Corporations Flashcards

Question

A corporation is:

Answer 1

a separate legal person it can sue or be sued, hold property, must pay income taxes, can serve as a partner in partnership

Answer 2

``` income tax is paid by the entity and by the shareholders on their dividends. How can we avoid income tax at the corporate level? Form an S Corporation S corporation- does not pay income tax (shareholder does, corporation does not) - These have 100 or fewer shareholders all of whom are human us citizens or resident, only one class of stock and is not publicly traded C Cropration; double taxation ```

Answer 3

No, No, Corporation itself is liable | - that shareholders are liable only to pay for their stock not for business obligation

Answer 4

De Facto Corporation or Corporation by Estoppel | Anyone asserting either doctrine must be unaware of failure to form de jure corporation

Answer 5

1. There is a relevant incorporation (always met, TBOC) 2. The parties made a good faith colorable attempt to comply with it and 3. Some exercise of corporate privileges (acting like we have a corporation) IF the doctrine applies the business is treated as a corporation for all purposes except in an action by the state (such an action would be quo warranto)

Answer 6

one who treats a business as a corporation may be estopped from denying that it’s a corporation - Under this doctrine you are estopped to deny that the business was a corporation. - Can also prevent the business from avoiding liability by saying that is not properly formed corporation Generally applies in what kind of cases: Contract, not torts - Status of this doctrine in Texas: may be abolished

Answer 7

Yes except in a close corporation But the TBOS does not require any particular contents in bylaws. Generally they are internal governance only ie lay out responsibilities, set regular meeting times and places, prescribe methods of notice Are they filed with secretary of state? No, internal

Answer 8

Board at organizational Meeting Board or shareholder The certificate can reserve this power to shareholds exclusively If bylaws conflict with certificate of formation which takes precedence? The certificate but the bylaws can change the number of directors

Answer 9

A promoter is a person acting on behalf of a corporation not yet formed. She might contract with a third party on behalf of corporation that is not yet formed

Answer 10

A corporation is not liable on pre-incorporation contracts until it adopts the contract How can company adopt the contract? 2 ways express and implied Express: Board Action Implied: If the corporation accepts a benefit of the contract

Answer 11

unless the contract clearly says otherwise the promoter is liable on pre-incorporation contracts until there is a novation ie an agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the contract - Corporation never formed, promoter is liable - What if corporation is formed and corporation adopts a lease: promoter still liable, liable until novation Adoption makes the corporation liable too but does not relieve promoter. So both corporation and promoter would be liable

Answer 12

Foreign corporations transacting business in Texas must qualify and pay prescribed fees Foreign means: anything outside the state of Texas (including other states) What is transaction business? Intrastate transactions on a recurring basis. Recurring basis: the regular course of business in Texas not just sporadic activity Qualify by getting a certificate of authority from Texas secretary of state. Apply by giving basic information form certificate and proving good standing in home state What happens if a foreign corporation transacts business in Texas without qualifying? 1. Civil fine 2. Cannot sue in Texas on a claim arising form business in Texas Although it can be sued and defend - Once it qualifies and pays fees and fines can the foreign corporation assert a claim in Texas? Yes

Answer 13

What is an issuance: when corporation sells its own stock - It is a way for corporation to raise capital - Only when they sell own stock, not another companies

Answer 14

Written, signed offers to buy stock from corporation Revocation of pre-incorporation subscriptions - Irrevocable for 6 months Unless it says otherwise or all subscribers agree to let you revoke Are post incorporation subscriptions revocable? Yes, until accepted by the corporation At what point are the corporation and the subscriber obligated under a subscription agreement? When the board accepts the offer and the corporation notifies the subscriber in writing At what point does a subscriber whose subscription is accepted become a shareholder? When she pays for stock

Answer 15

Form of Consideration: Permitted any tangible or intangible benefit to the corporation. That includes money (cash or equivalent) discharge of debt, property, services already rendered for the corporation, even notes and contracts for future services Prohibited: anything else, if used its unpaid stock (treated as water)

Answer 16

