Corporations

Question 1

Business Judgment Rule

Answer 1

Director’s decision may not be challenged if the director acted in good faith, with the cate of a ordinarily prudent person would exercise in a like position, and in a manner a director reasonably believes to be in the best interest of the corporation.

Question 2

Self-Dealing Exception

Answer 2

A transaction will not be side aside because a director had a personal interest if the director disclosed all the material facts of the transaction to disinterested members of the board who approved the transaction; or the transaction was fair to the corporation.

Question 3

Personal Liability

Answer 3

The articles of incorporation may eliminate director’s personal liability for money damages to the shareholders or corporation for actions taken.

Question 4

Personal Liability Exception

Answer 4

The articles of incorporation cannot eliminate personal liability if the director received a benefit to which he was not entitled; intentionally inflicted harm on the corporation or its shareholders; approved unlawful distributions; or intentionally committed a crime.

Question 5

Articles vs. Bylaws

Answer 5

When the articles and bylaw conflict, the articles control.

Question 6

Proxy

Answer 6

Generally are recordable unless they are stated they are irrevocable and coupled with an interest.

Question 7

Couple w/ Interest (Proxy)

Answer 7

Proxies are coupled with an interest if the proxy holder essentially pays for the right to be a proxy.

Question 8

Proxy Revocation

Answer 8

May be revoked by subsequent instrument of the shareholder of record showing up to vote in person.

Question 9

Who Can Vote by Proxy?

Answer 9

Shareholders may give another a written and signed proxy.

Directors may not vote by proxy.

Question 10

Voting

Answer 10

The vote required at a meeting can be set by the bylaws or articles.

Only outstanding votes may vote. Shares that are issues and outstanding, but have been repurchased are not outstanding.

Question 11

Shareholder Voting

Answer 11

Only shareholders of record on record date may vote at a shareholders’ meeting.

Question 12

Corporations Definition

Answer 12

Is a legal entity separate from its owners and may be created by filing certain documents with the state.

Question 13

Promoter

Answer 13

Is a person who procures commitment for capital and instrumentalities on behalf of a corporation that will be formed in the future.

Question 14

Promoter Liability

Answer 14

Promoters are personally liable on all such contracts they enter into on behalf of the corporation. Liability continues even after the the corporation is formed and even if the corporation adopts the contract.

Question 15

Promoter Liability Exception

Answer 15

A promoter will not be liable if the agreement between the parties expressly indicated the promoter is not to be bound.

Question 16

Corporation Liability on a Promoter Contract

Answer 16

A corporation becomes liable if they adopt the contract.

Adoption can be expressed or implied.

Express: requires express official adoption with knowledge of material facts.

Implied: requires someone in authority to accept the benefits of the contract with knowledge of material facts.

Question 17

Subscription Agreement

Answer 17

Is where one agrees to buy a specified number of shares from a corporation at a given price.

Question 18

Directors Duties

Answer 18

Duty of Loyalty and BJR

Question 19

Duty of Loyalty

Answer 19

Directors and officers owe a duty of loyalty which prohibits them from profiting at the expense of the corporation.

Arise in conflict of interest and usurpation of corporation opportunity.

Question 20

Directors

Answer 20

Are generally responsible for corporate affairs and management.

Are elected yearly by shareholders at the annual shareholder meeting.

Operate as a board of directors.

Question 21

President

Answer 21

Is an agent of the corporation and has whatever power the corporation grants him.

Has authority to enter into ordinary contracts involving the day-to-day operations of the corporation.

Can enter into extraordinary transactions if authorized by the board, however, the board cannot give more power than the board itself has.

Question 22

BOD Meetings

Answer 22

Can be held in person or through any means by which all participating directors can simultaneously hear one another.

Regular meetings can be held without notice.

Special meetings require two-days notice.

Question 23

Quorum

Answer 23

Requires the presence , in person, or by proxy.

Is set by the articles of incorporation.

Can be broken if director leaves.

Question 24

Shareholder Meetings

Answer 24

Must hold annual meetings for electing directors and other special matters.

To valid conduct a meeting, quorum must be present.

Special meetings may be called.

Question 25

Shareholders

Answer 25

Exert control over the corporation through their power to elect directors, amend bylaws, and approve fundamental changes.

Question 26

Right to Inspection

Answer 26

Shareholders generally have a right to inspect their corporation’s books and records for a proper purpose.

Question 27

Controlling Shareholder

Answer 27

Must refrain from suing his control to obtain a special advantage or to cause the corporation to take action that unfairly prejudices the minority shareholders.

Has a duty to disclose material information to the minority shareholders.

Question 28

Fundamental Change

Answer 28

Is a scale outside the ordinary business.

Question 29

Fundamental Change Implemention

Answer 29

Can be implemented only if the directors pass a resolution to implement the plan and the plan is approved by the shareholders.

Question 30

Dissent to Fundamental Change

Answer 30

Shareholders who dissent from a fundamental corporate change can force the corporation to purchase their shares at a fair price.

If the corporation doesn’t want to pay, the shareholder must file a suit to have the court determine fair value.

Question 31

Appraisal Remedy (Shareholders Dissent to FC)

Answer 31

To use, the shareholders must file an objection to the transfer before or at the shareholders’ meeting at which the vote was taken; not vote in favor for the plan; and send the corporation a written demand for the fair value of their shares.

Question 32

Shareholder Lawsuits

Answer 32

Shareholder may bring a direct action or a derivative action.

Question 33

Direct Action

Answer 33

Seeks to enforce duties that a corporation owes to the shareholder.

Question 34

Derivative Action

Answer 34

To bring, a shareholder must have standing (be a shareholder at the time of the act); must adequately represent the interest of the corporation; and make written demand on the corporation that it takes suitable action.

Demand can be excused if it would be futile.

Question 35

Dividends

Answer 35

A shareholder has no right to receive a dividend until its is declared by the BOD.

Question 36

Liability

Answer 36

Generally, shareholders, directors, or officers are not personally liable for corporation obligations.

Question 37

Piercing the Corporate Veil

Answer 37

Shareholders, directors, or officers can be held liable if they ignore corporate formalities, the corporation was undercapitalized , or if there was fraud or illegality.

Once the veil is pierced, all may be held personally liable, but usually only those involved in active management.