Corporations Flashcards
(133 cards)
1
Q
Definition: Corporation
A
A corporation is a separate legal entity that comes into existence by charter from the state.
2
Q
What are the advantages of forming a corporation (4 things)
A
- Shareholders have limited liability for corporate debts and obligations.
- Shareholders may freely transfer their ownership rights to others.
- A corporation may have perpetual life.
- A corporation has a regular form of management decision-making established by statute.
3
Q
What is the difference between a corporation and a partnership? (3 things)
A
- Forming a corporation is more elaborate and expensive.
- Federal tax liability may occur BOTH when a corporate realizes profit AND when dividends are distributed to shareholders.
- Formalities of management may be more restrictive, except in a close corporation.
4
Q
Corporations may not engage in in the following combinations of business (2 things):
A
- Raising cattle & owning land therefor, and the business of preparing meat for market (slaughtering, etc.); or
- The petroleum oil producing business and the oil pipeline business.
5
Q
A corporation {may/may not} contract, buy and sell property, and sue and be sued in contract, tort, or for statutory violations.
A
MAY
6
Q
A corporation {may/may not} lend money to or otherwise assist its employees, officers, and directors as necessary or appropriate.
A
MAY
7
Q
How is a corporation managed?
A
Unless the certificate of formation, bylaws, or a shareholder agreement provides otherwise, the business and affairs of a corporation are managed by the board of directors, who are elected by the shareholders.
8
Q
The directors usually appoint _____ to operate the corporation on a day-to-day basis.
A
Officers
9
Q
What documents govern a corporation?
A
Certificate of formation & Bylaws.
Organizers of the corporation must prepare a certificate of formation, which describes the purposes and structure of the corporation.
Bylaws contain a specific statement of management procedures and may be amended by the board unless the power to amend is reserved exclusively to the shareholders in the certificate or unless a bylaw specifically prohibits amendment by the board.
10
Q
What is a “B Corporation”?
A
Benefit Corporation.
A benefit corporation intends to benefit the public and the environment, in addition to its shareholders.
11
Q
What makes a B Corporation different from a C corporation? (3 things)
A
- A benefit corporation’s certificate of formation must state that it is a benefit corporation and include at least one of the public benefits to be promoted.
- The name must also include the words “public benefit corporation,” or the abbreviation P.B.C. or PBC.
- B corporations are required to prepare statements biennially, which are sent to the shareholders, regarding the progress of meeting the public benefits stated in its certificate of formation.
12
Q
Definition: De jure corporation
A
A corporation formed in accordance with all applicable laws.
13
Q
Steps for formation of a corporation (4 things):
A
- Organizer: may be person of 18+ years, corporation, partnership, association, trust, or estate.
- Put in mandatory & optional provisions
- Organizer must file the certificate with the secretary of state.
- Upon receipt of an acknowledgement of receipt from the state, corporation’s existence begins.
14
Q
What MUST a certificate of formation include? (6 things)
A
- Name of the corporation;
- Number, names, and addresses of initial directors;
- Purpose for which the corporation is to be formed (i.e. “any lawful purpose.”);
- The duration of the corporation (if it is to be anything other than perpetual);
- Capital stock structure and shareholders’ rights
- Names and addresses of the corporate agent and each organizer.
15
Q
What is the de facto corporation doctrine?
A
A defense to personal liability of owners of a business who thought they were operating in the corporate form.
Applied when there has been a good faith attempt to comply with the statutory formation requirements and business has been conducted in the corporation’s name.
NOT CLEAR WHETHER TEXAS WILL APPLY THIS DOCTRINE
16
Q
What is a corporation by estoppel?
A
Corporation may be held to be a corporation by estoppel if a person has dealt with the company as if it were a corporation. The estoppel defense is more likely to apply to a contract claim rather than a tort claimant.
NOT CLEAR WHETHER TEXAS WILL APPLY THIS DOCTRINE
17
Q
When is the corporate veil pierced?
