Drills 1-25 Flashcards
(32 cards)
The promoter is liable even after the corporation has been formed unless:
(i) the corporation formally releases the promoter from responsibility through a _______________,
(ii) the contract __________ _________ that the promoter has no personal liability.
(i) novation
(ii) explicitly provides
Under what theory can someone avoid personal liability when acting in good-faith in complying with the state’s incorporation requirements and operating a corporation without knowing that the requirements were not met?
Under the de facto (defective) corporation doctrine.
In this case, the owner is not personally liable for obligations incurred in the purported corporation’s name.
What is a corporation’s key constitutional document called?
The Articles of Incorporation
The articles of incorporation must contain the corporation’s _________ including one of the following 4 words, (or an abbreviation thereof) “corporation,” ____________, ________________, ___________.
name
company, incorporated, limited
Par value is the _______________ price for which the stock can be sold by the corporation (need not be its __________ value).
minimum
market
In making decisions, Directors must be ______________ _____________.
They may rely on the advice of advisors if the reliance was __________ and the advisor was ____________.
Reasonably informed
Reasonable
Qualified
A ______________ ________ is the right to buy enough stock to maintain your ownership percentage in the corporation if the corporation does what?
preemptive right
sells more stock
Generally, SHs have only limited liability for corporate acts and are only at risk to the extent of their investment. What is the exception to this rule?
Piercing the corporate veil–if a plaintiff can pierce the corporate veil, then the SHs can be held personally liable.
If a director violates the duty of care or loyalty in approving an improper dividend, the director is personally liable for any amount ________ the _________ distribution amount.
above
lawful
A corporate insider can be forced to return short-swing profits to the corporation through a Section _______ action.
Name the 4 elements necessary:
1) Only ___________ traded corporations that have securities traded on a __________ securities exchange OR have assets of more than $___ million and >____ SHs
2) What group of people?
3) Short swing profits: during any _____-_______ period, a corporate insider who both buys and sells the c’s stock will be liable for any profits made
4) Reporting: Corporate insiders must report changes in stock ownership to…..?
Section 16(b)
1) publicly
national
$10 million
> 500 SHs
2) Only corporate insiders (directors, officers, and SHs holding more than 10% of a class of stock) are subject to a Section 16(b) action
3) six-month
4) the SEC
When does a corporation engage in an ultra vires act?
When it has stated a narrow business purpose in its articles
and then engages in activities outside that stated purpose.
What is the general rule for a corporation’s liability for pre-incorporation transactions entered into by a promoter?
What is the exception?
The corporation is not liable for contracts entered into by the promoter (because there is no fiduciary relationship between the promoter and corporation before the corporation exists).
However, the corporation IS liable if it expressly or impliedly adopts a contract by accepting the benefits of the transaction, or gives an express acceptance of liability for the debt.
If there is a conflict between the articles and bylaws, which of the two controls?
The articles of incorporation control
Other than using the de facto corporation doctrine, how else can someone who acted in good faith avoid personal liability when a company was not in compliance with a state’s incorporation requirements?
Corporation by Estoppel Doctrine:
A person who deals with an entity as if it were a corporation is estopped from denying its existence and thereby prevented from seeking the personal liability of the business owner.
There are two types of SH meetings: annual and special.
SHs entitled to vote must be given notice of either type of meeting in a timely manner.
What is considered to be a timely manner?
Voting SHs must be notified of the time, date, and place in a timely manner no less than 10 days and no more than 60 days before the meeting
Unless the articles provide otherwise, corporations may choose directors by ____________ voting.
Rather than having separate votes for each directorial slot, SHs are given a number of votes equal to the number of _________ multiplied by the number of ___________ being voted on.
cumulative
shares
positions
In what 4 situations is the presumption of good faith afforded by the Business Judgment rule overcome?
If the challenger shows:
- fraud
- dereliction of duty
- condoning illegal conduct
OR - a conflict of interest
If a shareholder wins a derivative suit, who recovers the judgment?
In a derivative action, the SH is suing on behalf of the corporation for harm suffered by the corporation.
Thus, recovery generally goes to the corporation. But the shareholder/member recovers reasonable costs of litigation
Courts are generally ________ to pierce the corporate veil.
A court’s analysis whether to do so is generally very ____ intensive, and a court will look at the _________ __ ____________.
Ultimately, the court is concerned with whether the corporation is being used as……what?
Reluctant
Fact
Totality of circumstances
A façade for a dominant SH’s personal dealings.
Who, if anyone, is responsible for contracts entered into before the corporation is actually formed?
A promoter is personally liable for knowingly acting on behalf of a corporation before incorporation, and remains liable after the corporation comes into existence.
What are the two types of stock?
(1) Common stock - a basic ownership interest that entitles the owner to vote on corporate governance matters
(2) Preferred stock - has preference over other stock with regards to distributions
In an LLC, what document governs any or all aspects of its business?
An LLC may adopt an operating agreement to govern its business.
The operating agreement can be oral, in a record, or implied by conduct.
(Statutory default provisions apply when the operating agreement is silent.)
True or False?
Par value applies ONLY when the stock is first sold by the corporation (as opposed to a shareholder selling to another).
True
How do SHs waive their rights to notice of SH meetings?
SHs may waive notice either in writing or by attending the meeting