Par means minimum issuance price: (par stock is not required if we have it, it is set in the certificate) Ex: If selling 10,00 sahres for $3 par stock. Must receive at least $30,000 - Can it receive more then $30,000? Yes, just means minimum no par means no minimum issuance price. Board can set any price When there is an issuance for property or services the board puts a valuation on the consideration received. Is its valuation conclusive? Yes, absent fraud

Answer 17

this is stock that was previously issued and has been reacquired by the corporation: what is its statues- authorized and issued, but not outstanding - So corporation can resell it Ex: selling $3 par treasure stock, don’t have to sell if for $3, treat treasury as no par

Answer 18

Who is liable? Directors? Yes, if they knowingly authorized the issuance Guy who brought it? Yes - There is no defense he is charged with notice of par value What if person who brought it transfers it to third party? Third party not liable if she acted in good faith (ie didn’t know about the water)

Answer 19

A pre-emptive right is the right of an existing shareholder of common stock to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for money (cash or its equivalent ie check) Does new issuance include the issuance of treasury stock? Yes Suppose the certificate of formation is silent as to whether there are preemptive rights. Are there preemptive rights? No, have to tell you in certificate There are also no preemptive rights if the issuance is within 6 months of formation of the corporation (unless certificate says otherwise)

Answer 20

One or more adult natural persons. | Initially the number is set in the certificate. After that where is the number set? Certificate or bylaws

Answer 21

shareholders elect directors at the annual meeting. Bylaws can provide for classified board which divides the board by half or thirds, with half or one-third elected each year

Answer 22

areholders. They can do this by vote of a majority of the shares entitled to vote. On what bases can they remove a director? With or without cause

Answer 23

Board or shareholders

Answer 24

A. Unanimous written consent (email and fax ok) to do something or B. A meeting that satisfies quorum and voting requirements What if director agree that corporation will do something in individual conversations, without meeting without written consent is that ok? No that act is void unless ratified by a valid act Does a conference call (simultaneous oral communications so each can hear all others) count as meeting? Yes

Answer 25

Is notice required for regular meetings? No Is notice required for a special meetings? Yes, and must state time and place (not purpose) Failure to give proper notice voids whatever was done at the meeting unless the defect is waived by the person not notified either in writing anytime or by attending without objection Does meeting have to be in Texas? No

Answer 26

The method for giving notice can be set in the bylaws. | Would it be ok to give email notice? Yes, if the director authorizes it

Answer 27

To do business at a meeting we must have a majority of all directors (unless a different percentage is required in the certificate of bylaws) IF we have a quorum passing a resolution (which is how the board takes an act at a meeting) requires only a majority vote of those present - What if you have quorum but then someone leaves meeting do you lose quorum? Yes, the quorum is broken and the board cannot act

Answer 28

Generally board of directors manages business of corporation. It sets policy, supervises officers, declares distributions, decides when the corporation should issue stock, recommends fundamental corporate changes to shareholders etc. EXCEPTIONS: - Close corporations - Shareholder agreement - Committee of one or more directors. IF the certificate or bylaws allow, the board can appoint a committee to which it can delegate management power. But a committee cannot amend bylaws, select officers, or recommend a fundamental corporate change to shareholders. Committee can declare dividends only if the certificate of bylaws allow

Answer 29

Burden on Plaintiff Duty of care standard: a director owes the corporation a duty of care. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances.

Answer 30

(state duty of care standard) a director owes the corporation a duty of care. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances. - A prudent person would attend some meetings and do something to learn about the business. If director doesn’t attend any meetings and does nothing for business he has breached standard of care but only liable if: his breach caused a loss to corporation

Answer 31

(state duty of care) a director owes the corporation a duty of care. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances. Breach if you hurt company by making it lose money BUT: Directors are not liable if they meet business judgment rule - Prudent people do appropriate homework before making a decision (did they deliberate? Did they analyze) - If you did appropriate homework you are not liable, even if you lose money Business judgment rule: so a court will not second- guess decision if it was made in good faith, was informed and had rational basis, a director is not a guarantor of success

