Flashcards in Corporations Deck (63)
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?
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;
5. D's scienter
6. Justifiable reliance
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