Flashcards in Corporations Deck (57):
Under the Virginia Stock Corporation Act, each corporation must maintain in the Commonwealth a ____ and a ____.
Under the Virginia Stock Corporation Act, to approve an ordinary matter at a shareholders' meeting at which a quorum is present, how many shareholders must vote in favor?
votes cast in favor of the matter must exceed the votes cast against it
Notice required to shareholders for an annual and special shareholders' meeting?
Notice is no less than 10 and nor more than 60 days before meeting date.
Other than the Virginia Stock Corporation Act, what two written sources do corporations rules come?
1) article of incorporation
Unless otherwise provided, who may fix compensation of directors?
Board of directors.
Under what two situations may a shareholder institute a derivative proceedings before the 90 day waiting period?
1) shareholder has been notified before the expiration of 90 days that the demand has been rejected by corporation
2) irreparable injury to the corporation would result
Under the Virginia Stock Corporation Act, corporation's articles of incorporation may provide for a lesser or greater quorum requirement for shareholders as long as the change is not less than _____.
1/3 of the shares eligible to vote
If a corporation makes a motion to dismiss a derivative action, who can decide whether the motion is in the corporation's best interest?
1) independent panel appointed by the court
2) majority of the independent directors present; or
3) majority of committee consisting of at least two independent directors present at a board
Under the Virginia Stock Corporation Act, an appointment of a proxy is valid for ___ unless expressly provided for in appointment form.
Under the Virginia Stock Corporation Act, where corporation has less than 35 shareholders, 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?
What is the difference between voting trust and voting agreements regarding corporation shares?
voting trust are formal - subject to statute - 10 year limit - separation of beneficial ownership and voting power
voting agreements are informal
Under the Virginia Stock Corporation Act, in what types of proceedings may the ultra vires nature of a corporate act be raised?
1) proceeding before State Corporation Commission
2) injunction proceeding by shareholders
3) action by the corporation against an incumbent or former officer
Defenses to a breach of good faith and loyalty by a director who usurped a corporate opportunity against a shareholder?
1) Shareholder must be shareholder to file a derivative action
2) shareholder must make demand on board 90 days before bring action (unless demand denied earlier or irreparable harm)
Is a director personally liable for their own tortious conduct in a corporation?
Not liable for torts of other directors, officers, or employees
When does a corporation become liable for promoter's contracts?
When corporation adopts the contract by express adoption by board of directors or implied adoption through knowledge of contract and acceptance of benefits - acquiescence estoppel
How long does a promoter remain liable on contracts entered into before the corporation is formed?
Until there is adoption and novation by corporation
- if never formed then promoter remains liable.
- if only an adoption, then promoter is still liable together with corporation
What is the promoter's duty to corporation when selling property to corporation?
property acquired before - profit recoverable by corporation if it exceeds fair market value
property acquired after - all profit made on resell
What is a subscriber?
Person who makes a written offer to buy stock from corporation that is not yet formed.
- pre-incorporation offer is irrevocable for 6 months
What are two situations that a court will pierce the corporate veil?
Piercing necessary to avoid a fraud and unfairness
1) controlling shareholder is failing to observe sufficient formalities and treating corporate assets as personal assets (alter ego)
2) corporation is undercapitalized to cover foreseeable liability
What are consequences if foreign corporation transacts business in the Commonwealth without qualification?
1) subject to fine; and
2) cannot initiate lawsuits in VA, but can be sued in VA
What does par value mean?
Minimum issuance price of stock for a corporation
What is treasury stock?
Stock that was previously issued and has been reacquired by corporation. Treasury stock can be resold and deemed to be non-par stock.
Corp. issues 10,000 shares of $3 par to X for $22,000. What are the remedies of the Corp. against the directors of Corp. and against X?
Election of remedies (only one satisfaction) can recover difference between par value and amount from directors or X.
Under VA Corporate Law, what are preemptive rights?
Rights of an existing shareholder to maintain her percentage ownership by buying stock whenever there is a new issuance of stock for cash.
- after 2006 exists only if mentioned in articles of incorporation
- prior 2006 then a common law right
Are directors allowed to vote by proxy at a board of director's meeting?