Answer 32

Burden on Defendant a director owes the corporation a duty of loyalty. She must act in good faith and with reasonable belief that what she does is in the corporations best interest - Why does business judgment rule not apply in duty of loyalty cases: It does not apply when there is a conflict of interest

Answer 33

his is any deal between the corporation and one of its directors (or the directors close relative or another business of which the director is a manager or has a financial interest) State the duty of loyalty standard (Duty of loyalty standard: a director owes the corporation a duty of loyalty. She must act in good faith and with reasonable belief that what she does is in the corporations best interest ). Interested director transaction will be set aside unless the directors shows 1. The deal was fair to the corporation when approved OR 2. Her interest and the material facts were disclosed or known and the deal was approved in good faith by either 1. shareholders or 2. Majority of disinterested directors

Answer 34

Interest directors count toward a quorum Board can set its own compensation as long as it is reasonable. If pay is excessive it is a waste of corporate assets and a breach of the duty of loyalty

Answer 35

Duty of loyalty standard: a director owes the corporation a duty of loyalty. She must act in good faith and with reasonable belief that what she does is in the corporations best interest - She cannot compete without approval form a disinterested majority of directors Remedy: constructive trust on profits.

Answer 36

Director learns of opportunity but buys it for himself. What are corporation’s rights? State the duty of loyalty standard (Duty of loyalty standard: a director owes the corporation a duty of loyalty. She must act in good faith and with reasonable belief that what she does is in the corporation’s best interest). Director cannot usurp a corporate opportunity. That means the director cannot take it until he 1. Tells the board and 2 waits for the board to reject the opportunity. What is a corporate opportunity? Anything a director has reason to know the company would be interested in If directory has the opportunity still he must sell it to corporation at his cost. IF he has sold it for profit corporation gets profit (constructive trust) Corporation can renounce opportunity in certificate of formation or by board action. That clears the way for director to take advantage of the opportunity

Answer 37

Improper Loans Directors vote to lend another director corporate funds is this ok? Yes if reasonably expected to benefit the corporation Sarbanes-Oxley Act: basically prohibits loans to executives in large publicly traded corporations. It requires the board of such corporation to establish an audit committee and oversee work of registered public accounting firm. Chief executive and financial officers must certify accuracy and completeness of financial reports

Answer 38

A director is presumed to have concurred with board action unless her dissent or abstention is noted in writing in corporate records. This is done by: 1. Having it put in the minutes 2. Sending a note to the corporation secretary at the meeting 3. Sending a registered letter to the corporate secretary immediately after meeting IS oral dissent effective? Not by itself, need writing - Cannot dissent if voted for the resolution at the meeting Exceptions: - Absent directors are not liable - Good faith reliance on financial statements of other information represented as correct by an officer or on information provided by a competent professional (ie attorney CPA investment banker) or by an employee or by a committee of which the director relying was not a member

Answer 39

owe the same duties of care and loyalty as directors Officers are agents of the corporation. So they can bind the corporation by acts within their authority (watch for cross over with agency corporation is principal and officer is the agent) Regarding inherent authority, not that the president has authority to convey corporate real property only if board gives her such authority. Outside that, she might have inherent authority to bind the corporation to a contract entered in the ordinary course of business - Must have a president and a secretary. Can have others as well Can one person hold multiple offices at the same time? Yes Do officers have to be directors too? No, might be but do not have to be

Answer 40

officers are selected by and removed by the board which also sets officer compensation - Only can sue for damages, not for the job back Shareholders hire and fire directors but the board hires and fires officers. Generally then shareholders do not hire and fire officers

Answer 41

