Corps Flashcards

Question

Who elects the initial BOD?

Answer 1

The incorporators elect initial directors at the organizational mtg After that, SHs elect at the annual mtg

Answer 2

Where the entire bd is NOT re-elected each year The certificate OR SH bylaw can establish 2, 3, or 4 classes of directors Each class is up for election each year

Answer 3

"For cause": by SHs by the BOD, ONLY IF the certificate OR bylaws allow For ANY reason: by SHs, ONLY IF the certificate OR bylaws allow

Answer 4

General rule: the BOD selects the person who will serve the remainder of the term If director was removed by SHs, WITHOUT "cause", then SHs fill the vacancy

Answer 5

1) UNANIMOUS written consent; OR 2) Via a board meeting NOTE: INDIVIDUAL bd members are NOT agents of the corporation (they have no pwr to bind in their individual capacity); they MUST act as a group If a bd purports to "act" in some OTHER WAY than listed above, the action is VOID, UNLESS the action was ratified by the BOD via a valid act (e.g. a conversation among a few directors is NOT a mtg)

Answer 6

1) Notice: is NOT req'd for REGULAR meetings if the time/place is set in bylaws Notice IS req'd for SPECIAL meetings, AND must state the time/place of the mtg (need NOT state the purpose) If notice is not proper, ANY action taken at the meeting is VOID unless the director NOT given notice waives the notice defect (i) in writing, anytime; OR (ii) by attending the meeting without objection 2) Unrestrained voting: bd CANNOT vote by PROXY or enter VOTING AGMTS to vote in a certain way Voting is a non-delegable fiduciary duty NOTE: SHs CAN vote by proxy and enter voting agmts 3) Quorum: to meet quorum, there must be a MAJORITY of the "entire board" present "Entire board" = duly constituted board = the # of positions WITHOUT vacancies E.g. if there are 9 director positions w/o vacancies, then you'd need at least 5 present Quorum CAN be "broken" (i.e. if it's met and sufficient directors leave, then it can fall below req'd amt) 4) Majority voting: once quorum is met, passing a resolution reqs a MAJORITY of those directors present E.g. of the 5 directors present, you'd need 3 to pass a resolution NOTE: The board mtg does NOT have to be in NY A meeting CAN be via conference call

Answer 7

Lower The quorum req CAN be less than a majority ONLY IF stated in the certificate OR bylaws NEVER can be fewer than 1/3d of the bd Increase The quorum req CAN be raised to more than a majority ONLY IF stated in the certificate (NOT bylaws)

Answer 8

Lower: the corporation can NEVER decrease the resolution voting requirement below a majority Increase: The resolution voting req CAN be raised to more than a majority ONLY IF stated in the certificate (NOT bylaws)

Answer 9

A BOD can delegate certain functions IF (i) the certificate OR bylaws allow; AND (ii) a majority of the "entired board" (without vacancies) votes to delegate Committee must be made of AT LEAST one director A BOD CANNOT delegate all of its powers to a committee

Answer 10

1) Set director compensation 2) Fill a board vacancy 3) Submit a fundamental change to SHs 4) Amend bylaws NOTE: A committee CAN recommend ANY of the above for FULL board action Committees are used in conjunction with SH derivative suits

Answer 11

Std = "A director must discharge her duties in GOOD FAITH and with that degree of DILIGENCE, CARE AND SKILL that an ORDINARY PRUDENT PERSON would exercise under similar circumstances in like position" Nonfeasance (i.e. BOD does NOTHING) will breach duty of care IF the breach CAUSED a loss to the corporation (very hard to prove) Misfeasance (i.e. BOD does something that hurts corp) Implicates the Business Judgment Rule (BJR): a ct will not second guess a business decn IF it was made in GOOD FAITH, was REASONABLY INFORMED and RATIONAL

Answer 12

Std = "A director must act in GOOD FAITH and with the CONSCIENTIOUSNESS, FAIRNESS, MORALITY and HONESTY that the law requires of fiduciaries" BJR does NOT apply b/c the bd cannot take proper action if there is a conflict of interest