A
If shareholders treat assets of the corporation as their won, use corporate funds to pay their private debts, fail to keep separate corporate books, fail to hold shareholders’ or directors’ meetings, fail to issue stock or generally disregard corporate formalities, AND injustice results from any of these.
18
Q
Shareholders may be liable if they fail to provide adequate _____ for the corporation.
A
Capitalization.
Shareholders must put at risk unencumbered capital reasonably adequate for the corporation’s prospective liabilities.
19
Q
When is a corporation liable on a promoter’s contract?
A
If the corporation adopts the contract.
Adoption may be express or implied. The promoter remains jointly and severally liable on all preincorporation contracts even after adoption by the newly formed corporation unless there is a novation.
20
Q
If the contract expressly provides for the promoter’s liability, the promoter is ________ on the contract, both prior to and after formation of the corporation–even if the corporation adopts the contract.
A
Personally liable.
21
Q
If the contract is silent as to the promoter’s liability, the promoter will be held _______.
A
Personally liable, and the same rules apply as if contract had expressly provided for promoter liability.
22
Q
If the contract expressly provides that the promoter shall not be liable, the contract will be treated as a ______ to the proposed corporation, which can be accepted or rejected after the corporation is formed.
A
Continuing offer.
23
Q
Definition: Novation
A
A substitution of the promoter with the newly formed corporation in a contract.
If a promoter is bound, she is not relieved merely by the corporation’s creation or its adoption of the contract; only if the third party agrees to substitute the corporation for the promoter will the promoter be relieved.
24
Q
Definition: Subscription Agreement
A
A subscription agreement is a continuing offer that does not become an enforceable contract until accepted by the corporation.
Subscribers are deemed shareholders only after paying for shares.
25
Subscriptions made prior to formation of the corporation are ______ for six months, unless otherwise provided or unless all other subscribers consent.
Irrevocable.
26
Subscriptions to existing corporations may be ______ at any time prior to acceptance by the corporation in writing.
Revoked.
27
Where par value stock is issued, the corporation must receive at least ______ for each share.
Par value. Price is determined by the corporation.
28
Issuance of par value shares for less than par is _________ and can result in personal liability.
Watered stock.
29
_______ may be sold at any price fixed by the board.
Treasury stock.
30
Do shareholders have any power to control day-to-day affairs?
No. Unless the certificate, bylaws, or a shareholder agreement provides otherwise, shareholders have no power to control day-to-day management of corporate affairs directly.
They may exercise indirect control by election of directors, approval of amendments to the certificate, and approval of fundamental changes in the corporation.
31
May shareholders act at a meeting?
Yes. Alternatively, they may act without a meeting through consents of ALL of the shareholders entitled to vote. Consents may be in writing or received electronically.
32
What may a shareholder do if there has been no annual meeting and consents have not been obtained from the shareholders in lieu of the meeting?
If 13 months have passed since the last annual meeting, any shareholder may petition the court to order that a meeting be held.
33
Who may call a special meeting?
The president, board of directors, 10% of the shares entitled to vote, or any other person authorized by the bylaws or certificate of formation.
34
Where may a corporate meeting be held?
Anywhere within or outside the state, and if permitted by the certificate or bylaws, via video conference.
35
When must notice of a meeting be sent to the shareholders?
Notice must be sent not less than 10 days and not more than 60 days (between 10 and 60 days) prior to the meeting.
**If merger or share exchange is to be voted on, minimum is 21 days**
36
How must notice of a meeting be given to shareholders?
Notice must be given personally, by mail, or, with the shareholder's consent, by electronic transmission. Notice may be waived in writing, by electronic transmission, or by attendance.
37
Shares may be voted in person or by appointment of a _____ executed in writing by the shareholder.
Proxy.
| No appointment is valid after 11 months from its date unless otherwise provided in the appointment form.
38
Proxies are ______ unless the appointment form conspicuously states that the proxy is _______ and the proxy is coupled with an interest.
Revocable; Irrevocable.
39
What is the "one share, one vote" rule?
Each outstanding share of voting stock is entitled to one vote unless a class is made nonvoting by the certificate of formation.
