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Corporations Flashcards

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1
Q

When is a promoter liable for pre-incorporation transactions?

A

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

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2
Q

When is a corporation liable for pre-incorporation transactions?

A

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

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3
Q

What is required for the articles of incorporation?

A

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

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4
Q

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

A

No

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5
Q

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

A

No, but it can

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6
Q

What is an ultra vires action?

A

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

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7
Q

Who can a shareholder sue in an ultra vires action?

A

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

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8
Q

When does a corporation become liable for its activities?

A

When it is incorporated.

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9
Q

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

A

Yes, if satisfying either:

  1. A de facto corporation - a GF compliance with inc. requirements, OR
  2. Corporation by estoppel
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10
Q

What does corporation by estoppel do?

A

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

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11
Q

What is common stock?

A

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

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12
Q

What is preferred stock?

A

Has preference over other stock with regards to distributions

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13
Q

Who authorizes the issuance of stock?

A

The board, or SHs

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14
Q

Who is authorized to make distributions?

A

The board

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15
Q

What is an enforceable restriction on sale for a security?

A
  1. Must be certified
  2. Must be conspicuously noted
  3. Holder must know of restriction
  4. Must be reasonable
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16
Q

What is required for a 10b-5 action?

A
  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
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17
Q

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

A
  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
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18
Q

When can the articles of incorporation be amended?

A
  1. If no stock has been issued, the board can whenever.

2. If stock has been issued, board adopts and majority SHs approve

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19
Q

What occurs at an organizational meeting?

A

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

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20
Q

What is an annual shareholder meeting?

A

It convenes to elect the board

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21
Q

What is a special shareholder meeting?

A

Called by board or SHs with 10% of voting stock

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22
Q

What is sufficient notice of a special meeting?

A

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

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23
Q

Can a shareholder waive notice of a meeting?

A

Yes, by attendance or by writing

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24
Q

What is cumulative voting?

A

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

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25
When is proxy voting permissible?
It must be in writing and delivered to the corporation or its agent
26
What is a voting pool agreement?
The shareholders are bound to vote with each other by agreement
27
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.
28
What makes a valid voting trust?
It must be in writing, limited to 10 years, and filed with the corporation
29
When can a shareholder inspect records?
When the SH has a proper purpose, may inspect on 5 days' notice
30
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
31
What is a derivative action?
SH sues on behalf of corporation for harm suffered by corporation
32
When does a plaintiff have standing to bring a derivative action?
1. Must be SH at time of wrong, at time of filing and during litigation 2. Must fairly and adequately represent corporation's interests
33
When must a plaintiff make a written demand in a shareholder action?
Always, unless futile. Futility is not recognized under RMBCA, and rejection of demand is tested by BJR
34
Can the plaintiff recover litigation expenses?
Yes, for reasonable fees
35
When can a plaintiff pierce the corporate veil?
Must show corporate form is just a formality and protocols not followed. Look to undercapitalization, disregard of corporate formalities, self-dealing, co-mingling, siphoning funds, etc.
36
What is a controlling shareholder's duty to minority shareholders?
A controlling shareholder who has a high enough percentage of interest has a duty to disclose information important to a reasonable person and a duty of fair dealing when buying minority shares
37
Can a corporation be on the board?
No
38
What are the requirements for a meeting of the board?
Must give 2 days' notice of time, date, place of special meetings to directors, but regular meetings require no notice
39
What are the voting requirements for a board meeting?
Must be majority of present directors. Agreements on voting are enforceable
40
What is the duty of care?
A director has a duty to act with the care that a person in a like position would reasonably believe appropriate under the circumstances. Reliance on information of officers, employees, experts, or committees is a shield if reasonable
41
What is the business judgment rule?
A rebuttable presumption that a director reasonably believed his actions were in the best interest of the corporation.
42
What is the duty of loyalty?
A director must act in a manner that the defendant reasonably believes is in the best interest of the corporation.q
43
When does self-dealing violate the duty of loyalty?
When a director engages in a conflict-of-interest transaction normally requiring approval of the board that is not protected by a safe-harbor rules
44
When does usurpation of a corporate opportunity violate the duty of loyalty?
When a director takes an opportunity, determined by either the interest or expectancy test or the line-of-business test, though other factors may be relevant.
45
When is a corporation required to indemnify a director who was sued?
Whenever a reasonable expense was incurred in a successful defense, or if the director lost but acted in good faith. It may not indemnify if the defendant received an improper benefit.
46
What duties do officers have?
The same as directors, and the CEO and CFO are subject to the Sarbanes-Oxley Act and must certify accuracy of corporation's financials to SEC
47
When can a corporation be terminated?
By either voluntary or involuntary dissolution
48
What is voluntary dissolution?
The board adopts a proposal for dissolution and a majority of SHs approve
49
What is winding up?
Winding up is when a corporation continues to collect assets, dispose of undistributed property, and discharge liabilities.
50
What involuntary dissolution?
Creditors can pursue against insolvent corporation, or SHs can pursue involuntary dissolution if corporate assets are wasted, directors are acting fraudulently, or SHs are deadlocked on board
51
What is the oppression doctrine?
SHs are protected from oppressive majority control, and involuntary dissolution protects reasonable expectations of SHs
52
Does the BJR apply to self-interested transactions?
Generally not
53
When does a conflict of interest transaction fall into a safe harbor?
1. Majority vote of informed or disinterested directors 2. Majority vote of informed and disinterested shareholders 3. Fairness of the transaction
54
What is the fairness test for self-interested transactions?
1. Did corporation receive something of comparable value? 2. Was the process followed appropriate? Burden falls on interested directors
55
What limits are there on distributions by the board?
A corporation may not make a distribution if it is insolvent or if the distribution would cause the corporation to be insolvent
56
How is solvency determined?
Two part test: 1. Equity test - must be able to pay off debts as they come in 2. Balance sheet test - assets > liabilities + liquidation preferences of senior securities
57
Who is liable if the corporation makes an unlawful distribution?
Any director that votes for it, personally
58
When can a director avoid liability for improper or illegal action taken by the board?
1. Promptly object 2. Ensure dissent is in minutes 3. Not vote, deliver notice of dissent to presiding officer either during or immediately after meeting
59
What procedural requirements are necessary for a merger?
1. Board approval by each corp 2. SH approval 3. Req docs filed with state
60
When is shareholder approval not needed for a merger?
1. Parent-subsidiary merger (90% of sub owned by parent) | 2. Minnow-whale merger (not needed if merger can't result in >20% increase in voting power of outstanding stock)
61
What is a dissenting SHs right of appraisal?
A SH who objects to an M&A or articles amendment has the right to force a purchase of his stock at FMV
62
What is required to exercise a right of appraisal?
1. Notice to corp | 2. Written demand
63
When may a shareholder pursue involuntary dissolution?
1. Waste 2. Oppression 3. Board deadlock, SHs can't break it, and irreparable injury 4. SHs deadlocked

Business Organizations (3 decks)

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