessary for a Shareholder to have standing to bring a derivative action?

1) The shareholder must have been a shareholder at the time of the alleged wrongful act,

2) have become a shareholder through transfer by operation of law from one who was a shareholder at that time, OR

3) a) have become a shareholder before public disclosure and b) without knowledge of the alleged wrong, and c) he must be able to fairly and adequately represent the interests of the corporation.


Shareholders have very little right to compel the payment of a dividend; declaration is within the directors’ ______________, and courts will compel directors to declare dividends only in __________________

business judgment; exceptional circumstances


What is a director's liability for voting for a clearly illegal dividend?

The director is individually liable to the corporation and its creditors for the amount of the unlawful portion,

but he is entitled to contributions from the shareholders proportional to the amount of illegal dividend received, and from other directors who voted for or assented to the distribution.


When a corporation transfers or disposes of all or substantially all of its assets outside of the regular course of business, what conditions typically must be met?

The shareholders must consent to the board-initiated transaction.


What are three typical triggers for the dissolution of a Virginia limited liability company ("LLC")?

A member’s resignation;

a member’s death;

unanimous written consent of all members.


All of the following are methods available to the shareholders of a corporation listed on a national securities exchange to influence the day-to-day management decisions of the corporation EXCEPT:

A Electing the directors.

B Voting on any matter the board chooses to submit to the shareholders.

C Entering into a shareholder agreement to eliminate the board of directors.

D Removing directors without cause.

C Entering into a shareholder agreement to eliminate the board of directors.


The notice of a shareholders' meeting must set forth the ___, ____, and ____ of the meeting.
A meeting’s _______ must only be specified for a special meeting.

place; date; time; purpose


Shareholders of record are generally entitled to notice of shareholder meetings. Which of the following is NOT a way this notice can be waived?

The notice mailing sent to the shareholder is returned as "undeliverable.”


In a close corporation, when can informal board action be binding?

When all members of the board sign a written consent before or after the action is taken.


Which of the following generally is NOT a feature of a Virginia limited liability company ("LLC")?

A Losses are passed through to owners for taxation.

B Investor liability is limited.

C Interest in profits and losses are unassignable.

D Can be a company of professionals (accountants, lawyers).

C Interest in profits and losses are unassignable.


Generally, only a corporation is liable for its own debts. SHs, Directors, managers and officers have _________ and therefore are not liable for the debts and obligations of the company. Except when:

limited liability;
1) Unless they otherwise agree
2) officer etc.s own tort
3) pierce the corporate veil (extraordinary circumstances only) - breach of corporate formalities in running the business, alter ego or undercapitalization

*start all corporation essays with this.


Does a corporation remain liable on its debts after its been resolved?



What 3 circumstances will the courts pierce the corporate veil:

1) ignoring corporate formalities (must be involved in management of coroporation) - [paying yourself a higher salary for running the business and other SHs less, not grounds if business was successful)
2) undercapitalization (watch out, if thinly funded at first but runs business successfully for a time before becoming insolvent, this wouldn't apply)
3) business formed to perpetuate a fraud


Shareholders who fail to meet the requirements under their subscription agreement may be liable for the debts up to the amount of______

of the shares that they failed to pay for.


A SH who has been a SH for at least ___ months or who owns more than _% of the outstanding shares has the right, upon written request at least __days in advance to inspect and copy during regular business hours at the corps principle office most corporate records except:______

6;5;5; employment agreements not approved by board action and personal financial documents of the directors


Does a dissenting SH have any rights to block a meeting vote if they were not given notice?

YES. a dissenter can object at the beginning of the meeting on the basis that the meeting is NOT LAWFULLY CALLED OR CONVENED. Furthermore, a shareholder can object to consideration of a specific matter on the bases that the matter presented is OUTSIDE THE SCOPE OF THE NOTICE GIVEN.


Can a corporation pledge ALL or PART of its assets without Stockholder vote or consent of the stockholders?

YES, unless otherwise stated in the AoI, such an action does not require SH assent.


When directors authorize a distribution to shareholders that renders the company insolven before all liabilities are paid, this is called?

UNlawful distribution. All directors who voted for it are jointly and severally liable for the amount


The VA code forbids a distribution to SH if, after distribution, remaining assets do not at least equal________...which is limited to the amount__________. A defense to this would be?

liabilities....which is limited to the amount that was unlawfully distributed;
A good faith checking of the account statements to see if debts had been paid


A director against whom a claim is asserted is entitlted to contribution from the other directors who ________the unlawful distribution. Additionally Ds can recover from the _________ who have no defense that even if they did not know distribution was improper

authroize; Shareholders


What is the SoL for claims against corporations for directors liability?

2 Years


What type of action can minority shareholders file if a company has been harmed and the corporation does not act to remedy it?

