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Corporations & LLC > Corporations & LLC > Flashcards

Corporations & LLC Flashcards

1
Q

What do Articles of Incorporation contain?

A
  1. Corp name;
  2. Number of shares authorized to issue;
  3. Corp address & name of initial registered agent; AND
  4. Name & address of each incorporator.
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2
Q

Between AoI and Bylaws, which one controls when there is conflict?

A

Articles of Incorporation

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3
Q

What are bylaws?

A

Rules and regulations adopted by the BoD that govern internal operations of a corp.

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4
Q

Can shareholders amend or repeal the bylaws?

A

Yes

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5
Q

Can BoD amend or repeal bylaws?

A

Yes, UNLESS:

  1. AoI exclusively reserve that to SH; OR
  2. SH (in amending bylaws) expressly state BoD cannot amend or reinstate that specified bylaw.
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6
Q

What if the bylaw deals with director nominations?

A

BoD retain the power to safeguard the voting process BUT cannot repeal a SH-approved bylaw.

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7
Q

How is an LLC formed?

A
  1. Articles of organization is properly filed with Secretary of State; AND
  2. LLC has at least 1 member.
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7
Q

When is a promoter personally liable?

A
  1. Purports to act as or on behalf of the corp; AND
  2. Knows no corp. was formed
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8
Q

Is the promoter still personally liable if the corp. subsequently adopts the k?

A

YES. Both corp. and promoter will be liable if adopted.

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8
Q

What is a “promoter”?

A

Someone who acts on behalf of the corp. that has not been formed.

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9
Q

When is the promoter NOT liable?

A
  1. Subsequent novation; OR
  2. K explicitly provides promoter has no personal liability.
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10
Q

When is a corp. liable on a K made by promoter?

A

A corp. is NOT liable on a K made by the promoter UNLESS:

Expressly or impliedly adopts the K post-incorporation.

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11
Q

What are the elements for an implied adoption?

A
  1. Corp knows/has reason to know material terms of K; AND
  2. Accepts some benefit of the K.
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12
Q

What if a corp. formation is defective?

A

The owners may be personally liable for corp. K and obligations.

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13
Q

Exception to defective corp. formation (under RMBCA)

A
  1. Person acts as or on behalf of corp.
  2. Knowing the corp. was not formed
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14
Q

De Facto Incorporation

A

Exists when the entity:

  1. made good faith attempt to incorporate;
  2. is eligible to incorporate; AND
  3. took action that it considered itself a corp.
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15
Q

What does the De Facto Incorporation protect?

A

Personal liability of persons UNAWARE that a corp. was not properly formed.

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16
Q

Incorporation by Estoppel

A

A person/entity may be estopped from denying that a business is a corp. when it treated the business as such.

Does NOT apply to tort actions.

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17
Q

SH’s personal liability

A

Generally NOT personally liable for corp. liabilities and obligations

BUT court may pierce corp. veil to impose personal liability in certain situations.

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18
Q

Piercing Corporate Veil

A

Court may disregard corp. form and hold individual SH/director/officer PERSONALLY LIABLE for actions take ON BEHALF OF THE CORP. when:

  1. Corp. acting as alter ego (used for personal use);
  2. Failure to follow corporate formalities;
  3. Inadequately capitalized at its inception; OR
  4. To prevent fraud.
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19
Q

PCV for LLC

A

Same as for corp. BUT failure to follow formalities NOT grounds for PCV.

20
Q

SH/Member liability for own torts

A

ALWAYS liable for their own torts.

21
Q

Dividends & Distributions

A

Distributions are declare at the discretion of the BoD.

Once dividend is DECLARED, the SH has legal right to the distribution.

22
Q

SH’s right to inspect books and records

A

Right to inspect and copy the corp’s accounting records, excerpts of BoD meetings, and record of SH if:

  1. during regular business hours;
  2. 5 days written notice;
  3. good faith and proper purpose;
  4. describe purpose with particularity; AND
  5. request connected with purpose.
23
Q

Officers

A

The BoD may ELECT individuals as Officers to manage the day-to-day business of the corp.