Answer 13

1) Interested director (self-dealing) trxns: occurs when there is any deal b/t the corporation and one of its directors (or business of which the director is also a director or has subtl fin. interest) Can be "cleansed" IF: (1) the deal was fair and reasonable to the corporation when approved OR the material facts and her interest were disclosed/known; AND (2) the deal was approved by (i) SH action; (ii) BOD approval by disinterested directors; OR (iii) UNANIMOUS approval of disinterested directors if they are insuffiicent in number to take bd action NOTE: interested directors DO count for quorum purposes; they just CANNOT vote The entire board CAN set director compensation, BUT it must be reasonable and in good faith (otherwise, it's a waste of corp assets) To give directors or officers options for PRIVATE stock, they must be approved by SHs 2) Competing ventures: directors cannot compete with their with their own corporation If director DOES compete, a ct would establish a CONSTRUCTIVE TRUST for the profit made from the competing venture (corp could also get damages, if it were hurt) 3) Corporate opportunity: a director cannot "USURP a corporate opportunity" A director CAN take an opportunity ONLY IF: (1) he tells the BOD abt the opportunity; AND (2) the director waits for the disinterested BOD to REJECT it Corporate opportunity = someting the corporation NEEDS, have an EXPECTANCY INTEREST IN, OR is logically RELATED TO its business "The corporation couldn't afford it" is NOT a valid excuse Remedy = constructive trust established, which accounts for any profits made

Answer 14

ONLY IF (i) it's approved by SHs; OR (ii) if the board finds that it will benefit the corporation

Answer 15

General rule = a director is PRESUMED to have concurred w/ board action UNLESS her dissent is noted in WRITING in corporate records Procedure = (i) dissent in the board minutes; (ii) in writing to the corp. secretary at the meeting; OR (iii) via registered letter to the corp. secretary PROMPLTY after adjournment ORAL dissent is NEVER effective by itself EXCEPTIONS: A MISSING director is not liable for meeting actions IF he dissents in WRITING to the corp secretary w/in a reasonable time AFTER learning of the action

Answer 16

ONLY when the reliance is done in GOOD FAITH Applies to information, opinions, reports or stmts by... officers or employees lawyers or accountants a committee's recommendation... PROVIDED the director believes the person is competent and is working w/in scope of designated authority

Answer 17

As agents that can BIND the company, officers owe BOTH a duty of care AND a duty of loyalty

Answer 18

The BOD unless the certificate allows SHs to elect them (rare) One person CAN hold more than one office BOD can suspend an officer's authority to act "for cause"

Answer 19

The atty general OR holders of 10% of all SHARES may sue for a judgment removing an officer "for cause" Ct can bar reappointment of a person so removed from office

Answer 20

4 categories... 1) Prohibited reimbursement: if officer was held liable to the corporation (a judicial holding, not accusal) 2) Of right: the corp MUST reimburse the director/officer IF she won a judgment on the merits or otherwise NOTE: if she files ANOTHER action to collect reimbursement, the corporation is not req'd to pay THOSE atty fees 3) Permissive: if not part of the categories above, the corp MAY reimburse, IF (i) she acted in good faith; AND (ii) for a purpose reasonably believed to be in the company's best interest Can include reimbursement for settlement 4) Cout orderd: n/w/s the above, a ct can order the corp to reimburse a director/officer for litigation expenses/atty fees NOTE: A corp can ADVANCE litigation expenses to a director/officer, BUT they MUST be repaid if it turns out that she's NOT entitled to reimbursement A corp. can buy insurance to cover director/officer liability Exculpation: The certificate may eliminate director liability to the corporation/SHs for breach of a duty, EXCEPT if she (i) acted in bad faith; (ii) acted with intentional misconduct; (iii) received an improper fin. benefit; OR (iv) approved an unlawful distribution or loan

Answer 21

1) BOD (w/ a quorum of directors being non-parties); or, if there is no such quorum... 2) SH or a quorum of those directors who are disinterested; or... 3) BOD pursuant to report from independent legal counsel

Answer 22

When the corporation wants to make a fundamental corporate change the dissenting shareholder has the right to force the corporation to buy his shares at "fair value" If SH & corp cannot agree on fair value, the CORPORATION sues to determine the value → ct cannot discount the shares if they are minority shares and not controlling shares

Answer 23

1) SOME amendments to the certificate; like those... altering or abolishing a preference changing redemption rights altering or abolishing a preemptive right limiting voting rights 2) Consolidation 3) YOUR corporation merges into another corporation 4) YOUR corporation trnfrs substantially all of its assets 5) YOUR corporation's shares are acq'd in a share exchange NOTE: BUT EVEN IF a corp is doing one of these fund. changes, if the stock is listed on a PUBLIC exchange → NO appraisal rights (i.e. applies to CLOSE corps only)