40
Definition: Cumulative voting
Cumulative voting is a device that breaks the one share, one vote paradigm to give minority shareholders a greater chance for representation on the board.
Each share gets as many votes as directors being elected. The total number of votes may be divided among the candidates in any manner the shareholder desires.
41
Who may use cumulative voting?
Shareholders of a corporation incorporated before September 1, 2003 have the right to cumulate their votes *unless otherwise provided in the certificate of formation.*
Shareholders of a corporation incorporated AFTER that date may only cumulate their votes if *expressly permitted* by the certificate of formation.
42
How do shareholders exercise their right to cumulative voting?
In a corporation having cumulative voting, a shareholder must give the corporation's secretary written notice of her intent to vote cumulatively on or before the day preceding the election.
**All shareholders may cumulate their votes if ANY shareholder has given the required notice.
43
Definition: Quorum
A quorum is a majority of shares entitled to vote, represented in person or by proxy.
May never consist of less than one-third of the shares entitled to vote.
Once a share is represented at a meeting, it is deemed present for quorum purposes for the remainder of the meeting.
44
At least ____ days before a meeting, a list of shareholders entitled to vote must be prepared.
11 days.
The list must contain the address and number of shares held by each shareholder.
This list is prima facie evidence as to who is entitled to vote at shareholders' meetings.
List must be produced and kept open at the time and place of the meeting.
**Validity of action taken at the meeting is NOT affected if requirements are not complied with**
45
Definition: Pooling agreement
A pooling agreement is a written agreement among shareholders to vote their shares as the majority of signers direct.
46
Definition: Shareholder agreement
Shareholders of any corporation NOT listed on a national securities exchange or similar national securities market may enter into agreements regarding how the corporation will be run.
These agreements must be approved by all shareholders when adopted, and its existence must be conspicuously noted on share certificates to be binding on subsequent shareholders.
47
[Close Corporation]
| To form a close corporation, the certificate of formation must state:
"This corporation is a close corporation."
Share certificates must conspicuously indicate its close corporation status; failure to have such a stock legend does not affect close corporation status.
48
[Close Corporation]
| How do you terminate a close corporation? (2 ways)
1. Termination is done by amending its certificate of formation to delete the statement that it is a close corporation. This requires a 2/3 shareholder approval of each class of outstanding shares.
2. Alternatively, termination can take place on occurrence of an event or time specified in the certificate of formation and the filing of a termination statement by an officer of the corporation.
Upon termination using either method, a corporation becomes an ordinary corporation.
49
[Close Corporations]
| Who manages a close corporation? (4 options)
Can be managed by:
1. Board of directors;
2. Directors with limited powers;
3. Outsiders;
4. Shareholders;
Managed by whoever the certificate of formation or shareholder agreement states.
50
[Close Corporations]
| What happens if the directors or shareholders are in a deadlock regarding how the corporation should be managed?
The court may appoint a provisional director when directors or shareholders are divided respecting management of the corporation. The provisional director will break tie votes to permit shareholder or board action.
51
Any shareholder who has been a holder of record for at least _______ or who owns at least ______ of outstanding shares of a corporation has a right to examine the corporation books, records, accounts, and minutes and records of the shareholder meetings.
6 months; 5%.
May examine in person or by agent at any reasonable time upon written demand for any proper purpose. A court may allow any shareholder a right of inspection upon showing a proper purpose.
52
Definition: Preemptive rights
Preemptive rights give shareholders the right to purchase newly issued shares to maintain proportional voting strength. May be waived.
**There are no preemptive rights in stock issued for services or property; they exist ONLY in stock issued for money**
53
[Distributions]
| Definition: Distributions
The board of directors may make distributions payable in cash, property, or the issuance of indebtedness. Such distributions may be made in the form of a dividend, share purchase, or liquidation payment.
54
[Distributions]
| Preferred shareholders are the _____ shareholders to be paid distributions when a distribution is declared.
First.
55
[Distributions]
| No distribution may be made if the distribution will render the corporation ______.
Insolvent.
Neither may a distribution be made if the distribution exceeds the surplus of the corporation or is contrary to some restriction in the certificate of formation.
