Corps Flashcards
Notice of special meeting
Directors are entitled to notice of a special meeting. Unless the articles of incorporation or bylaws provide otherwise, notice must be provided at least two days prior to the meeting and should state the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting.
Waiver of notice of special meeting
Directors are entitled to notice of a special meeting, but a director’s attendance waives notice of that meeting unless the director promptly objects to lack of notice.
Requisite votes for approval
Typically, the assent of a majority of the directors present at the time of the vote takes place is necessary for board approval. However, the articles of incorporation or bylaws may specific a higher level of approval.
Quorum requirement for meeting
For the board of directors’ acts at a meeting to be valid, a quorum of directors must be present at the meeting. A majority of all directors in office constitutes a quorum, unless the articles of incorporation or bylaws require a higher or lower number. A director must be present at the time that the vote is taken in order to be counted for quorum purposes, but presence includes appearances made through communications equipment that allows all persons participating in the meeting to hear and speak to one another.
Pre-incorporation promotor liability
Pre-incorporation agreement: A promotor is personally liable for knowingly acting on behalf of a corp before incorporation, and remains liable after corp comes into existence unless (i) there is a subsequent novation releasing the promotor from liability, (ii) the third party looks only to the corp for performance, or (iii) the promotor had no actual knowledge that the corp’s charter has not yet been issued.
Fiduciary duties: A promotor can be liable to the corporation for violating fiduciary duties.
Compensation: A promotor may seek compensation or reimbursement for related expenses, but cannot compel the corporation to pay because the acts were not undertaken at the corporation’s direction.
Pre-incorporation corporation’s liability
General rule: A corporation is not liable for pre-incorporation transactions, even those that were made for the benefit of the corporation.
Adoption: The corporation is liable if it expressly or impliedly adopts a contract by accepting the benefits of the transaction, or gives an express acceptance for the debt.
Requirements for articles of incorporation
In order to create a corporation, articles of incorporation must be filed with the state of incorporation. The articles must include the corporate name and must be filed with the state. The articles may enumerate powers that the corporation possesses, limit its duration, or includes a statement of the corporations legal purposes.
The corporatation’s existence begins when the articles are filed, unless the articles establish a later date.
Ultra vires actions
If a corporation states in its articles of incorporation that they have a very specific purpose and that corporation enters into a contract beyond that specific scope, they have committed an ultra vires act and a shareholder can enjoin the action or take action against the director/officer for that act.
“De jure” corporation
When all of the statutory requirements for incorporation have been satisfied, a de jure corporation is created. Consequently, the corporation, rather than persons associated with the corporation, is liable for activities undertaken by the corporation.
However, when a corporation has not been created, the entity may be treated as a general partnership.
Partnership liability
A partnership is an association of two or more persons to carry on a for-profit business as co-owners. In a general partnership, each partner is jointly and severally liable for all partnership obligations.
Controlling shareholder duties–business judgment standard
A controlling shareholder, such as a parent corporation, generally does not owe fiduciary duties to the corporation or other shareholders. However, decisions by a majority shareholder or control group may be reviewable by a court for good faith and fair dealing toward the minority shareholders under the court’s inherent equity power. Business dealings between a controlling shareholder and the controlled corporation that do not involve self-dealing are analyzed using the business judgment standard. The business judgment rule is a rebuttable presumption that the controlling shareholder reasonably believed that his actions were in the best interests of the corporation. A typical decision protected by the business judgment rule includes whether to declare a dividend and the amount of any dividend.
Safe-harbors for conflict-of-interest deals
There are three safe harbors by which a conflict-of-interest transaction may enjoy protection: (i) disclosure of all material facts to, and approval by a majority of, the board of directors without a conflicting interest; (ii) disclosure of all material facts to, and approval by a majority of, the votes entitled to be cast by the shareholders without a conflicting interest; and (iii) fairness of the transaction to the corporation at the time of commencement. The fairness test looks at the substance and procedure of the transaction. With regard to a parent corporation engaged in self-dealing, the main concern under the fairness test is whether the benefit is comparable to what might have been obtained in an arm’s length transaction. Procedural fairness is generally not at issue unless there has been a change in control.
Self-dealing parent corporation to subsidiary
If a parent corporation causes its subsidiary to participate in a business transaction that prefers the parent at the expense of the subsidiary, it can involve self-dealing and a breach of loyalty. A parent corporation that engages in a conflict-of-interest transaction with its own corporation, also known as “self-dealing,” has violated the duty of loyalty unless the transaction is protected under the safe-harbor rule. The business judgment rule does not apply in a conflict-of-interest transaction.