Answer 24

1) Before the SH vote, file written objection & your intent to demand payment with the corporation; 2) Abstain or vote against the change; AND 3) After the vote, make written demand to be bought out

Answer 25

STEP 1: Minor changes: can be made by the BOD ALONE e.g. changing office location, registered agent, etc Non-minor changes: must be approved by (i) the BOD; AND (ii) a MAJORITY of the shares entitled to vote (NOT just those ACTUALLY voting) NOTE: If amendment will change or strike a supermajority quorum or voting requirement for shareholder voting (NOT directors) → needs approval of (i) the BOD; AND (ii) 2/3d of the shares entitled to vote STEP 2: If an amendment is approved, certificate of amendment must be delivered to the Dept. of State for filing

Answer 26

1) Merger = Corp A merges into Corp B → Corp A disappears & Corp B survives 2) Consolidation = Corp A and Corp B form Corp C (both A & B disappear)

Answer 27

1) EACH company’s BOD adopts a plan of merger (or consolidation); 2) SH approval is needed from BOTH corps; AND NOTE: NO SH approval is necessary IF the parent (acq'ing) corp owns 90 PERCENT or more (i.e. a short form merger) 3 Deliver a certificate of merger (or consolidation) to Dept. of State for filing NOTE: Successor Liability = the surviving company succeeds to all rights & liability of the constituents Rights of Appraisal → ONLY IF SH of Corp that disappeared (i.e. not for SH of surviving company)

Answer 28

STEP 1: each corp's BOD authorizes the deal; AND STEP 2: approval by SELLING corp's SHs (ONLY) Majority of shares ENTITLED to vote NOTE: These assets are NOT in the ordinary course of business ACQ'ING company normally takes assets free of successor liability Only SH of selling corporation have rights of appraisal No delivery to Dept. of State necessary

Answer 29

STEP 1: one company acquires all the outstanding shares of one or more class of another corporation STEP 2: deliver plan of exchange to Dept. of State for filing NOTE: These are ONLY fundamental changes for the SELLING corporation so only SH of the selling corp. have rights of appraisal

Answer 30

1) Votes of majority of SHARES entitled to vote (NOT those “actually voted”) NO BOD vote necessary 2) Certificate of dissolution delivered to Dept. of State for filing

Answer 31

1) Resolution by BOD OR majority of shares entitled to vote, IF the corp has insufficient assets to discharge liability or dissolution would be beneficial to SH 2) ½+ of shares entitled to vote, IF (i) directors too divided to manage; (ii) SH too divided to elect directors; OR (iii) internal dissention makes dissolution beneficial to SH 3) ANY SH entitled to vote, IF SHs are unable to elect directors for 2 annual meetings 4) 20%+ of voting shares in a CLOSE CORP, IF there is evidence of... mgmt’s (i.e. directors or managing SHs) illegal, oppressive or fraudulent acts toward the complaining SH; OR mgmt’s wasting, diverting or looting of assets NOTE: ct can deny if complaining SH can get fair return (e.g. by ordering buyout); will consider if liquidation is the ONLY way to get a fair return Corp. or non-complaining SH can AVOID dissolution IF w/in 90 days of the petition, they buy the petitioner’s shares at fair value on terms approved by the court (i.e. a buyout)

Answer 32

Dissolution does NOT end the corporation's existence. Further steps must be taken. Steps to winding up (i.e. liquidating): 1) gather all assets 2) convert them to cash 3) pay creditors 4) distribute remainder to SH, pro-rata by share unless there’s a dissolution preference Must say “dissolution preference” (which means paid first) SHs CANNOT agree that they will be paid before creditors

Answer 33

Generally, NO! (the BOD manages the corporation) EXCEPTION: SHs CAN manage the business directly in a "close corporation"

Answer 34

A corporation w/ "FEW" SHs The stk is NOT publicly traded

Answer 35

NO! You do not HAVE to have SH mgmt; you CAN have a BOD BUT, if you want to have SH mgmt, you need 4 things... 1) a prvn in the certificate restricting or transferring bd pwr to SHs (or others); 2) ALL incorporators or SHs (voting AND nonvoting) must approve the certificate; 3) ALL subsequent SHs have notice of the special certificate; AND 4) share are NOT listed on an exchange or regularly quoted OTC dealer