56
[Distributions]
Directors who vote for or assent to a distribution NOT permitted by law or by the certificate of formation are _______ and _________ to the corporation to the extent of the impermissible payment.
Jointly and severally liable.
57
[Distributions]
Directors are entitled to recover from any shareholder who accepted a distribution ____ _________ that it was wrongful, to the extent of the amount wrongfully distributed to that shareholder.
With knowledge.
58
[Distributions]
| When is a director protected from liability when a wrongful distribution is made? (2 things)
1. If in the exercise of ordinary care, he relied and acted in good faith on financial statements or other information of the corporation, or
2. If in the exercise of ordinary care, he relied on and acted in good faith upon written opinion of an attorney for the corporation.
59
[Distributions]
| Once a cash dividend has been declared, it may NOT be revoked unless: (2 things)
1. declaration itself was illegal, or
2. payment would be illegal (insolvency or lack of surplus)
**Stock dividends may be revoked at any time**
60
[Derivative Suits]
| Definition: Derivative suit
Suit may be brought to enforce a corporate cause of action when the corporation has not sought to do so or to hold officers and directors of the corporation personally liable for losses resulting from ultra vires acts.
61
[Derivative Suits]
| How does a shareholder prove standing to bring a derivative suit?
The shareholder must have been a shareholder of the corporation at the time of the act or omission complained of or must have become a shareholder by operation of law. The shareholder must also fairly and adequately represent the interests of the corporation in enforcing its rights.
62
[Derivative Suits]
| What are the requirements for bringing a derivative suit? (3 things)
1. Standing
2. Written demand
3. If written demand rejected, petition must show that the rejection was not made in the corporation's best interest by a disinterested majority of the board.
63
[Derivative Suits]
| What are the requirements for the written demand? (2 things)
1. Must be filed with the corporation setting forth with particularity the subject matter of the claim;
2. Shareholder may not file suit until 90 days after the demand has been made, unless the corporation rejects the demand sooner.
64
[Derivative Suits]
| Once a derivative suit is filed, a corporation may: (3 things)
1. go along with the suit;
2. seek a stay in order to investigate the matter further; or
3. if the corporation determines that continuation of the suit is not in the best interests of the corporation, move to dismiss the suit.
65
[Derivative Suits]
| A derivative suit may not be _____ or settled without the approval of the court.
Discontinued.
If the court determines that a proposed discontinuance or settlement may substantially affect other shareholders, it may require notice to those shareholders.
66
[Derivative Suits]
| If the court finds that the suit substantially benefited the corporation, it may order the corporation to:
Pay the plaintiff's expenses.
| Attorneys' fees, costs of investigation, etc.
67
[Derivative Suits]
| If the court finds that the suit was maintained without reasonable cause or was brought for improper purpose it may:
Order the plaintiff to pay the corporation's expenses.
| Attorneys' fees, costs of investigation, etc.
68
[Derivative Suits]
| In a successful suit, damages are awarded to the _______.
Corporation.
| NOT the shareholder-plaintiff, although the shareholder-plaintiff can recover attorneys' fees.
69
[Derivative Suits]
"Closely Held" Corporation Exception: If the corporation has less than 35 shareholders and its shares are not traded on a national securities exchange or over-the-counter market, the judge may treat the derivative proceeding as a:
Direct action by the shareholder.
70
Shareholders generally have no ________ ______ to their corporation or fellow shareholders.
Fiduciary duty.
71
[Distributions]
When a shareholder ________ receives a dividend from an improper source, the shareholder is personally liable for the amount of the dividend.
Knowingly.
72
[Board of Directors]
| Directors are ______ liable merely for bad business judgment.
Never.
| Courts will not interfere with directors' management of a corporation absent fraud or illegal conduct.
73
[Board of Directors]
| The BoD acts by ______ ______ unless a higher vote is required by the certificate of formation or bylaws.
Majority vote.
74
[Board of Directors]
| A _________ constitutes a quorum unless a higher number is provided for in the certificate or bylaws.
Majority of the board.