May file on behalf of company


CONFLICTS OF INTEREST: IN VA, transaction w/ a director has a conflicting personal interest is not voidable if either:

1) the material facts of the transaction and the D’s interest are DISCLOSED TO THE BOARD or the SHs AND a DISINTERESTED MAJORITY of the board or SHs approve the transaction
2) the TRANSACTION IS FAIR to the corporation


A sale of all or substantially all of a company’s assets outside the regular course of business is a _______ ______ _________. Requires approval of majority of _________ and more than ___ of the ______________. WHEN A DIRECTOR HAS A CONFLICTING PERSONAL INTEREST IN A TRANSACTION HE _______. HE can attend the meeting but his vote won’t be counted.



2/3s of the shares entitled to vote

can't vote


Under the Virginia Stock Corporation Act, each corporation must maintain in the Commonwealth a registered_________ and a registered_________

Office; Agent


Under the Virginia Stock Corporation Act, each corporation must notify shareholders of the date, time , and place of each annual and special shareholders' meeting. Such notice generally must be given no less than____ nor more than_______before the meeting date.

10 days; 60 days


Identify the type of business association: hybrid business entity offering its owners limited liability enjoyed by corporate shareholders and the flow-though tax treatment of a partnership unless the owners choose otherwise.



Under VSCA, who may fix the compensation of directors, unless otherwise provided by the AoI or bylaws?

Board of Directors


All of the following corporation abbreviations are allowable except: Corp, Inc., LTd, OR LLC?



Under VSCA, a SH need not wait 90 days after filing a demand on the corporation to commence a derivative proceeding against the corporation under what 2 situations?

1) SH has been notified before the expiration of the 90 days that demand has been rejected by the corporation

2) Irreparable injury to the corporation would result by waiting until the end of the 90-day period


All corporate meetings may be held _________

Anywhere, within or outside VA


Under VSCA, where the corporation has 35 or fewer SHs the holders of at least _____ of all votes entitled to be cast on any issue proposed to be considered at a special meeting may make a written demand for such a meeting.



Under VSCA, in what types of proceedings may the ultra vires nature of a corporate act be raised?

1) proceeding against the corporation before the SCC

2) an injunction proceeding by Shs AND

3) an action by the corporation against an incumbent or former officer or director.


Can a SH effect the removal a of a director from the board? if so what steps must be taken?

YES, SH can remove any or all Ds, with or without cause, by calling a meeting expressly for that purpose. (unless AOI provide otherwise)
*notice must specify purpose, must be given not less than 10 or more than 60 days.
*cumulative voting not allowed unless specified
*maj of shares entitled to vote sufficient to remove (unless elected by class, than a majority of the class)


Can Ds about to be removed from a board file a motion for injunciton to prevent their removal?

NO, if no legal right has been breached. Removal is at will.


What is the duration of a shareholder agreement under the VSCA?_______

Whatever is stated in the agreement


True of False: Under the VSCA, a court must approve any settlement of discontinuance of a derivative proceeding.



What are the 3 situations in which the corporate veil can be pierced?

1) the shareholders treat the corporation as their alter ego by ignoring corporate formalities, using corporate funds for personal debts etc…..

2) when the corporation is undercapitzlized, and

3) to prevent fraud.

(generally only the shareholders who were active in managing the company are held liable under the theory of piercing the corporate veil)


Is there a defense for shareholders regarding lack of corporate formalities in VA?

VA law permits shareholders to sign a consent to actions taken by the directors, formalizing the informal actions taken earlier.


Does pledging your stock to a bank as a collateral restrict your rights as a stockholder?

NO, under VA corporation law, only record shareholders as of the record date have the right to vote. A SH who has pledged her shares is entitled to vote her share until the shares have been transferred into the name of the pledgee.


Under VA corporation law, a SH who has been a SH for at least _________or who owns more than ____ of the outstanding shares has the right upon ______________ at least ___ days in advance, to inspect and copy during regular business hours corporations records.

6 months
written request
five days


If a SH was not given proper notice of meetings, but attends the meetings anyway, what recourse does she have?

Object at the beginning of the meeting on the basis that meeting is not LAWFULLY called or convened.

Object to consideration of a specific matter on the basis the matter is OUTSIDE THE SCOPE of the notice given.


Under VA Stock Corporation Act, A restriction limiting ______________is expressly identified as a permissible transfer.

A restriction limiting sales to other family members.


IN Corporations that have preemptive rights, there are not preemptive rights when a corporation issues shares for ______________



Under the VA Stock Corporation Act, a corporation may issue the number of shares of each class or series authroized by the AoI. Shares that are issued are___________shares until they are reacquired, redeemed, converted or cancelled.