Someone is sued as a director or officer she incurs costs, attorneys fees, maybe fines, a judgment or settlement she seeks reimbursement from the corporation

Answer 42

If the director or officer is held liable for willful or intentional misconduct in performing a duty to the corporation.

Answer 43

If she won a judgment on the entire case `

Answer 44

But if she was held liable to the corporation or to have received an improper personal benefit she can get only expenses and attorneys fees (not the judgment) What’s’ a good example of when a case would fall within permitted reimbursement? The case against her settled Eligibility standards- Must show she acted in good faith and with the reasonable belief there her actions were in the corporations best interest (duty of loyalty standard, so must meet this) Who determines eligibility 1. Majority vote of he disinterest directors or of a diinterested shares or 2. Independent legal counsel

Answer 45

the court in which the director or officer is sued can order reimbursement if it finds it justified on all the circumstances. Limited to expenses, not judgment

Answer 46

yes but but never for willful or intentional misconduct

Answer 47

The company can advance litigation expenses if the director or officer gives an affidavit of her good faith belief that she has met the standards by acting in good faith and with the reasonable belief that her actions were in the corporations best interest (duty of loyalty) and a written undertaking to repay the expenses if it is determined that she did not

Answer 48

No because the board manages it Exception: But in a close corporation management can be set up differently from that in an ordinary corporation. A close corporation can have a board of directors. But there need not be a board of directors. It can be abolished and shareholders can take over management or management can be vested in a particular person

Answer 49

What is a close corporation? Few shareholders and stock is not publicly traded How do you form a close corporation? Same as with any corporation, but the certificate must say that this corporation is a close corporation

Answer 50

How do we change the management structure in close corporation? You need a share holders agreement authorizing the change ie abolishing the board, making management much less formal than an ordinary corporation What is an absolute required for such an agreement? 1. In certificate and approved by all share holders or 2. A written agreement of all shareholders

Answer 51

Stock certificates should note close corporation status and that shareholders are to manage, but failure to do so does not affect close corporation status The corporation should deliver to each shareholder a copy of the agreement, but failure to do so does not affect its validity

Answer 52

Once the corporation starts operating under the shareholders agreement it may file with the secretary of state a “statement of operation” which makes its manner of operation a matter of public record If that filing is made the agreement is binding on all shareholders and transferees. Is this true even if a transferee does not have knowledge of the agreement? Yes, filing is notice to the world

Answer 53

Managing shareholders

Answer 54

In a Texas close corporation shareholders do not owe each other fiduciary duties as a matter of law (this is different from the rule in many states) but a court may find a fiduciary duty depending on the facts of a given case. So be prepared to argue for such a duty. Especially watch for controlling shareholder oppressing minority shareholders 1. Freezing out minority shareholders or 2. Selling control without reasonable investigation to one who loots the company or 3 selling corporate asset for personal profit

Answer 55

General answer no. Why? Because the corporation is liable for what it does But a court might pierce the corporate veil and hold shareholders personally liable if 1. They have abused the privilege of incorporation and 2. Limitation on liability would be unfair Court might pierce corporate veil to: prevent fraud or achieve equity Piercing corporate veil happens in only what kind of corporation? Close corporations Piercing corporation is never automatic: make the argument

Answer 56

Close corporation

Answer 57

(not available for mere failure to observe corporate formalities, such as failure to select officers and hold meeting) - Make sure you start with shareholders and not generally liable and then make piercing veil argument - If shareholder treats the corporation assets as his own, alter ego - Only the shareholder that used it as alter ego is liable, not shareholder who didn’t

Answer 58

- Start with shareholders not generally liable - Shareholders failed to invest enough to cover prospective liabilities (Ex: dangerous business and have no insurance and only put minimal amount into business)

Answer 59

Torts, Not Contract

Answer 60

Remember piercing veil allows imposition on a shareholder. The shareholder might be another corporation Ex: a parent corporation forms a subsidiary to avoid its obligations

