FL Corporations Flashcards
(201 cards)
1
Q
Can a New York corporation be the incorporator of a FL corporation? Can Joan Rivers?
A
Yes; Yes
2
Q
Articles of Incorporation: 4 Mandatory Provisions
A
(1) Name and address of corporation
(2) Name and address of each incorporator
(3) Name and street address of registered agent/office
(4) Number of authorized shares
3
Q
Can I form a corporation named Sokko’s Donuts?
A
No - name has to include “corporation,” “company,” or “incorporated” (or abbreviation)
4
Q
What if a corporation has a narrow purpose clause (e.g., “to sell donuts”) but it later sells Gilbert’’s Outlines too?
A
This is an ultra vires act. Ultra vires acts are valid, but:
(1) Shareholder or state can seek injunction to stop; and
(2) Officers & directors are personally liable for ultra vires losses they cause
5
Q
Filing is conclusive proof a corporation was fuly formed in accordance with the law.
A
De jure corporation
6
Q
If not filed, the corporation risks administrative dissolution.
A
Annual report
7
Q
Need a good faith attempt to form a corporation, and an act on the corporation’s behalf. Almost as good as de jure.
A
De facto corporation
8
Q
Ryan Tannehill mailed articles to the Department of State. A week later, he contracts for the firm. The articles had not been filed; they got lost in the mail.
Are the shareholders liable on the contract?
What if one of the shareholders knew that the articles had not been filed?
A
No because there was a good faith attempt to comply with the statute. (So shareholders shouldn’t be punished).
Shareholder who knew that the articles had not been filed woudl be liable (only protects the innocents).
9
Q
A person who deals with a business as if it were a corporation may be ________ from later arguing that it is not a corporation.
A
Estopped
Corporation by estoppel
10
Q
De Facto Corporation and Corporation by Estoppel protect shareholders only against _________ claims.
A
Contract
11
Q
Contain matters of internal governance, like the VP’s duties, meeting dates, etc.
A
By-laws
12
Q
Who may adopt the initial by-laws, unless that power is reserved to the shareholders in the articles?
A
Either the incorporator or the directors
13
Q
Who may amend the bylaws, unless that power is reserved the shareholders in the articles or by the shareholders themselves in amending a particular by-law?
A
Either the directors or the shareholders
14
Q
Which controls if there is a conflict between the bylaws and articles?
A
Articles
15
Q
A person acting for a corporation before it has been formed. Owe fiduciary duties to the corporation and cannot make a secret profit on their dealings with the corporation.
A
Promoter
16
Q
Liability on pre-incorporation contracts:
A
The corporation is NOT liable unless it ADOPTS the contract as its own, either expressly (board passes a resolution) or impliedly (corporation knowingly accepts the benefit of the contract).
17
Q
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. Is Invisible, Inc. liable on the lease?
A
Not automatically. Only if it adopts as its own.
18
Q
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. and Invisible, Inc. moves into the space knowing of the lease. Is Invisible, Inc. liable on the lease?
A
Yes. Impliedly adopted lease by conduct.
19
Q
The promoter remains liable on a contract unless there’s a _________.
A
Novation (where the corporation, promoter and the third party agree to substitute the corporation for the promoter as the one liable on the contract).
20
Q
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. and Invisible, Inc. moves into the space knowing of the lease. Is Don still liable if Invisible, Inc. is formed and adopts the lease as its own?
A
Yes. All adoption means is that the corporation is liable too!
21
Q
A corporation organized under the laws of any jurisdiction other than Florida.
A
Foreign Corporation
22
Q
A foreign corporation transacting business in FL must ____ to do business here.
A
Qualify
23
Q
Engaging in intrastate (completely within FL) transactions in FL on a regular basis.
A
“Transacting Business”
Note: Interstate business is NOT enough
24
Q
Get a certificate of authority from Department of State. Must provide info from articles and be in good standing in home state.
A
“Qualify”
Note: Once it qualifies, a corporation must have a registered agent.
25
Corporation is subject to civil fines and cannot bring suit in a FL court without getting a _____________ and ________________.
Certificate of authority; paying any fines due
| NOTE: Can be sued
26
Nerd Co., a Delaware corporation, sold goods on one occasion to a buyer in Miami, but had no other contacts with FL. Which of the following statements is true?
(A) Nerd Co. is not a foreign corporation with respect to FL corporate law
(B) Nerd Co. may be sued in a FL court only if it has qualified to transact business in FL
(C) Nerd Co. may bring suit in a FL court only if it has qualified to transact in FL
(D) Nerd Co. may bring suit in a FL court without qualifying to transact business
(D) Nerd Co. may bring suit in a FL court without qualifying to transact business
Because not transacting business per definition (& does not have to qualify to be able to bring suit).
27
When a corporation sells its own shares.