75
[Board of Directors]
| Directors {may/may not} vote by proxy at directors' meetings.
May NOT
76
[Board of Directors]
| Is notice required for a regular meeting?
No, unless required by the bylaws.
77
[Board of Directors]
| _________ by a director constitutes waiver of notice.
Attendance.
Unless the director attends with the express purpose of objecting to the meeting.
A director who is present at a meeting at which action has been taken is presumed to have assented to the action taken unless the director dissents or abstains.
78
[Board of Directors]
| A director does not have the power to bind the corporation unless there is __________ to act.
Actual authority.
Actual authority generally can arise only if:
1. proper notice was given for a directors' meeting,
2. a quorum was present, and
3. a majority of the directors approved the action.
79
[Board of Directors]
Any action required to be taken by directors at a formal meeting may be taken by ________ consent in writing without a meeting.
Unanimous.
| Unless specifically prohibited by certificate of formation or bylaws.
80
[Board of Directors]
| How are directors elected?
Directors are elected by a plurality (rather than a majority) of the votes cast by the shareholders of shares entitled to vote in the election of directors.
The board may be divided into classes with one group being elected each year.
81
[Board of Directors]
| How often are directors elected?
Directors are elected at each annual meeting of shareholders at which a quorum is present.
82
[Board of Directors]
| Directors _______ be residents of the state or shareholders.
Do not need to be.
| Unless provided otherwise by the certificate of formation or bylaws.
83
[Board of Directors]
| How is a vacancy on the BoD filled?
Vacancies resulting from resignation or death may be filled by the remaining directors even if the number of remaining directors is less than a quorum, or by election at an annual or special meeting of shareholders.
84
[Board of Directors]
Directors {may/may not} be removed with or without cause by a vote of a majority of the shares entitled to vote for directors.
May.
85
[Board of Directors]
| Who may change the bylaws?
The initial board adopts the original bylaws. Thereafter, bylaws must be amended by directors or shareholders unless the certificate of formation exclusively reserves the right to the shareholders, or the shareholders in adopting a particular bylaw expressly provide that the directors may not amend or repeal that bylaw.
86
[Liability of Directors]
| The certificate of formation may NOT limit or eliminate liability for: (4 things)
1. breach of the director's duty of loyalty;
2. an act or omission not in good faith that constitutes a breach of a duty or involves intentional misconduct or a knowing violation of law;
3. a transaction in which the director received an improper benefit; or
4. an act or omission for which liability of a director is expressly provided by statute.
87
[Director's Duty of Care]
| Directors must exercise "__________."
"Ordinary acre and prudence."
Directors can be liable for losses resulting from an officer's misconduct if the directors fail to supervise the officer.
88
[Director's Duty of Loyalty]
Transactions between a director and the corporation {are/are not} void solely because the director or officer participates in the meeting of the board that authorizes the transaction or solely because the director's vote was counted for such purpose.
Are NOT.
A transaction may be VALID if:
1. The material facts of the relationship are known to the board, and the board in good faith authorizes the transaction by a vote of a majority of the disinterested directors, even though the disinterested directors are less than a quorum;
2. The material facts of the relationship are disclosed to the shareholders who then by vote approve the transaction in good faith; or
3. The transaction is fair to the corporation at the time it is authorized or ratified by the board or the shareholders.
89
[Director's Duty of Loyalty]
If a director will benefit from a transaction his corporation is about to enter into, the director _____ disclose this information to the board.
Must.
Disinterested directors must then approve the transaction. If there is no disclosure, the transaction can be set aside unless it is fair to the corporation.
Alternatively, the corporation can recover damages equal to the director's profit.
90
[Director's Duty of Loyalty]
A director may not ______ a business opportunity in which his corporation may reasonably be interested without first giving the corporation an opportunity to act.
Usurp.
The corporation may renounce any interest through a vote of the board.
A director who fails to give the board the chance to act will be liable to the corporation for any profits made.
*Officers are subject to this same restriction*
91
Definition: Security
"Security" includes stock, bonds, and even notes under some circumstances.