Answer 36

The managing SHs owe the duties of CARE and LOYALTY to the corporation

Answer 37

Fid duties are imposed on SHs dealing w/ EA. OTHER: cntrling SHs cannot use their pwr... for PERSONAL GAIN at the expense of the minority SHs or the corporation; OR to OPPRESS minority SHs or the corporation They owe a duty of UTMOST good faith Policy: cts want to give minority SHs a remedy for behavior that "defeats reasonable expectations for investing"

Answer 38

Members of a LICENSED profession (doctors or lawyers) CANNOT practice the prof'n thru a general business corp →they form a professional service corporation Abbreviated "P.C." Certificate MUST meet the general corporation reqs of the BCL: must also indicate the profession to be practiced AND the names/addys of original SHs, directors or officers SHs, officers AND directors MUST be licensed, but can hire non-profs as employees (certification of status MUST BE in the certificate) If a SH dies or is disqualified → the P.C. MUST buy the stock Each profn'l is resp for his OWN malpractice, BUT not that of the others (thus, better than a partnership) Profn'ls are NOT resp for Ks entered into by the entity in its OWN name

Answer 39

REMEMBER: general rule is that SHs are NOT liable for what the corp does; BUT in a CLOSE corporation, SHs can be PERSONALLY liable if (i) they abuse the privilege of incorporation; AND (ii) fairness reqs holding them liable (to prevent fraud) ***[ALWAYS STATE THE ABOVE RULE FIRST]*** Two fact patterns... 1) Alter ego: the SHs exercises COMPLETE domination over the company "to perpetrate fraud or injustice" to the πs Commingling personal and corporate funds Use of corp assets for personal use NOTE: the "SH" can be another corp entity 2) Undercapitalization: SH failed to INVEST ENOUGH to cover prospective liabilities NOTE: undercapitalization ALONE is NOT enough to PCV in NY → you'd ALSO need complete domination OR fraud/injsutice NOTE: PCV is more likely to be in TORT vs. K

Answer 40

TOP 10 SHs are personal liable for wages AND benefits of the company's emps

Answer 41

When a SH is suing to enforce the CORPORATION'S claim (NOT her own personal claim) Always ask: "could the CORPORATION have brought this suit?"; If YES → it's a derivative suit Normally for breaches of fid. duties owed to the corp (care/loyalty)

Answer 42

When a SH is suing for a PERSONAL claim (NOT one on behalf of the corporation, derviative)

Answer 43

SH wins: 1) Corp gets money If recovery by the corporation would return the money to the violators, then maybe SH gets award (e.g. in a close corporation) 2) Suing SH gets atty’s fees SH loses: 1) SH cannot recover costs & expenses 2) SH probably liable to the Corp for its costs 3) SHs CANNOT sue the same ∆s on the same trxn (i.e. res judicata)

Answer 44

1) Stock ownership when claim AROSE until JUDGMENT (or gotten it by operation of law from someone who did, like inheritance or divorce decree) 2) SH must adequately rep the interests of the corp AND the SHs 3) SH can be req'd to post a BOND for ∆'s costs NOT req'd if she owns ≥5% of the stock OR her stock is worth more than $50k 4) SH must make a DEMAND on directors that the corporation sue NOT req'd if doing so would be FUTILE... Maj of BOD is interested (or under cntrl of interested dirs) The BOD violated duty of care The trxn was SO egregious on its face that it COULDN'T have been based on sound jdmt If bd REFUSES after demand, SH could sue ONLY IF... Maj of BOD is interested; OR The PROCEDURE was incomplete/inadequate (e.g. didn't use a special litigation committee, SLC) 5) SH must plead w/ "PARTICULARITY her effors to get the BOD to sue or why it was FUTILE to do so" 6) The CORPORATION must be joined in the litigation AS A ∆(!!!)