How many votes of directors are required to adopt a resolution at a board of directors?
there must be a quorum (1/3 of all directors) present
- majority vote of directors present
What is the business judgment rule?
presumption that the directors manage the corporation in good faith and in the best interests of the corporation and shareholders
- not liable for innocent mistakes
Directors may avoid liability for a breach of a fiduciary duty by doing what?
obtaining independent ratification from
1) majority vote of disinterested directors
2) majority vote of shares held by independent shareholders
Who can approve a grant a permissive indemnity to a director of a corporation?
1) majority of independent directors
2) majority of committee of at least 2 independent directors
3) majority of disinterested shareholders
4) legal counsel opinion
What are two requires before bringing a derivative suit?
1) shareholder must have own one share of stock when claim arose
2) must make demand on director prior to bringing lawsuit
What are consequences of successful derivative suit in VA?
recovery is to corporation not to shareholder.
may pay attorney fees of shareholder and reasonable expenses
What is required for a valid proxy?
2) authorized by record shareholder
3) directed to secretary of corporation
4) authorized another to vote the shares
5) valid for 11 months
Day for determining eligibility to receive notice and vote is known as _____ and it may be not be more than ____ prior to meeting.
When paying a dividend, which type of stock gets paid first?
Preferred stock gets paid first and common stock is paid last
When paying a dividend, what do shares that are preferred that are participating received?
Paid twice. Once as preferred stock and once as common stock.
When paying a dividend, what do shares that are preferred that are cumulative entitled to receive?
Get right to receive dividend for previous years in which no dividend was paid
If a corporation makes a dividend that renders it insolvent, who is liable?
Directors are personally liable for unlawful distributions.
Requirements for a closely hold corporation?
- nonpublic corporation
- unanimous shareholder agreement
- valid for 10 years, unless indicated otherwise
What is the effect of a closely-held corporation?
1) no piercing veil for failure to adhere to corporation formalities
2) ability to be taxed as S-corp (like a partnership) if no more than 100 owners of stock and only 1 class of stock
How is a limited liability corporation created?
Filing articles of organization
LLC - limited life, limited liability, limited tax, and limited liquidity
What is a dissenting shareholder's right of appraisal?
Right of shareholder to force corporation to buy shares at fair value when there is a fundamental corporate change
Can a creditor step into the corporation's shoes and enforce a promise from a subscriber that is not fulfilled (obligation to pay for shares or offer services)?
Subscribes must give value for shares
Does a pledge of stock limit a shareholder's rights to vote or receive notice?
No. Pledge of stock to secure loan is not a waiver of stock ownership and shareholder is entitled to receive notice
What can a shareholder rightful demand to inspect from a corporation?
shareholder needs to be a shareholder for 6 months or own more than 5%
make a written demand 5 days in advance
can view articles, bylaws, minutes, and resolutions
How can a shareholder who did not receive notice of a meeting object to the actions without waiving right to proper notice?
Shareholder can attend meeting and object to notice at beginning of meeting that the meeting is not lawfully created or convened
Does a corporation need a shareholder's vote of approval before pledging all of its assets?
No, unless articles state otherwise.
Is cumulative voting for shares permitted in VA if the articles of incorporation do not permit it?
No. Cumulative voting is not permitted if not expressly authorized in the articles of incorporation.
If a class of shares elected a director, what is required to remove the director?
A majority of the shares in that class.
If a director breaches a duty to a corporation, and the corporation does nothing to remedy the deficiency, what can the shareholder do?
File a shareholder derivative suit (need to give notice to corporation)
Does Virginia apply a duty that majority shareholders owe to minority shareholders?
Virginia does not apply this rule.
Some states apply it to closely held corporations.
When the corporate veil is pierced, which shareholders are liable?
only shareholders who were actively managing the corporation are liable.
- contract claims unlikely to pierce corporate veil
How can shareholders fix some problems if formalities were not followed?
Sign a consent to actions taken and formalize the informal actions taken.
Are directors personally liable if they distribute assets of the corporation upon dissolution before all known corporate debt is paid?
Yes, jointly and severally liable for an unlawful distribution
- liability limited to amount wrongful distributed
- good faith defense if relied on financial statements
If shareholder receive a distribution or dividend must they disgorge the money if the distribution or dividend was unlawful?
Statute of limitations for bringing statutory claims against a corporation including director's liability?
For a resolution to be approved without a meeting, how many directors must approve the resolution?
All directors must approve the resolution.
- Corporation may still be liable if the secretary certifies the resolution.