92
Definition: Sarbanes-Oxley Act of 2002 ("SOX")
The SOX requires the BoD of each registered company to establish an audit committee, comprised of board members, to:
1. establish procedures for handling complaints about the company's accounting, internal accounting controls, and auditing procedures; and
2. oversee the appointment, compensation, and work performed by the company's registered public accounting firm.
93
Who does the Sarbanes-Oxley Act of 2002 ("SOX") apply to?
```
The SOX primarily affects companies registered under the 1934 Securities Exchange Act:
Those whose shares are traded on a national securities exchange or that have at least 2,000 shareholders (or 500 shareholders who are not accredited investors) in any outstanding class and more than $10 million in assets.
```
94
[Indemnification]
A director or officer must be _______ by the corporation for her reasonable expenses if she is wholly successful in a proceeding against her in her corporate capacity.
Indemnified.
95
[Indemnification]
If a director or officer is found liable, settles, is found guilty, or pleads nolo contendere, she {may/may not} be completely indemnified.
May.
Only if she acted in good faith and reasonably believed that her conduct was in the corporation's best interests, and, int he case of a criminal proceeding, she had no reasonable cause to believe her conduct was unlawful.
96
[Indemnification]
| How is eligibility for indemnification determined? (4 ways)
1. By a majority vote of disinterested directors (regardless of whether there is a disinterested quorum), a disinterested committee of the board,
2. By a vote of shareholders excluding shares held by interested directors, or
3. By special legal counsel appointed by the board or by a committee of the board.
4. By a court if it determines that the director or officer is fairly and reasonably entitled thereto.
97
[Officers]
| What officers are required?
President and secretary.
| **Any two or more offices may be held by the same person**
98
[Officers]
| What powers do the officers have?
Officers have such authority as is provided by the bylaws or determined by the board. Rules of agency determine authority of officers (i.e., actual authority--which may be express or implied, apparent authority, and inherent authority).
99
[Officers]
| What powers does the president have?
Texas cases that the president has little or no inherent authority except to conduct meetings of officers and employees.
100
[Officers]
| What powers does the secretary have?
The secretary has inherent power only to keep corporate records and to certify actions of the board and shareholders.
101
[Officers]
| What powers does the treasurer have?
The treasurer has inherent power only to receive and keep corporate funds.
102
[Officers]
| How is an officer removed?
An officer may be removed by the board or, if appointed other than by the board, by the appointing officer. Any removal is without prejudice to recovery or damages for breach of contract rights. Specific performance of an employment contract will not be granted.
103
Business corporations {may/may not} practice law, accountancy, or medicine.
May NOT.
| However, these professions may be practiced by professional corporations or professional associations.
104
[Ultra Vires Acts]
| Texas law provides that ultra vires contracts {may/may not} be voided by the corporation.
May NOT.
105
[Ultra Vires Acts]
| An assertion that a corporate act is "ultra vires" may be raised in only three situations:
1. a shareholder may seek to enjoin an ultra vires corporate act (the court will issue an injunction only if all parties to the contract are before the court and an injunction would be equitable);
2. the attorney general may raise ultra vires in a quo warranto proceeding seeking to enjoin the corporation from committing the ultra vires act; and
3. ultra vires acts may be raised in suits by the corporation against officers and directors.
106
[Ultra Vires Acts]
| Definition: Ultra Vires acts
An act that is outside the bounds of the corporation's purpose statement in its certificate of formation.
107
[Fundamental Corporate Changes]
| What is the STANDARD PROCEDURE for making a fundamental corporate change? (4 things)
1. A board resolution is adopted setting forth the proposed action.
2. Notice to take the proposed action is sent not less than 21 days before the scheduled shareholders' meeting to each shareholder of record entitled to vote thereon.
3. The proposed action must be approved by holders of at least 2/3 of the share entitled to vote thereon.
4. A document (called a certificate, e.g., of merger) setting forth the action taken must be signed on behalf of the corporation.
108
[Fundamental Corporate Changes]
| How does a corporation change its certificate of formation?