Answer 45

1) The INDEPENDENCE of the those making the investigation 2) Sufficiency of the INVESTIGATION If these two things are OK, the ct WILL dismiss

Answer 46

Yes, but ONLY with ct approval

Answer 47

A director or officer CAN sue another director or officer to compel her to ACCOUNT for violation of duties OR MISSAPPROPRIATION fo corp assets The suing director or officer does NOT have to meet the reqs for bringing a SH derivative suit The director or officer sues in OWN name, but recovery goes to the CORP

Answer 48

General rule: record owner as of record date has the right to vote Record owner = whomever Corp records indicate Record date = voter eligibility cut-off [set b/t 10-60 days before the meeting] EXCEPTIONS: 1) Corp reacquires stock → NO vote for treasury stk 2) SH dies after record date → executor can vote 3) Proxies: OK for SH voting Proxies is a (1) writing; (2) signed by record SH or auth. agent; (3) directed to the corp. secretary; (4) authorizing another to vote shares Proxies are ONLY good for 11 months, unless says otherwise Proxies can be revoked (even if "irrevocable") by: (1) a writing; OR (2) the SH attending the meeting NOTE: you CAN have an "irrevocable proxy" IF (i) it says "irrevocable"; AND (ii) the proxy-holder has SOME interest in the stock other than voting (e.g. an option to buy the stock); this is called "proxy coupled w/ an interest" NOTE: SH death ONLY revokes proxy WHEN written notice of death is received by the corp secretary

Answer 49

Pockets of SH can pool their votes via.. 1) Voting trust 2) Voting ("pooling") agreement NOTE: When giving advice, MUST state BOTH

Answer 50

1) Written trust agmt cntrling how the share will be voted; 2) Copy of agmt to the corporation; 3) Transfer of legal title of shs to voting trustee; AND 4) Original SHs receive voting trust certificates and retain ALL rights except for voting NOTE: the MAXIMUM time ltd on voting trusts in 10 YEARS

Answer 51

1) Entered into by SHs (NOT directors) 2) Agmt must be written AND signed NOTE: Two SHs CAN agree to vote their shs to elect each other, BUT they CANNOT agree abt what actions they'd take once in office (NO voting agmt for director voting) Voting agmts are NOT specifically enforceable A proxy given SUBJECT TO a voting agreement is IRREVOCABLE, IF it states so

Answer 52

1) Voting by written consent of the holders of ALL vals shares 2) Voting at an annual OR special meeting

Answer 53

1) Annual meeting: where directors are elected Just need a PLURALITY (not a majority of votes) for election of directors (majority for everything else) If annual mtg is not held, one can be COMPELLED by a ct order 2) Special meeting Called by: (i) the BOD; OR (ii) anyone provided in the certificate or bylaws NOTE: Either meeting can be held ANYWHERE (no NY req)

Answer 54

For annual AND special mtgs: corp must give WRITTEN notice (e-mail OK) to every SH entitled to vote b/t 10-60 days BEFORE the meeting Notice must ALWAYS state the time/place If the meeting is abt something that COULD req APPRAISAL RIGHTS, the notice must say so and tell why Special meetings: must ALSO state who called it AND the purpose of the meeting Must be abt something SHs can ACTUALLY vote on (i.e. it cannot be a mtg to remove an OFFICER) NOTE: the mtg will be LTD to ONLY that purpose) IF NO notice is given, the action at the meeting is VOID BUT, the action could be upheld IF those NOT given notice WAIVE the defect by: (i) doing so in a signed writing; OR (ii) attend the meeting w/o objection

Answer 55

NOTE: The focus is on the # OF SHARES, NOT the # of SHs Generally, quorum = majority of outstanding shares The certificate or bylaws CAN lower the majority quorum req; provided it's not lowered BELOW 1/3d A SUPERMAJORITY quorum req can be imposed ONLY IF it's in the certificate (NOT bylaws) NOTE: once a quorum is ESTABLISHED it CANNOT be lost due to voter attrition (Cf. director voting quorum reqs) NOTE: we can NEVER reduce the req of majority approval Majority means of those ACTUALLY VOTING (abstentions don't count) A SUPERMAJORITY vote req can be imposed ONLY IF it's in the certificate (NOT bylaws)

Answer 56

A voting device that can help minority SHs get representation on the BOD Cumulative voting is ONLY available WHEN a prvn is in the CERTIFICATE; AND SHs are voting in DIRECTOR elections # VOTES received = # of shares X # of directors to be elected Votes can be distributed in any way (i.e. can be put behind one candidate) % of shares req'd to elect ONE director = 100 / (X + 1) X = # of directors being directed Must get ONE more share than the calc'd %