Answer 61

We cannot pierce veil for a contract claim based on fraud unless the shareholder made the corporation commit fraud of his own personal benefit

Answer 62

In a derivative suit, a shareholder is suing to enforce the corporations claim, not her own personal claim. Why? Because corporation did not sue Always ask: Could the corporation have brought this suit? - If so it’s a derivative suit

Answer 63

Yes because corporation could sue for breach of duties owed to it

Answer 64

No, direct suit to vindicate personal claim

Answer 65

Who gets the money from judgment? Corporation What does shareholder receive? Cost and attorney fees from corporation After all shareholder conferred a benefit on the corporation by suing and winning

Answer 66

If the shareholder plaintiff loses what happens? Can shareholder still get cost and attorney fees? No Is shareholder liable to the defendant he sued for the defendants attorneys fees? Yes if the court finds that the shareholder sued without reasonable cause or for an improper purpose Can other shareholders later sue that defendant on the same transaction? No

Answer 67

Stock ownership: one must have owned stock when the claim arose, or have gotten it by operation of law form someone who did Examples of operation of law: inheritance or divorced decree Must fairly and adequately represent the corporations interest. This may mean among other things that you own stock throughout the ligation Must also make a written demand on directors that the corporation bring suit. Cannot file a derivative suit until 90 days after demand unless demand is rejected before that or waiting 90 days would cause irreparable damage to corporation Is the demand ever excused? No, must be made even if it would be futile The demand must set forth the nature of the claim with particularity Corporation must be joined as defendant (even though we are asserting the corporations claim) because it did not sue on its own

Answer 68

Only with court approval If the proposed settlement or dismissal may substantially affect shareholders, the court may require notice to those shareholders

Answer 69

based upon determination by independent and disinterested directors (or committee of two or more such directors) what is the basis of the motion to dismiss? That suit is not in corporations best interest Ex: low chance of success, cost of suit would exceed recovery, money would better be spent on advertising or expanding business In ruling of motion to dismiss what would court consider? Court must dismiss if it finds the determination was made in good faith by independent disinterested directors

Answer 70

In a close corporation of 35 or fewer shareholders the court might treat a derivate suit as a direct action so the various requirements don’t have to be met. Treating it as a direct suit means the recovery would go to the plaintiff not the corporation

Answer 71

Who votes? The record shareholder as of the record date has the right to vote The record shareholder is the person shown as the owner in the corporate records. The record date is a voter eligibility cut-off set no more then 60 days before the meeting

Answer 72

Treasury stock owner (corporation doesn't vote), death of shareholder, proxies

Answer 73

A proxy is a 1. Writing (fax and email are ok) 2. Signed by record shareholder (fax and email are ok) 3. Directed to secretary of corporation 4. Authorizing another to vote the shares. Basically an agency - Good for 11 months unless it says otherwise - Can freely revoke proxies Are they revocable even if it states is irrevocable? Yes Can we ever have irrevocable proxy? Yes if it’s a proxy couple with an interest. This requires 1. The proxy says its irrevocable and 2. the proxy holder has some interest in the shares other then voting - Any interest in shares such as option to buy them.

Answer 74

(no time limit imposed by corporate law) 1. Written trust agreement controlling how the shares will be voted 2. File a copy with the corporation 3. Transfer legal title of shares to voting trustee 4. Original shareholders receive trust certificates and retain all shareholder rights other than voting

Answer 75

no time limit imposed by corporate law Can shareholders enter into voting agreements? Yes What is required? In writing, copied to the corporation Remember voting trust and agreements must be for a proper shareholder purpose, it is ok for shareholders to agree to vote shares to elect each other as directors - Suppose though that shareholders agree on what they will do once they become directors, is that ok? No, directors cannot have voting agreements Are voting agreements specifically enforceable against transferees? Yes if the affected stock certificates conspicuously note the agreement

Answer 76

Two ways shareholders can take a valid corporate act 1. Unanimous consent in writing and signed or by electronic transmission of holders of all voting shares or 2. A meeting that satisfies quorum and voting rules

Answer 77