A corporation may amend its certificate of formation in any way and in as many respects as desired, as long as the amendment would currently be lawful in the original certificate.
The *standard procedure (for making a fundamental corporate change)* is followed except that notice of shareholders' meeting is the same for regular shareholders' meetings.
109
[Fundamental Corporate Changes]
| What procedure is followed for a merger, share exchange or conversion?
The standard procedure for making a fundamental corporate change is used to effect either a merger or a share exchange, except that shareholder approval is not required from the shareholders of a surviving corporation if the merger does not substantially affect shareholder rights.
In a conversion, the shareholders must approve the plan of conversion as if the conversion were a merger to which the converting entity were a party and not the survivor.
110
[Fundamental Corporate Changes]
| A sale of all or substantially all of the assets of a corporation is a __________.
Fundamental corporate change.
A sale will not be considered to be of all or substantially all of a corporation's assets if the corporation continues to engage in business after the sale.
The standard fundamental change procedure must be followed.
111
[Dissent & Appraisal Rights]
Shareholders who are dissatisfied with the terms of a merger or share exchange, or the sale of all or substantially all assets, are permitted to ______ the corporation to buy their shares.
Compel.
However, a shareholder will not have the right to dissent if the corporation's shares are:
1. listed on a national securities exchange; or
2. held of record by more than 2,000 shareholders.
112
[Dissent & Appraisal Rights]
Shareholders of a ________ corporation in a merger, etc., are not entitled to vote--and therefore are not entitled to dissenters' rights--if their rights will not be significantly affected by the transaction.
Surviving.
113
[Dissent & Appraisal Rights]
| What is the basic procedure for shareholders who want to exercise their appraisal rights?
After receiving notification from the corporation that it is considering action that will give rise to appraisal rights, the shareholder must notify the corporation of his intent and of his estimate of fair value BEFORE the vote is taken.
*Shareholder may NOT vote in favor of the action and MUST submit his shares to the corporation within 20 days after making demand*
114
[Dissent & Appraisal Rights]
| What must the corporation do if a shareholder wishes to exercise their appraisal rights?
Within 20 days of receiving the shareholder's demand for payment, the corporation must notify the shareholder either that it accepts the amount claimed or rejects the amount, in which case it must counter with its own estimate of fair value.
* If corporation agrees with value--must pay within 90 days*
* If corporation counters and an agreement is come to--must be paid within 120 days after agreement*
115
[Dissent & Appraisal Rights]
If the corporation and the shareholder cannot agree on the fair value, the shareholder or the corporation may file a petition in court to have an _______ determine fair value.
Appraiser.
116
[Voluntary Winding Up]
A corporation may be voluntarily wound up and terminated by its organizers or directors, BEFORE business commences, provided that it meets the following requirements: (4 things)
1. No shares of the corporation's stock were issue;
2. The corporation has not commenced business; and
3. A majority of the organizers or directors agree on winding up.
4. A certificate of termination must be filed with the secretary of state.
117
[Voluntary Winding Up]
| A corporation may be voluntarily wound up and terminated by its shareholders if:
If all shareholders consent in writing.
118
[Voluntary Winding Up]
| How may a corporation wind up by corporate act?
1. Corporation must send a notice of intent to wind up to all of its creditors and claimants, and must collect all of its assets, discharge all of its obligations, and distribute the remainder of its assets, in cash or in kind, to its shareholders.
2. After winding up, corporation must file a certificate of termination with the secretary of state.
*Both board and shareholder approval is necessary*
119
[Voluntary Winding Up]
A corporation may ______ a voluntary decision to wind up any time before termination takes effect (i.e., any time before the certificate of termination is filed).
Revoke.
1. If winding up was authorized by either consent of the shareholders or an act of the corporation, it may be revoked by a process similar to the process for authorizing the wind up (e.g., resolution of directors, notice to shareholders of meeting, and 2/3 vote of shareholders).
2. A court may revoke a termination that was obtained through actual or constructive fraud.
120
[Involuntary Termination]
| A corporation may be dissolved involuntarily in an action brought by: (3 things)
1. a state agency,
2. a shareholder, or
3. a creditor.
