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Flashcards in Corporations Deck (63)
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When is a promoter liable for pre-incorporation transactions?

A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation, and remains liable unless:

(a) there's a novation;
(b) the third party only looks to the corporation for performance; or
(c) the promoter had no knowledge the corporate charter has not yet been issued


When is a corporation liable for pre-incorporation transactions?

Generally never, but the corporation may expressly or impliedly accept the benefits of the transaction, or otherwise accept liability


What is required for the articles of incorporation?

The name, tag, statement of corporation's purpose, and be filed with the state


Do the articles have to enumerate the corporation's powers?



Do the articles have to limit the corporation's duration?

No, but it can


What is an ultra vires action?

A c/a to enjoin a corporation from acting contrary to the corporation's purpose.


Who can a shareholder sue in an ultra vires action?

A corporate director, officer, or employee engaged in the challenged action can initiate a proceeding


When does a corporation become liable for its activities?

When it is incorporated.


If incorporation is defective, can the owner of the company escape personal liability?

Yes, if satisfying either:

1. A de facto corporation - a GF compliance with inc. requirements, OR
2. Corporation by estoppel


What does corporation by estoppel do?

a person dealing with an entity as though it were a corporation cannot deny its existence and seek personal liability


What is common stock?

Basic ownership interest that gives the right to vote on corporate matters


What is preferred stock?

Has preference over other stock with regards to distributions


Who authorizes the issuance of stock?

The board, or SHs


Who is authorized to make distributions?

The board


What is an enforceable restriction on sale for a security?

1. Must be certified
2. Must be conspicuously noted
3. Holder must know of restriction
4. Must be reasonable


What is required for a 10b-5 action?

1. Plaintiff must have bought or sold security;
2. Interstate commerce
3. Fraudulent or deceptive conduct;
4. Materiality
5. D's scienter
6. Justifiable reliance
7. Harm


What is required for a 16(b) insider trading action?

1. Traded on national securities exchange OR >$10m and >500 SHs
2. Insider = directors, officers, shareholders w/ more than 10% of stock
3. Swing of profits in 6mo period
4. SEC report of change in stock ownership


When can the articles of incorporation be amended?

1. If no stock has been issued, the board can whenever.
2. If stock has been issued, board adopts and majority SHs approve


What occurs at an organizational meeting?

Appointment of officers, adoption of bylaws, and approval of contracts


What is an annual shareholder meeting?

It convenes to elect the board


What is a special shareholder meeting?

Called by board or SHs with 10% of voting stock


What is sufficient notice of a special meeting?

Must be notified of time, date, and place no less than 10 days before and no more than 60 before


Can a shareholder waive notice of a meeting?

Yes, by attendance or by writing


What is cumulative voting?

Shareholders can accumulate votes to allow minority SHs to elect a director


When is proxy voting permissible?

It must be in writing and delivered to the corporation or its agent


What is a voting pool agreement?

The shareholders are bound to vote with each other by agreement


What is a voting trust?

A trust to which legal ownership of shareholder's stock is transferred. The trustee votes the shares and distributes accordingly.


What makes a valid voting trust?

It must be in writing, limited to 10 years, and filed with the corporation


When can a shareholder inspect records?

When the SH has a proper purpose, may inspect on 5 days' notice


What is a direct SH action?

Enforces SH rights for breach of fiduciary duty by a director or officer, and must fairly and adequately represent corporation's interest