Answer 57

ANY SH on 5 days written demand can demand to REVIEW: (i) minutes of SH proceedings; AND (2) record of SHs The corporation can demand the SH give an affidavit (under oath) that his purpose is NOT other than the interest of the corp AND he has not tried to sell SH list w/in 5 yrs ANY SH on 2 days written demand can REVIEW list of current directors and officers No affidavit can be req'd ANY SH on written demand can REQUEST/REVIEW the corp's latest (i) annual B/S; (ii) I/S; AND (iii) interim stmts

Answer 58

Issuance occurs when a corporation sells its own stock NOTE: an issuance is NOT when stock is sold in the SECONDARY mkt

Answer 59

A subscription is a written, signed offer to buy stk from a corporation

Answer 60

Pre-incorporation subscriptions: are irrevocable by PURCHASERS for 3 MONTHS unless the subscription provides otherwise OR all subscribers agree to let you revoke Post-incorporation subscriptions: are revocable up UNTIL the corp accepts the subscription offer (when the BOD accepts the offer)

Answer 61

NO! It must be uniform w/in each class or series of stock

Answer 62

IF... 1) He pays LESS than 1/2 and fails to pay the rest w/in 30 DAYS of demand, the corp can KEEP the money AND cancel the shares (they become a part of treasury stk) 2) He pays 1/2 or MORE and fails to pay rest w/in 30 DAYS of demand, the corp must TRY to sell the stk to someone else for cash (or binding obligation to pay cash) If no one buys, the corp can KEEP the money AND cancel the shares into treasury stk If new subscriber pays MORE than the remaining balance, the defaulting subscriber recovers the EXCESS (less expenses to resell)

Answer 63

1) Cash & cash equiv. 2) Tangible or intangible property 3) Services ALREADY performed for the corp 4) A binding obligation to pay money or property in the future (i.e. a promissory note) 5) A binding obligation to perform FUTURE services having an agreed value

Answer 64

It's when stock is issued for NO consideration It is treated as "watered stock"

Answer 65

The PAR value EXCEPTION: If the stock is "No par", then there is no minimum Price is determined by the BOD, unless the certificate lets SHs do it (unlikely) TREASURY STOCK can be treated as having "no par" ON RESALE (i.e. can sell treasury shs for ANY price)

Answer 66

Yes; PROVIDED the form is worth at least the par value of the stock issued Based on a BOD's good faith determination

Answer 67

"Watered stock" = stock that is issued for LESS than the par value Consequences: The corporation can sue for the "water" amt The directors ARE liable IF they "knowingly authorized" the issuance The direct purchaser IS liable (w/o a defese) A 3d party purchaser from a direct purchaser is NOT liable if she acted in good faith (i.e. BFP that does not know abt the water)

Answer 68

The right of an EXISTING SH to MAINTAIN her % of ownership by buying stock (PRO RATA) whenever there is a NEW ISSUANCE for MONEY (cash/cash equiv) Exist ONLY IF such rights are listed in the CERTIFICATE "New issuance" does NOT include the sale of shs authorized by the orig. cert AND sold w/in 2 YRS of incorporation Does NOT include the sale of treasury stk UNLESS the certificate says it does If new stk is sold for PROPERTY, then there are NO preemptive rights (issuance must be for money)

Answer 69

NO! That concept ONLY matters for NEW stock issuance

Answer 70

When they are "NOT an undue restraint on alienation" OK: req'ing a sale of one's stock to the corp once a SH dies NOT OK: req'ing approval of the corp to sell stk Any restriction MUST be in CERTIFICATE, BYLAWS or by AGMT To be enforced against transferee, MUST (i) be conspicuously noted on the stock cert.; OR (ii) transferee has knowledge of restriction

Answer 71

When the BOD declares it in its DISCRETION Stock distribution = (i) dividend; (ii) pmt for repurchases; OR (iii) pmt for redemption A ct will interfere w/ a BOD's discretion ONLY IF there is a showing of bad faith or dishonest purpose (high hurdle to cross) The BOD can't declare if the company is insolvent (or the distribution would render the company insolvent)

Answer 72

FIRST: Preferred SHs → get dividends before common "Participating": means the preferred SHs get paid 2X: once as preferred SHs and second as part of common pool "Cumulative": means if there are arrears, the past due amts will be paid in FULL before common get pmt (relevant when BOD doesn't declare a dividend) SECOND: Common SHs → get paid after preferred shs

Answer 73

From "surplus" ONLY: APIC + Retained Earnings Surplus = Assets – liabilities – stated capital (par value of stock) NEVER from stated capital (par value of stock) If there is no-par issuance, the BOD can allocate any part (BUT not all) to surplus w/in 60 days of issuance

