Corporations

Question 1

Promoters

Answer 1

Persons acting on behal fo a corporation not yet formed

Question 2

The corporation becomes liable on a promoter’s pre-incorporation contract when the corporation adopts the contract by either:

Answer 2

1. Express board of directors’ resolution; OR
2. Implied adoption through knowledge of contract AND acceptance of benefits

Question 3

Promoter remains liable on pre-incorporation contracts until there has been a

Answer 3

Novation, an agreement between the promoter, the corporation, and the other contracting party that the corporation will replace the promoter under the contract

Question 4

Who is laible if the promoter enters a pre-incorporation contract and the corporation merely adopts the contract?

Answer 4

Both corporation and promoter are liable at the election of the third party. NO DOUBLE RECOVERY

Question 5

Promoters are of each other and the corporation. Therefore, promoters cannot make a on their dealings with the corporation

Answer 5

1. Fiduciary
2. Secret profit

Question 6

If promoter acquires property before becoming a promoter and sells to corporation at a profit: profit recoverable only if sold for

Answer 6

MORE than FMV

Question 7

If promoter acquires property after becoming a promoter and sells toa corporation at a profit:

Answer 7

Any profit is recovered by corporation even if resale price is FMV

Question 8

Suscribers

Answer 8

Persons or entities who make written offers to buy stock from a corporation not yet formed

Question 9

In Va, a pre-incorporation offer to buy stock is

Answer 9

irrevocable for 6 months.

Question 10

Absolute Formation requirements

Incorporators

Answer 10

Incorporators merely sign and file Articles of Incorporation with Va State Corporation Commission (SCC)

Question 11

Absolute Formation requirements

The Articles must include

Answer 11

1. Authorized shares: maximum number authorized–corparoation my issue or sell less but not more unless they change articles
2. Preferences: Must describe prefences and rights assigned to each class of stock
3. Agent: and address of registered office (registered agent is the corporation’s official legal rep.)
4. Incorporators
5. Name of corporation: name must contain some indication of corporatae status

Question 12

Absolute Formation requirements

By-laws

Answer 12

Need not be in Articles. But the corporation must adopt By-laws. The board has the power to adopt and amend the by-laws, unless the articles give the power to the shareholders.

Question 13

Legal Significance of Forming a Corporation

Answer 13

1. Illegal to do business as a corporation unless properly formed
2. a corporation is a separate legal person
3. Generally, shareholders are not personally liable for debst of coporation. Limited Liability, shareholder is only liable for the price of her stock.

Question 14

Piercing the Corporate veil

The court will pierce the corporate veil in order to

Answer 14

avoid fraud or unfairness AND to render shareholders liable to 3d party victims of tort or K breach

Question 15

Piercing Corporate veil

Alter ego

Answer 15

a controlling shareholder, alter ego, fails to observe sufficient formalities (ex: commingling funds)

Question 16

Piercing Corporate veil

Under Capitalization

Answer 16

Corporation failed to maintain sufficent capital money to cover foreseeable liabilities (ex: dangerous business, no insurance, and mininum capitlization)

Question 17

Courts are generally more willing to pierce the corporate veil for a victim than for a

Answer 17

1. Tort
2. Contract claimant

Question 18

Foreign Corporations

Answer 18

1. FCs transacting business (regular course of intrastate activity, not interstate) in Va must qualify
2. A FC is one incorporate outside Va
3. Qualify by getting a Certificate of Authority from the S.C.C. that requires: same information requried for articles of incorp.
4. Consequences of transacting w/o qualifying:
   
   1. modes fine
   2. may not initiate lawsuit

Question 19

Consideratoin–what must the corproation receive when it issues stock

Answer 19

1. Par value: minimum issuance price. never less
2. Acquring property with par value stock: any valid consideration can be rec’d if board values in good faith of at least par value
3. No Par: means no minium issuance price, any consideration can be rec’d if deemed adequate by board (ex: treasury stock–stock previosuly issued and had been reacquired by the corporation)

Question 20

Consequences for issuing par stock for less tha par value

Answer 20

Corporation can make an election between (not both)

1. directors liable personanly for authorizing a below par issuance
2. force the shareholder to pay at least par value

Question 21

Preemptive Right

Answer 21

Right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for cash.