``` Meetings can be held anywhere Annual meeting must be held if none is held within 13 months (or no unanimous consent in lieu of meeting), a shareholder may petition the court to order one - Elect directors Special meeting can be called by 1. The board 2. The president 3. The holders of at least 10 percent of the shares entitled to vote or 4. Anyone else permitted in certificate ``` Suppose 10% of the shares call a special meeting to remove an officer. Is that ok? - No shareholders do not remove officers

Answer 78

must give written notice to every shareholder entitled to vote, for every meeting (annual or special) between 10 and 60 days before the meeting (21 to 60 days if the meeting is to consider a fundamental change) Notice is given personally or by mail or if the shareholder consents by email Contents of the notice: must always state 1. When 2. Where and 3. Why (the purpose of the meeting) Why does the state purpose of the meeting matter? Because you cannot do anything else but stated purpose

Answer 79

Consequence of failure to give proper notice to all shareholders entitled to vote- action taken at the meeting is void unless those not sent notice (or those who got defective notice) waive the notice defect how does the waiver occur? Express: in writing anytime or Implied attend meeting without objection

Answer 80

There must a quorum represented at the meeting. Determination of a quorum focuses on the number of shares represented. Not the number of shareholder. Generally a quorums requires a majority of outstanding shares Once a quorum is established it is not lost if people leave the meeting. This is clear. (Different then directors) If quorum requirement is met a majority of all votes case acts to bind. That means all votes cast for, against, or expressly abstaining

Answer 81

Cumulative voting is only available in electing directors it is a device to give small shareholders a better chance of electing someone to the board - Multiply number of share times number of directors to be elected Suppose the certificate of formation is silent as to whether shareholders can vote cumulative. Can they vote cumulatively? No, have to tell you When cumulative voting exists at lease one shareholder must give written notice to the corporate secretary of her intent to cumulate. IF one shareholder gives such notice no later than the day before the meeting, all shareholders can vote cumulatively

Answer 82

One of the great things about a corporation is transferability of the ownership interest. Sometimes in close corporations, shareholders want to impose restrictions on that freedom, usually to keep outsiders out. Where can such restrictions be set up? In the certificate, by laws or by agreement

Answer 83

Stock transfer restrictions are ok if it is not an undue restrain on alienation The right of first refusals is ok assuming the corporation offers a reasonable price

Answer 84

Look for transfers knowledge or notice Even if the restriction is reasonable and thus valid it cannot be invoked against the transferee unless either a. conspicuously noticed on stock certificate or b. transferee had actual knowledge of restriction

Answer 85

What shareholders are eligible? Any shareholder who has 1. Owned stock (or held voting certification) for at least 6 months OR 2. Owns at least 5 percent of the outstanding chares Can other shareholders ever inspect? Only with court order Procedures: written demand stating a proper purpose. What is proper purpose: one related to your interest as a share holder (can be hostile to board) IF the corporation does not allow inspection shareholder gets a court order and recover expenses and attorneys fees. If there is litigation the corporation has the burden of showing that the shareholders purpose was improper Do directors have to make a similar showing to get to inspect books and records? No they have unfettered access

Answer 86

Payments by the corporation to shareholders Can be 1. A dividend or 2. To repurchase shares or 3. To redeem shares (forced sale to corporation at price set in certificate)

Answer 87

Distributions are declared in the boards discretion. When do shareholders have right to distribution? When board declares it So a suit by shareholders to force the declaration of a distribution requires a strong showing of abuse of discretion. Ex: Is if the corporation consistently makes profits ad the board refused to declare dividends while paying itself a bonus

Answer 88

Common stock: divide it out, total amount of money divided by shares Preferred Stock: means paid first. Then you go and distribute to common stock - Preferred doesn’t mean paid more, just paid first Preferred Stock that is Participating: (means pay again), Means that share gets paid twice, once as preferred and then again with left over money because they are participating (participate with common stock) Preferred that is cumulative: cumulative means you add them up for years stock was not paid. Multiply years not paid by stock value. Then the rest goes to common

Answer 89

How is surplus computed? Assets – liabilities – stated capital Can surplus be used for distributions? Yes On a no par issuance within 60 days of the issuance the board can allocate any part but not all to surplus

Answer 90

Can stated capital be sued for distributions? Never How is stated capital computed? Stated capital is the par value of the issuance (whatever stock is worth) Surplus is excess over that value

Answer 91

A corporation cannot make a distribution if its insolvent or if the distribution would render it insolvent or if the distribution would exceed surplus What does insolvent mean? Corporation unable to pay debts as it comes do

Answer 92

Yes, Directors are jointly and severally liable to the corporation for a unlawful distribution to the extent it is was impermissible Can a director held liable for unlawful distribution seek contribution form others? Yes from other directors who approved it and from shareholders who knew it was improper when they received it - Think about directors defense as good faith reliance

Answer 93

Extraordinary occurrences, board of directors cannot do them alone First, board take an action adopting a resolution of a fundamental corporate change Second, the board must submit the proposal to the shareholders with written notice Third the fundamental change must be approved by the shareholders . - What vote is required? 2/3s of shares entitled to vote Fourth, usually a document is delivered to the secretary of state for filing q