Answer 74

Negl. directors and SHs w/ knoweldge are PERSONALLY liable for unlawful distributions The corporation can sue (or SHs derivatively) REMEMBER: directors CAN rely on 3d party experts

Answer 75

Yes EXCEPT, it might have to give equal opportunity to all SHs in a CLOSE CORPORATION NOTE: redemption prices are set in the certificate and must be done PROPORTIONALLY w/in each class of stock

Answer 76

1 or more NATURAL (i.e. human) persons Number (greater than 1) can be set in (i) bylaws; (ii) by SH act; OR (iii) by the BOD, if a SH bylaw allows

Answer 77

The incorporators elect initial directors at the organizational mtg After that, SHs elect at the annual mtg

Answer 78

Where the entire bd is NOT re-elected each year The certificate OR SH bylaw can establish 2, 3, or 4 classes of directors Each class is up for election each year

Answer 79

"For cause": by SHs by the BOD, ONLY IF the certificate OR bylaws allow For ANY reason: by SHs, ONLY IF the certificate OR bylaws allow

Answer 80

General rule: the BOD selects the person who will serve the remainder of the term If director was removed by SHs, WITHOUT "cause", then SHs fill the vacancy

Answer 81

1) UNANIMOUS written consent; OR 2) Via a board meeting NOTE: INDIVIDUAL bd members are NOT agents of the corporation (they have no pwr to bind in their individual capacity); they MUST act as a group If a bd purports to "act" in some OTHER WAY than listed above, the action is VOID, UNLESS the action was ratified by the BOD via a valid act (e.g. a conversation among a few directors is NOT a mtg)

Answer 82

1) Notice: is NOT req'd for REGULAR meetings if the time/place is set in bylaws Notice IS req'd for SPECIAL meetings, AND must state the time/place of the mtg (need NOT state the purpose) If notice is not proper, ANY action taken at the meeting is VOID unless the director NOT given notice waives the notice defect (i) in writing, anytime; OR (ii) by attending the meeting without objection 2) Unrestrained voting: bd CANNOT vote by PROXY or enter VOTING AGMTS to vote in a certain way Voting is a non-delegable fiduciary duty NOTE: SHs CAN vote by proxy and enter voting agmts 3) Quorum: to meet quorum, there must be a MAJORITY of the "entire board" present "Entire board" = duly constituted board = the # of positions WITHOUT vacancies E.g. if there are 9 director positions w/o vacancies, then you'd need at least 5 present Quorum CAN be "broken" (i.e. if it's met and sufficient directors leave, then it can fall below req'd amt) 4) Majority voting: once quorum is met, passing a resolution reqs a MAJORITY of those directors present E.g. of the 5 directors present, you'd need 3 to pass a resolution NOTE: The board mtg does NOT have to be in NY A meeting CAN be via conference call

Answer 83

Lower The quorum req CAN be less than a majority ONLY IF stated in the certificate OR bylaws NEVER can be fewer than 1/3d of the bd Increase The quorum req CAN be raised to more than a majority ONLY IF stated in the certificate (NOT bylaws)

Answer 84

Lower: the corporation can NEVER decrease the resolution voting requirement below a majority Increase: The resolution voting req CAN be raised to more than a majority ONLY IF stated in the certificate (NOT bylaws)

Answer 85

A BOD can delegate certain functions IF (i) the certificate OR bylaws allow; AND (ii) a majority of the "entired board" (without vacancies) votes to delegate Committee must be made of AT LEAST one director A BOD CANNOT delegate all of its powers to a committee

Answer 86

1) Set director compensation 2) Fill a board vacancy 3) Submit a fundamental change to SHs 4) Amend bylaws NOTE: A committee CAN recommend ANY of the above for FULL board action Committees are used in conjunction with SH derivative suits

Answer 87

Std = "A director must discharge her duties in GOOD FAITH and with that degree of DILIGENCE, CARE AND SKILL that an ORDINARY PRUDENT PERSON would exercise under similar circumstances in like position" Nonfeasance (i.e. BOD does NOTHING) will breach duty of care IF the breach CAUSED a loss to the corporation (very hard to prove) Misfeasance (i.e. BOD does something that hurts corp) Implicates the Business Judgment Rule (BJR): a ct will not second guess a business decn IF it was made in GOOD FAITH, was REASONABLY INFORMED and RATIONAL

