Corporations

Question 1

What is a corporation?

Answer 1

A legal entity that is separate from its owners and provides its owners with limited liability.

Question 2

Where are the management rights centralized in a corporation?

Answer 2

board of directors, who delegate day to day management to corporate officers

Question 3

How may shareholders in a corp transfer their ownership (shares)?

Answer 3

Freely, unless prohibited by articles or bylaws

Question 4

De Jure Corporation

Answer 4

corp formed in accordance with applicable laws

Question 5

When is a corp formed?

Answer 5

when articles of organization are filed w the state

Question 6

What is a Promoter

Answer 6

one who acts on behalf of a not-yet-formed corp to get funding

Question 7

What liability does a promoter have

Answer 7

personal liability for the Ks they enter into on behalf of the corp, and remain liable after formation

Question 8

What two ways can a promoter be protected from personal liability

Answer 8

novation

indemnification

Question 9

Will a corp be liable for pre-incorporation Ks entered into by promoters

Answer 9

no, unless adopted via novation

Question 10

What is an ultra vires act

Answer 10

when a corp acts outside of its stated purpose in the articles

Question 11

What are the consequences of an ultra vires act

Answer 11

shareholder suit to enjoin the action
corp suit against officer/director responsible
state action to dissolve

Question 12

Requirements of a De Facto Corp

Answer 12

• Entity could have legally became a corp
• Entity made a GF effort to comply w inc. laws
• entity acts/acted like corp

Question 13

What is “piercing the corp veil”?

Answer 13

doctrine that allows shareholders, officers, directions, etc. to be held personally liable

Question 14

What acts justify veil piercing?

Answer 14

Ignoring corp formalities (“alter ego”)
Undercapitalization
Fraud or illegality

Question 15

What are stocks & their legal effect

Answer 15

instrument that represents investment in the corp; holders become part owners of corp

Question 16

What are authorized shares

Answer 16

the max number of shares a corp may issue (as stated in articles)

Question 17

what are issued/outstanding shares

Answer 17

shares that have been sold to investors

Question 18

what are reacquired shares

Answer 18

shares that have been bought back by the corp (no longer issued/outstanding)

Question 19

Dividend Rights in Shareholders

Answer 19

SH have no rights to dividends, these are distributed at discretion of board

Question 20

What components of a corp do SHs have authority over

Answer 20

directors (remove and elect)
bylaws (can adopt/amend/repeal)
fundamental changes (SH must approve)

Question 21

What are a SHs inspection rights?

Answer 21

SH may inspect the corps books and records for any proper purpose upon written notice

Question 22

When is a SHs purpose proper for inspecting the corps records and books?

Answer 22

when it is reasonably related to a person’s interests as shareholder

Question 23

What notice is required of a SH before inspection

Answer 23

5 days written notice & must state the “proper purpose”

Question 24

Corp Annual Meeting rule

Answer 24

must hold (and give notice of) annual meetings to elect directors and conduct other special matters

Question 25

What is a quorum

Answer 25

1/2 plus 1

Question 26

How does quorum effect voting

Answer 26

must have quorum present to allow vote to occur

Question 27

What vote is needed to win (unless articles say otherwise)

Answer 27

majority

Question 28

What is cumulative voting and when is it applicable

Answer 28

each share can cast as many votes as there are vacancies and multiple can be cast for one seat (e.g., five vacancies, each share gets five votes) - applies to BoD elections

Question 29

Two types of shareholder lawsuits

Answer 29

direct | derivative

Question 30

direct SH lawsuit

Answer 30

corp/officer/director caused harm to a particular SH

Question 31

derivative SH lawsuit

Answer 31

SH sues to enforce the corp's rights when the corp has a cause of action but fails to pursue it (e.g., director breaches a duty)

Question 32

who has standing to bring a SH derivative suit

Answer 32

SHs at the time of the alleged wrong

Question 33

Recovery of a derivate suit

Answer 33

goes to corp but SH can recover legal expenses

Question 34

Written demand requirement for a derivative suit

Answer 34

``` SH must make written demand 90 days before filing suit Unless: - corp already rejected SH demand; or - irreparable injury to corp if delay ```

Question 35

Business Judgment Rule

Answer 35

courts will not second guess a poor or erroneous business decision made by a director/officer that was made in good faith, reasonable, and reasonably believed to be in the best interests of the corp *used to determine if director breached duty of care owed to corp

Question 36

Duty of Loyalty of Directors/Officers and 2 ways it arises

Answer 36

prohibits from profiting at the expense of the corp - conflicts of interest - usurping a business opportunity

Question 37

When will a D/O with a potential conflict of interest be granted "safe harbour" and not be personally liable?

Answer 37

if either: - transaction was fair to the corp - approval (after material facts provided) by: a. disinterested SHs b. maj of disinterested Bd Members

Question 38

What is a merger

Answer 38

when two or more corps blend into a new one

Question 39

What are the requirements for approval of a merger

Answer 39

- maj approval of board | - maj approval of SHs (unless "no sig change" to surviving corp)

Question 40

What assets and liabilities does a "surviving corp" have after merger?

Answer 40

owns all property and assumes all liabilities of prior separate entities

Question 41

Short form merger

Answer 41

parent corp owns 90%+ stock of subsidiary, can merge without SH approval

Question 42

Dissenters' rights in merger

Answer 42

- can challenge the merger | - can demand payment for their shares at FMV (must give notice)

Question 43

dissolution

Answer 43

termination of the corp's existence

Question 44

effect of dissolution

Answer 44

corp continues to exist while it winds up and liquidates its affairs, but no other business can be carried out

Question 45

voluntary dissolution

Answer 45

considered a fundamental change and thus requires Bd & SH approval

Question 46

Judicial Dissolution by SHs is proper when...

Answer 46

- deadlock among BoD/SH threatens irreparable harm - corp abandoned business and failed to dissolve - corps assets are wasted/misused

Question 47

What is an LLC

Answer 47

an entity that allows for taxation of the owners as if it was a partnership, but has ltd liability similar to that of a corp

Question 48

When is an LLC formed

Answer 48

filing of certificate of formation with the state

Question 49

Member Management of LLC is

Answer 49

presumed

Question 50

An LLC operating agreement is

Answer 50

like its constitution - governs basically anything

Question 51

Distribution rights to profits in an LLC

Answer 51

operating agreement will govern how profits are distributed

Question 52

Members' duties in a member managed llc

Answer 52

care and loyalty, owed to each other and the llc | good faith and fair dealing

Question 53

members' duties in a manager managed llc

Answer 53

only managers owe duty of loyalty and care | good faith and fair dealing