Answer 94

What is it? Right to force the corporation to buy your stock for fair value When will a shareholder have a dissenting shareholder right of appraisal? Actions by corporation that trigger right: 1. Merger 2. Sale of shares in a share exchange 3. Transfer of substantially all assets or 4. Conversion But the rights is not available if stock is listed on a national exchange or market or has 2,000 or more shareholders. In such a big corporation there is a public market for the stock so an unhappy shareholder can sell her stock on the market So the right of appraisal exists in what kind or corporation? Close Actions by shareholders to perfect the right 1. Before shareholder vote, file with the corporation written notice of objection and of intent to demand payment 2. Abstain or vote against the proposed change and 3. After the vote within 20 days of notification by the corporation make written demand to be brought out Within 20 days of the shareholders demand the corporation must notify the shareholder whether it accepts or rejects the demand. If it rejects the demand it counters with its own estimate of fair value. IF they cannot agree on fair value who happens? The shareholder sues for determination of the price The court can appoint an appraiser IS the right of appraisal the exclusive remedy for a shareholder who does not like the fundamental change? Yes absent fraud

Answer 95

Board of director and shareholder approval - How many votes for shareholder approval? 2/3 (fundamental change) - What if there are lots of shares but only a percentage of owners show up at meeting to consider amendment? Still need 2/3 of shares entitled to vote, doesn’t matter who is present If approve deliver the amended certificate to the secretary of state for filing

Answer 96

Board of director action (both corporations) and Shareholder approval. Always required from shareholder of disappearing company. - Must be 2/3 shares entitle to vote Shareholders of surviving company do not vote (unless the company and rights are substantially changed) No shareholder approval is required if a 90 percent or more owned subsidiaries is merged into parent. Called a short form merger If approve deliver certificate of merger to secretary of state for filing Remember the right of appraisal. It is available to shareholders of the disappearing company in a regular merge. Even the shareholders of subsidiary in a short form merger. Effect of merger: surviving company succeeds to all rights and liabilities of the constituent company - Because one corporation disappears “Successor liability”

Answer 97

Corporation can convert to another form of business. Requires board action and approval by 2/3 of shares entitled to vote. Deliver certificate of conversion to secretary of state for filing. Dissenting shareholders can demand appraisal rights

Answer 98

- Transfer will not be of substantially all assets if the corporation continues to engage in the same business fate the transfer Key point: these are fundamental corporate changes for which corporation: Seller not buyer - Not fundamental changes for the buyer corporation Are there dissenting shareholders rights of appraisal? Yes for shareholders of the selling corporation only. Not for the shareholders of the buyer because it is not a fundamental change for the buyer corporation Generally do we expect successor liability in the sale of all assets? No, because selling corporation still exists

Answer 99

1. Written consent of all or 2. Board of directory action and approval by 2/3 of the shares entitled to vote 3. After either of these is met, send notice of intent to wind up to creditors 4. Then follow the liquidation. 5. A court can revoke termination if terminated as a result of fraud. Corporation may revoke its voluntary termination any time before its corporate existences ceases

Answer 100

Texas Attorney General can institute a proceeding for involvuntary termination and winding up for: 1. Fraudulent procurement of certificate 2. Ultra vires activities 3. Misrepresentation in required reports 4. Public interest requires it - Does not happen often Creditors can seek immediate termination based on irreparable hard to unsecured creditors

Answer 101

Creditors can seek appointment of a receiver because the corporation is insolvent and the creditor has an unsatisfied judgment or the company admits in writing that the amount is due

Answer 102

A shareholder can seek appointment of receiver for insolvency waste of assets, director deadlock causing irreparable harm to the company; shareholders deadlocked and have failed at two annual meetings to fill a vacant board position; or illegal, oppressive, or fraudulent acts by directors - Note can’t seek termination How long does the receiver serve? 12 months What if things are not fixed by the end of 12 months? Court can order termination

Answer 103

a court may avoid dissolution by appointing a provisional director to break tie

Answer 104

The Texas Secretary of state issues a certificate of termination for corporations failure to pay fees or failure to maintain registered agent to file required reports? Does this required court action? No, secretary of state issues certificate of termination The corporation must be given at least 90 days notice. Why are directors and officers nervous about this type of termination? Because they are personally liable for debts incurred after termination until reinstatement If the corporation is not reinstated it is treated as one that has voluntarily terminated, and proceeds to liquidation. Also the comptroller of the state may forfeit a corporations privileges for failure to pay franchise tax or to file tax reports if the cooperation does not cure the failure within 45 days notice - Such forfeiture means the corporation cannot sue or defend cases in state court and each officer and director is personally liable for debts incurred after the date on which the tax was due

