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CA Bar Exam > Corporations > Flashcards

Corporations Flashcards

1
Q

Corp: What nec’y in articles?

A
  • name
  • number of authroized shares
  • address of incorporator and registered agent
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2
Q

Corp: When does corp existence begin?

A
  • When articles filed
  • Promoters generally liable for pre-incorporation acts
  • Liability continues even after formation (unless novation, and corp does not become liable unless it adopts the liability
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3
Q

Corp: What if there are defects with formation?

A
  • Person who acted for corp knowing it hadn’t been validly formed is perosnally liable
  • No liability if (i) colorable compliance with incorporation statute and (ii) exercise of corp privileges
  • some states will recognize corp by estoppel, but others won’t
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4
Q

Corp: will court disregard corporate entity (piercing the veil)? What is liability?

A
  1. Alter ego - grounds where third party is harmed b/c:
    • -owners do not treat corp as separate entity
    • -commingle personal and corp funds
    • -use corp assets for personal purposes
    • -owners do not fulfill corp formalities (e.g., meetings)
  2. Inadequate Capitalization at formation
  3. Perpetrating a fraud with corp
    - Liability only to active shareholders and only for TORTS
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5
Q

Corp: What consideration is permissible to buy shares?

A
  • Historically only cash, property, or services already performed
  • NOw can be any benefit to the corp
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6
Q

Corp: How is consideration for shares established?

A

By the directors using their good faith valuation of the consideration received

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7
Q

Corp: Can CHCs dispense with board formalities?

A

yes, shareholders of a CHC are permitted to dispense with board formalities and operate the business through a different scheme.

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8
Q

Corp: what can record holders as of record date vote on?

A
  • elect directors

- fundamental changes to the corp

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9
Q

Corp: what info does corp need to provide in notice of general meetings, and special meetings? What if invalid notice?

A

General: date, time, location
Special: date, time, location, purpose
-Invalid notice = shareholders can nullify actions taken at mtg

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10
Q

Corp: how long are proxies valid for?

A
  • 11 months, or until revoked (including by attendant or later appointment)
  • Generally revocable unless they specify otherwise and are coupled with an interest
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11
Q

Corp: what does federal law require of proxy solicitation?

A
  • fully and fairly disclose all material facts
  • prohibit material misstatements and fraud in connection with a proxy
  • Materiality = what a reasonable shareholder would consider important in deciding how to vote
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12
Q

Corp: what is quorum?

A

majority of outstanding shares entitled to vote

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13
Q

Corp: what is cumulative voting?

A
  • Revised Model Business Corporations Act permits cumulative voting
  • it is where you can vote all of your shares for any one director (or spread them across directors)
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14
Q

Corp: what is a voting trust?

A
  • Shareholder transfers share ownership to a trustee who votes the shares as agreed
  • Valid in most states for up to ten years, but also renewable
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15
Q

Corp: are share transfer restrictions permissible?

A

Yes, as long as they are reasonable

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16
Q

Corp: what are the two types of shareholder inspection rights?

A

Limited: books, papers, accounting records - must have proper purpose and give five days notice
Unqualified: articles, bylaws, minutes, directors, recent annual reports

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17
Q

Corp: what is required for preemptive rights? do such rights apply to all shares?

A
  • Must be affirmatively provided for in the corp documentation
  • Does not apply to shares issued (1) as comp, (2) within 6 months of incorporation, (3) for consideration other than money, (4) nonvoting shares with a distribution preference
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18
Q

Corp: what are the two types of shareholder suits?

A

Direct: to enforce a S/H’s rights - recovery goes to S/H
Derivative: to enforce right of the CORP ITSELF - recovery goes to corp. Plaintiff must be:
–owned shares at time of wrong
–maintain ownership throughout suit
–demand board to bring suit (unless futile)

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19
Q

Corp: what are limits on corp distributions?

A
  1. Insolvency. can’t distribute if corp unable to pay debts as they become due OR total assets are less than total liabs
  2. Distribution prefs (cumulative, cumulative if earned, liquidating)
  3. Director who votes for unlawful distribution is personally liable for excess. But Dir may seek contribution fro other Dirs or recover from S/Hs who took disty knowing it was wrong
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20
Q

Corp: what’s the usual duty owed by a shareholder? what’s the main exception?

A
  • usually none - can act in own self interest

- exception if controlling S/H // can’t use that control to obtain a special advantage over minority S/Hs.

21
Q

Corp: are there notice requirements for meetings of directors?

A
  • no particular notice required for regular meetings

- special meetings typically require two-days’ notice of date/time/place (NOT purpose)

22
Q

Corp: are there quorum requirements for director meetings?

A

Yes, need quorum for a vote. Approval of majority of present directors needed to take action by vote.

23
Q

Corp: state the business judgment rule

A
  • BJR protects directors against personal liability to the corporation/shareholders. Requirements
    • Acted in good faith
    • With the care that an ordinarily prudent person would have taken in a like position
    • in a manner reasonably believed to be in the best interests of the corp
24
Q

Corp: may articles limit personally liability of directors beyond even the BJR?

A

Yes, but not for circumstances where (i) director obtained an improper benefit, (ii) unlawful distributions, or (iii) intentional infliction of harms to the corp or criminal violations of law

25
Q

Corp: what is duty re: waste?