***IN VA, preemptive rights DO NOT exist UNLESS expressly granted in articles***

Question 22

Directors Statutory Requirements

Answer 22

1. Board with at least 1 member
2. Stokholders have power to elect directors
3. Shareholder can remove director before term expires with/without cause

Question 23

Director Statutory Requirements

meetings

Answer 23

1. unless all directors consent in writing, a meeting is required
2. notice of directors’ meeting can be set in bylaws
3. Proxies are not allowed. Also no voting agreements
4. Quorum: majority of all directors to do business (unless a different percentage is requried in bylaws, but never fewer than 1/3 of all directors)
5. Vote: majority vote of those present

Question 24

Liability of Directors to their own corporation and shareholders

Answer 24

1. Directors have duty to manage
2. Protected by business judgment rule (presumption of good faith and best interests management)
3. Directors, however, are fiduciaries

Question 25

Director owes the Corporation a duty of care

Answer 25

She must act with the care that a prudent person would use with regard to her own business unless the articles limit liability for breach of duty of care.

Question 26

Duty of loyalty

Answer 26

Directors may not receive unfair beneit unless there is a material disclosure and independent ratification 1. _Self dealing_ 2. _Usurping Corporate opportunities_ 3. **_Ratification_**: directors may avoid liability by obtaining independent ratification through a majority vote of _independent_ directors, or majority vote of share held by _independent_ shareholders.

Question 27

Indeminifaction of directors and officers Costs, attorneys fees, fines, judgment, settlement

Answer 27

1. Corp. may never indemnify director/officer who is held liable to their own corp. 2. Corp. must ALWAYS indemnifty if they win a lawsuit against any party 3. MAY indemnify if 1. liability to 3parties or _settlement_ with corp. 2. D/o shows good faith with reasonable beleif that conduct was in corp.'s best interest

Question 28

Director and officer indemnification Who determines permissive idemnity?

Answer 28

1. majority vote of independent directors; or 2. majority vote of a committee of at least 2 _independent_ directors; or 3. majority vote of shares held by _independed shareholders_; or 4. A special lawyer's opinoin could recommend it

Question 29

Requirements for a derivative suit

Answer 29

1. contemporaneous stock ownership: through entire litigation 2. Adequacy: represent 3. Demand: must make demand to directors and give board 90 days to review and if rejected, alelge directors failure to review adequately 4. committee of 2 or more independent directors can investigate and move for dimissal if it concludes that the derivative suit is not in best interst

Question 30

Consequences of succesful derivative suit

Answer 30

1. recovery to corp. 2. shareholder gets fees and costs 3. recovery against individual directors is limited by 100k or that director's past year's compensation

Question 31

which shareholdres have right to vote at meeting?

Answer 31

1. record shareholders as of record date * _record date_ is a voter eligibility cut-off set by the Board no more than **70 day**s before the meeting

Question 32

Proxies

Answer 32

1. Writing or electronic transmission 2. authorized by record shareholder 3. directed to secretary of corporation 4. authorizing another to vote shares 5. valid for 11 months

Question 33

Proxies are revocable UNLESS

Answer 33

1. labelled irrevocable 2. _couple with some other interest_

Question 34

Where do shareholders vote?

Answer 34

Annual Meeting: every corp must have annual meeting where at least onde director slot is open for election Special Meeting: a meeting of stockholders to vote on a proposal or fundamental corporate change

Question 35

Annual meeting Special meeting Written notice must be given to every shareholder entitled to vote and what must the contetns be

Answer 35

1. where and when 2. for special meeting, special notice--meeting's special prupsoes must be included. Nothing else can take place

Question 36

Notice requiremeent Consequences of failure to give proper notice to all shareholders

Answer 36

1. action taken is void unless those not getting ntoice waive their objections or actually attend the meeting

Question 37

Shareholders **QUORUM**

Answer 37

1. must be quorum represented at meeting 2. focuses on number of SHARES represented, not number of shareholders 3. cannot be broken by leaving a meeting 4. requires a _majority_ of outstanding shares represented for any purpose unless otherwise provided in articles

Question 38

Shareholders ## Footnote **Vote**

Answer 38

If quorum ispresnet action is approved _if the votes for it exceed votes against it_, unles the Articles require higher vote

Question 39

Voting Trusts

Answer 39

delegation of voting power, in writing to a trustee for any duration stated in the agreement which must be depositied at the corp's principal office

Question 40

Voting Agreement

Answer 40

An agreement in writing to all vote share as the majority of the signers of the the agreement dictate

Question 41

In Va, cumulative voting does not exists UNLESS

Answer 41

expressly granted in articles

Question 42

Directors are personally liable for unlawful dividends or distributions. BUT:

Answer 42

1. Defense of good faith reliance on a financial officer's representations 2. 2 year SOL period 3. Right of contribution among stockholder and direcotrs who were paid unlawful dividend amount