121
[Involuntary Termination: Action by State]
| The attorney general may institute a court action seeking termination of a corporation for: (5 things)
1. failure to comply with any condition precedent to incorporation;
2. fraudulent procurement of the certificate of formation;
3. transacting business beyond the scope provided for in the corporation's certificate of formation;
4. misrepresenting any matter in any required report, application, affidavit, etc.; or
5. if public interest requires termination of the corporation.
122
[Involuntary Termination: Action by State]
| On 90 days' notice, the secretary of state may without court action terminate a corporation for failure to: (3 things)
1. pay any required fee or tax,
2. file any required reports, or
3. maintain a registered agent.
*After such action, the corporation is treated like a corporation that has voluntarily decided to wind up*
123
[Involuntary Termination: Action by State]
What happens if a corporation is terminated for failure to pay franchise taxes or to file reports related to franchise taxes?
1. The corporation may NOT sue or DEFEND actions in state court; and
2. each director and officer of the corporation is personally liable for each debt of the corporation created after the date on which the tax or report was due.
124
[Involuntary Termination: Action by State]
| How may a corporation be reinstated after being terminated?
By resolving the failure and paying reinstatement fee.
If the corporation is reinstated within 3 years, corporate existence generally is deemed to have continued without interruption form the date of dissolution, except the reinstatement has no effect on any issue of personal liability of directors, officers, or agents of the corporation during the period between dissolution and reinstatement.
125
[Involuntary Termination: Shareholder Action]
| Shareholders {may/may not} move directly for involuntary dissolution of a corporation.
May NOT.
| Rather, appointment of a receiver must first be obtained.
126
[Involuntary Termination: Shareholder Action]
| The five grounds for appointment of a receiver are:
1. insolvency or danger of insolvency of the corporation;
2. deadlock and irreparable injury in management of the corporation;
3. deadlock and failure to elect directors;
4. oppression by directors or those in control; and
5. waste of corporate assets.
*If the problem is remedied within 12 months, a court may order the involuntary dissolution of the corporation*
127
[Involuntary Termination: Creditor Action]
| A creditor {may/may not} seek immediate liquidation of a corporation.
May.
| Only if it establishes that irreparable damage will ensue to the unsecured creditors of the corporation.
128
[Foreign Corporations]
| A state has ______ power to exclude or regulate foreign corporations other than those engaged in interstate commerce.
Unlimited.
129
[Foreign Corporations]
| No foreign corporation has the right to transact business in Texas until:
Until it has filed an application for registration with the secretary of state. A foreign corporation that files an application has the same rights and privileges as a domestic corporation.
130
[Foreign Corporations]
| What is meant by "transacting business in Texas?"
"Transacting business" means engaging in intrastate transactions on a recurring basis.
Isolated transactions completed within 30 days, having a bank account in Texas, effecting sales through independent contractors, and bringing suits or collecting debts are examples of transactions that DO NOT constitute "transacting business in Texas."
131
[Foreign Corporations]
| What happens if a foreign corporation does not register with the secretary of state to do business in Texas? (2 things)
1. It may not bring suit in Texas courts on any cause of action arising out of the transaction of business; but
2. It CAN defend suits;
*Failure to register does not impair the validity of any contract or corporate act.*
132
[Foreign Corporations]
An authorized foreign corporation {may/may not} withdraw its registration to terminate its authority to do business in Texas.
May.
The foreign corporation may, at any time, file a certificate of withdrawal which, when accepted by the secretary of state, terminates its authority to do business in Texas.
*If litigation is pending against it, it may not withdraw until the litigation is concluded.*
133
[Foreign Corporations]
| A corporation doing business in a name other than the name in its certificate of formation must:
File an assumed name certificate.
The certificate must include the name AND assumed name of the corporation and the period, not to exceed 10 years, during which the assumed name will be used.
*Failure to file a certificate does not impair the validity of any contract, but it does serve to bar the corporation from bringing suit in a Texas court on a contract in which it used an assumed name until it files a certificate. DEFENDING a suit is permitted.*