24
Q

Actual Authority

A

Officer have the authority to act with their duties:

  1. Outlined in the bylaws; OR
  2. provided by the BoD.
25
Q

Apparent Authority

A

Officers may bind corp when:

  1. 3P reasonably believes the person/entity has authority; AND
  2. That belief is traceable to corp’s manifestation’s (holding officer out as having authority).
26
Q

Authority of Members/Managers (LLC)

A

Each member has auhtority to bind the LLC for business purposes.

27
Q

Acts within ordinary course of business in LLC

A

Need approval of majority of members.

28
Q

Acts outside the ordinary course of business in LLC

A

Need consent of ALL members.

29
Q

Express Actual Authority in LLC

A

Authority comes from Operating Agreement or from managing members/managers.

30
Q

Implied Actual Authority in LLC

A

Authority to take actions that are reasonably incidental or necessary for the person’s authorized duties.

31
Q

Apparent Authority in LLC

A

Each member can bind LLC if action is MADE IN THE ORDINARY COURSE OF BUSINESS, unless:

  1. Member lacked auhtority; AND
  2. Other party had notice of lack of authority.
32
Q

Business Judgement Rule

A

Director’s actions must be:

  1. In good faith;
  2. With reasonable belief that they are acting in the best interest of the corp; AND
  3. With the care a person in that position would reasonably believe is appropriate.

If ALL 3 are met, then Director is NOT liable.

33
Q

Duty of Care

A

Directors are fiduciaries of the corps and owe a duty of care.

34
Q

What if director breaches duty of care?

A

He may personally liable to the corp. for any losses that result.

35
Q

Duty of Loyalty

A

Director must act in the best interest of the corp. and without personal conflict.

36
Q

What is forbidden under Duty of Loyalty?

A

Director must not:

  1. Enter into conflict of interest transactions;
  2. Usurping a corporate opportunity;
  3. Competing with corp.; OR
  4. Trading inside info.
37
Q

When is a transaction not a breach of conflicting interest?

A
  1. Approved by majority of disinterested directors AFTER full disclosure of material facts;
  2. Approve by majority of disinterested SH; OR
  3. Transaction as a whole was fair at time it was entered (fair price + beneficial to corp. + fair dealing).
38
Q

When does conflict occur?

A

Director/officer (or their family member):

  1. Is a PARTY; OR
  2. Has a beneficial interest in the transaction OR closely linked to it; OR
  3. Involved with another entity that is doing business with the corp. AND that transaction would normally be brought before the BoD.
39
Q

Restricting Fiduciary Duties (Corporations)

A

AoI MAY eliminate or limit personal liability of director for actions taken or not taken.

40
Q

Duties owed in a Member-Managed LLC and Manager-managed LLC

A

Members or managers owe duty of loyalty and duty of care.

41
Q

Direct Action

A

May be brought when there has been a BREACH of a duty owed to a SH (or member) of a corp.

The injury CANNOT be solely the result of an injury suffered by the corp.

Damages awarded to SH or member.

42
Q

Derivative Action

A

When SH is suing to enforce corp.’s claim.

43
Q

Derivative action requirements:

A

SH required to:

  1. Own stock in corp. at time claim arose;
  2. Be a SH through entry of judgment;
  3. Fairly and adequately represent the corp.’s interest; AND
  4. Make written demand to corp. to take action.
44
Q

When can a derivative suit be commenced?

A

Cannot be commenced UNTIL 90 days AFTER the demand was made, unless the corp.:

  1. Rejects the demand; OR
  2. Will suffer irreparable harm if forced to wait.
45
Q

Derivative suit in an LLC

A

Same elements as corp. EXCEPT:

  1. May be brought WITHIN A REASONABLE TIME after the demand was made; AND
  2. Demand requirement may be WAIVED if futile.
46
Q

Damage awarded in derivative suit

A

Paid directly to the corp. BUT SH/member may recover reasonable costs of the litigation.

47
Q

Dismissal of derivative action by BoD

A

MUST be dismissed (on motion by corp.) if:

  1. Majority of BoD’s qualified directors;
  2. Have determined in good faith;
  3. After conducting reasonable inquiry; AND
  4. Action is NOT in the best interest of the corp.
48
Q

Merger of a corp.

A

Need approve by BoD and Corp. first then SH of BOTH must approve with a majority vote.

Corporations & LLC (1 decks)

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