A

Director has a duty not to commit waste

26
Q

Corp: what is duty of loyalty?

A

-No self-dealing without disclosure and approval.

27
Q

Corp: what is corporate opportunity doctrine? remedy?

A
  • Director may not divert to himself a business opportunity within the corp’s line of business without first giving the corp an opportunity to take it
  • Remedy = corp may recover director’s profits or force director to convey the opportunity to the corporation
28
Q

Corp: what results if director is sued AS a director and wins? What about loses?

A
  • Wins: corp must indemnify director for his expenses

- Loses: corp has DISCRETION whether to indemnify for expenses IF director satisfied BJR

29
Q

Corp: are there any required officers?

A

No, not under the RMBCA

30
Q

Corp: who appoints and removes officers?

A

board of directors

31
Q

Corp: what is the authority of an officer?

A
  • Actual authority - whatever authority has actually been granted
  • Apparent authority - have authority to do whatever someone in their position would normally have the authority to do
32
Q

Corp: what duties does an officer owe the corp?

A

Similar to what directors owe

33
Q

Corp: what are the fundamental corporate changes?

A

Merger // Dissolution // Sale of substantially all assets outside ordinary course of business // Amends to Articles

34
Q

Corp: what procedure required for a fundamental corp change?

A
  1. Board reso
  2. notice to S/Hs
  3. S/H approval
  4. Articles amended and filed
35
Q

Corp: in general, who must approve merger of two corps?

A

Directors and shareholders of BOTH corps

36
Q

Corp: what is dissenters’ appraisal remedy?

A

S/H who dissents on a corp change can demand corp buy his shares IF (i) he gave notice of intent to demand appraisal rights BEFORE vote, (ii) did not vote in favor, and (iii) demanded payment after change was approved

37
Q

Corp: what is the williams act?

A

governs tender offers under which a bidder would acquire more than 5% of a share class

38
Q

Corp: what are general requirements to satisfy williams act?

A
  1. File 14D (which includes lots of personal info on bidder)
  2. Tender offer must be open to all S/Hs for at least 20 days
  3. S/Hs permitted to withdraw tendered shares while offer remains open
  4. If tender is oversubscribed, buyer can only get pro rata share
  5. If offer increases, accretive value must be paid to all tendering S/Hs
  6. Target mgmt must (i) make a recommendation to S/Hs or (ii) explain why they can’t make a rec
39
Q

Corp: what are two types of dissolution?

A
  1. No Shares Issues/ No Biz Done: majority of incorporators can dissolve corporation by delivering articles of diss to state
  2. Other Times: Corp must follow procedure for fundamental changes
40
Q

Corp: what is the effect of dissolution?

A
  1. Corp existence continues
  2. Corp not allowed to do any biz other than wind up and liquidate
  3. Claims may still be brought against corp, but only to extent of its assets
    • -if all assets distyd, S/Hs may be liable for their pro rata share
    • -corp can limit this risk by notifying known/potential claimants of a fiilng deadline
    • -if you publish notification in a newspaper, unknown claims are limited to five years following publication
41
Q

Corp: can state cause a corp to dissolve?

A

Yes, by an action to administratively dissolve a corp. Commonly for failure to pay fees or penalties, failure to file annual report, or failure to maintain registered agent in the state.

42
Q

Corp: can attorney general seek judicial dissolution of the corp?

A

Yes, on the ground that the corp fraudulently obtained its articles of incorporation or that the corp is exceeding or abusing its authority.

43
Q

Corp: can S/Hs seek judicial dissolution of a corp?

A

Yes, on any of four grounds:

  1. Directors are deadlocked, S/Hs can’t break it, and could be irreparable injury to corp
  2. Dirs have acted, or will act, illegally, oppressively, or fraudulently
  3. S/Hs are deadlocked and haven’t elected directors for at least two consecutive annual meeting cycles
  4. Corp assets are being wasted, misapplied, or diverted for noncorp purposes
44
Q

Corp: can creditors seek judicial dissolution of a corp?

A

Yes, if:

  1. corp has admitted in writing that the creditor’s claim is due and owing and the corp is insolvent
  2. creditor has a judgment, corp can’t satisfy judgment, and corp is insolvent
45
Q

Corp: what is general rule of Rule 10b-5?

A

It is illegal for any person to use any means or instrumentality of interstate commerce, in connection with the purchase or sale of any security, to employ any scheme to defraud, make any untrue statement of material fact (or omission), or engage in any practice that operates as a fraud.

  • D must have intent
  • Injured party must prove reliance and causation
46
Q

Corp: What is general rule on insider trading?

A
  • Prohibited under 10b-5
  • Breach of duty to issuer, shareholders, anyone who gave the MNPI
  • Tippers and tippees can be liable under 10b-5
47
Q

Corp: what are general requirements under SOX?

A
  • ONLY APPLIES TO PUBCOS
    1. ESTABLISH AUDIT CMTE, which oversees public accounting firm and establishes internal procedures for handling complaints re: accounting matters
    2. CEO/CFO/SIMILAR MUST CERTIFY IN EACH REPORT THAT (i) they reviewed rprt, (ii) it is true to their knowledge, (iii) singing officer is responsible for establishing internal controls
48
Q

Corp: what are results if a SOX failure?

A
  1. CEO/CFO must reimburse company for any incentive based comp they got within the twelve month period preceding publication of inaccurate report

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