Answer 88

Std = "A director must act in GOOD FAITH and with the CONSCIENTIOUSNESS, FAIRNESS, MORALITY and HONESTY that the law requires of fiduciaries" BJR does NOT apply b/c the bd cannot take proper action if there is a conflict of interest

Answer 89

1) Interested director (self-dealing) trxns: occurs when there is any deal b/t the corporation and one of its directors (or business of which the director is also a director or has subtl fin. interest) Can be "cleansed" IF: (1) the deal was fair and reasonable to the corporation when approved OR the material facts and her interest were disclosed/known; AND (2) the deal was approved by (i) SH action; (ii) BOD approval by disinterested directors; OR (iii) UNANIMOUS approval of disinterested directors if they are insuffiicent in number to take bd action NOTE: interested directors DO count for quorum purposes; they just CANNOT vote The entire board CAN set director compensation, BUT it must be reasonable and in good faith (otherwise, it's a waste of corp assets) To give directors or officers options for PRIVATE stock, they must be approved by SHs 2) Competing ventures: directors cannot compete with their with their own corporation If director DOES compete, a ct would establish a CONSTRUCTIVE TRUST for the profit made from the competing venture (corp could also get damages, if it were hurt) 3) Corporate opportunity: a director cannot "USURP a corporate opportunity" A director CAN take an opportunity ONLY IF: (1) he tells the BOD abt the opportunity; AND (2) the director waits for the disinterested BOD to REJECT it Corporate opportunity = someting the corporation NEEDS, have an EXPECTANCY INTEREST IN, OR is logically RELATED TO its business "The corporation couldn't afford it" is NOT a valid excuse Remedy = constructive trust established, which accounts for any profits made

Answer 90

ONLY IF (i) it's approved by SHs; OR (ii) if the board finds that it will benefit the corporation

Answer 91

General rule = a director is PRESUMED to have concurred w/ board action UNLESS her dissent is noted in WRITING in corporate records Procedure = (i) dissent in the board minutes; (ii) in writing to the corp. secretary at the meeting; OR (iii) via registered letter to the corp. secretary PROMPLTY after adjournment ORAL dissent is NEVER effective by itself EXCEPTIONS: A MISSING director is not liable for meeting actions IF he dissents in WRITING to the corp secretary w/in a reasonable time AFTER learning of the action

Answer 92

ONLY when the reliance is done in GOOD FAITH Applies to information, opinions, reports or stmts by... officers or employees lawyers or accountants a committee's recommendation... PROVIDED the director believes the person is competent and is working w/in scope of designated authority

Answer 93

As agents that can BIND the company, officers owe BOTH a duty of care AND a duty of loyalty

Answer 94

The BOD unless the certificate allows SHs to elect them (rare) One person CAN hold more than one office BOD can suspend an officer's authority to act "for cause"

Answer 95

The atty general OR holders of 10% of all SHARES may sue for a judgment removing an officer "for cause" Ct can bar reappointment of a person so removed from office

Answer 96

4 categories... 1) Prohibited reimbursement: if officer was held liable to the corporation (a judicial holding, not accusal) 2) Of right: the corp MUST reimburse the director/officer IF she won a judgment on the merits or otherwise NOTE: if she files ANOTHER action to collect reimbursement, the corporation is not req'd to pay THOSE atty fees 3) Permissive: if not part of the categories above, the corp MAY reimburse, IF (i) she acted in good faith; AND (ii) for a purpose reasonably believed to be in the company's best interest Can include reimbursement for settlement 4) Cout orderd: n/w/s the above, a ct can order the corp to reimburse a director/officer for litigation expenses/atty fees NOTE: A corp can ADVANCE litigation expenses to a director/officer, BUT they MUST be repaid if it turns out that she's NOT entitled to reimbursement A corp. can buy insurance to cover director/officer liability Exculpation: The certificate may eliminate director liability to the corporation/SHs for breach of a duty, EXCEPT if she (i) acted in bad faith; (ii) acted with intentional misconduct; (iii) received an improper fin. benefit; OR (iv) approved an unlawful distribution or loan

Answer 97

1) BOD (w/ a quorum of directors being non-parties); or, if there is no such quorum... 2) SH or a quorum of those directors who are disinterested; or... 3) BOD pursuant to report from independent legal counsel

Corps Flashcards

(121 cards)