Answer 105

``` No, just starts process The steps in the liquidation process: A. Gather all assets B. Convert to cash C. Pay creditors D. Distribute remainder to shareholders, pro-rata by share unless there is a liquidation preference(means pay first) ```

Answer 106

Board of directors unless the court decides to do it

Answer 107

After winding up the corporation must deliver a certificate of termination to the secretary of state, including statement that debts have been paid, with any remaining sums having been distributed to shareholders. What is the effect of the states filing of the certificate of termination? Ends corporation existence How late can claims against the corporation that arose before termination be asserted? Within 3 years after the termination

Answer 108

Corporation can convert to another form of business. Requires board action and approval by 2/3 of shares entitled to vote. Deliver certificate of conversion to secretary of state for filing. Dissenting shareholders can demand appraisal rights

Answer 109

- Transfer will not be of substantially all assets if the corporation continues to engage in the same business fate the transfer Key point: these are fundamental corporate changes for which corporation: Seller not buyer - Not fundamental changes for the buyer corporation Are there dissenting shareholders rights of appraisal? Yes for shareholders of the selling corporation only. Not for the shareholders of the buyer because it is not a fundamental change for the buyer corporation Generally do we expect successor liability in the sale of all assets? No, because selling corporation still exists

Answer 110

1. Written consent of all or 2. Board of directory action and approval by 2/3 of the shares entitled to vote 3. After either of these is met, send notice of intent to wind up to creditors 4. Then follow the liquidation. 5. A court can revoke termination if terminated as a result of fraud. Corporation may revoke its voluntary termination any time before its corporate existences ceases

Answer 111

Texas Attorney General can institute a proceeding for involvuntary termination and winding up for: 1. Fraudulent procurement of certificate 2. Ultra vires activities 3. Misrepresentation in required reports 4. Public interest requires it - Does not happen often Creditors can seek immediate termination based on irreparable hard to unsecured creditors

Answer 112

Creditors can seek appointment of a receiver because the corporation is insolvent and the creditor has an unsatisfied judgment or the company admits in writing that the amount is due

Answer 113

A shareholder can seek appointment of receiver for insolvency waste of assets, director deadlock causing irreparable harm to the company; shareholders deadlocked and have failed at two annual meetings to fill a vacant board position; or illegal, oppressive, or fraudulent acts by directors - Note can’t seek termination How long does the receiver serve? 12 months What if things are not fixed by the end of 12 months? Court can order termination

Answer 114

a court may avoid dissolution by appointing a provisional director to break tie

Answer 115

The Texas Secretary of state issues a certificate of termination for corporations failure to pay fees or failure to maintain registered agent to file required reports? Does this required court action? No, secretary of state issues certificate of termination The corporation must be given at least 90 days notice. Why are directors and officers nervous about this type of termination? Because they are personally liable for debts incurred after termination until reinstatement If the corporation is not reinstated it is treated as one that has voluntarily terminated, and proceeds to liquidation. Also the comptroller of the state may forfeit a corporations privileges for failure to pay franchise tax or to file tax reports if the cooperation does not cure the failure within 45 days notice - Such forfeiture means the corporation cannot sue or defend cases in state court and each officer and director is personally liable for debts incurred after the date on which the tax was due

Answer 116

``` No, just starts process The steps in the liquidation process: A. Gather all assets B. Convert to cash C. Pay creditors D. Distribute remainder to shareholders, pro-rata by share unless there is a liquidation preference(means pay first) ```

Answer 117

Board of directors unless the court decides to do it

Answer 118

After winding up the corporation must deliver a certificate of termination to the secretary of state, including statement that debts have been paid, with any remaining sums having been distributed to shareholders. What is the effect of the states filing of the certificate of termination? Ends corporation existence How late can claims against the corporation that arose before termination be asserted? Within 3 years after the termination

Corporations Flashcards

(143 cards)