Issuance
28
McLovin sells 3,000 shares of Anheuser-Busch, Inc. Is this an issuance?
No - not an issuance when a shareholder sells shares (only corp)
29
Number of shares a corporation actually sells.
Issued Shares
30
Issued shares the corporation has not reacquired (so they are still in the hands of shareholders)
Outstanding shares
31
Irrevocable for 6 months unless the subscription provides otherwise or all the subscribers consent.
Pre-incorporation subscription
32
Revocable until the board accepts.
Post-incorporation subscription
33
A subscription is enforceable _______________. The corporation may sue the subscriber or sell the shares to someone else if payment is not made within 20 days after the corporation makes a written demand.
Once the board accepts it.
34
To form a corporation, one or more incorporator(s) must:
(1) Submit articles of incorporation to the Department of State. Corporate existence beings when the Department of State files the articles.
(2) Hold organizational meeting to elect directors; then either the incorporators or new directors elect officers and adopt by-laws.
35
True or false: The corporation may reject a subscription.
True.
| NEVER obligated to accept.
36
Kirsty Alley gives Jenny Craig, Inc., a promissory note for 1,000 shares of its stock. OK?
Problem? Might not pay BUT in FL this is valid consideration (ANYTHING of value).
Corporation can put shares in escrow account until Kirsty pays off the note.
37
Minimum issuance price, not fair market value.
Par Value
| FL eliminated mandatory par value, but a corporation may still elect to have par value for shares.
38
C Corp. sells 100 shares of $3 par value stock. How much consideration must C Corp. receive?
AT LEAST $300 (can get more, but not less)
39
C Corp. sells 100 shares of $3 par value stock to Alicia Florrick for $5 per share (a total of $500).
$300 is stated capital: aggregate par value for the issued shares
$200 is capital surplus: extra $ Alicia paid corporation for shares over and above par value.
40
Madonna deeds her cottage in Key West to C Corp. for 1,000,000 shares of $3 par stock. OK?
Yes, as long as cottage is worth at least $3 million.
41
C Corp. issues 10,000 shares of $3 par stock to Alicia for a ring worth $22,000 [less than PV]. C Corp. wants the $8,000 of "water." Can C Corp. recover $8,000 from Alicia? From the directors?
ONLY if there was fraud (otherwise not from either).
42
Alicia has watered stock liability, but sells the stock to Kalinda. Kalinda did not know Alicia paid less than par value ("BFP"). From whom can C Corp. recover the $8,000 "water"?
(A) Kalinda alone
(B) Alicia alone
(C) Neither Kalinda nor Alicia
(D) Both Kalinda and Alicia
(B) Alicia alone
BFP of watered stock is not liable but the original shareholder is.
43
Shares reacquired by the corporation. They may be cancelled or resold for any price since par value provisions do not apply (they have already been issued).
Treasury Shares
44
Lets a shareholder maintain her percentage ownership interest in the corporation when new shares are issued for money. They protect against dilution.
Preemptive Rights
45
Lord Grantham owns 1,000 of the 5,000 outstanding shares of C Corp. [that's 20%]. C Corp. plans to issue 3,000 new shares for cash. Does Lord Grantham have preemptive rights?
Only if articles provide for them.
46
Lord Grantham owns 1,000 of the 5,000 outstanding shares of C Corp. [that's 20%]. C Corp. plans to issue 3,000 new shares for cash. If C Corp's articles do provide for preemptive rights, what is Lord Grantham entitled to do?
Can buy 20% of 600 of preemptive shares so he maintains the same percentage of ownership.
47
Statutory Requirements of Directors
(1) One or more natural persons, at least 18 years of age;
(2) Shareholders elect directors at an annual meeting;
(3) Shareholders may remove directors with or without cause unless the articles say directors may be removed only for cause.
48
Preferred shareholders of Y Corp. are entitled to elect one director. Can Y Corp's common shareholders remove the director elected by the preferred shareholders form the board?
No - different class of shares (elected by one can't be removed by the other)
49
Who may fill a vacancy on the board?
Either the directors or the shareholders, unless the articles provide otherwise.
50
Unless ______ directors consent __________ a meeting is required. A conference call qualifies if all directors can hear each other simultaneously.
All; in writing
51
Notice is only required for __________ meetings.
Special
| Must give 2 days' notice
52
Quorum: A majority of all directors on the board unless a __________ number is required in the articles or by-laws or a __________ number is specified in the articles (minimum is 1/3).
Greater; lesser
53
M Corp. has 15 directors. Its by-laws required 40% of the directors to be present for a quorum. Seven directors are present at a meeting. Is there a quorum?
No because a lesser # has to be in the articles. Putting it in the by-laws is no good, so fall back to default rule which is majority (8/15).
54
A director can break a quorum, so you need a quorum _________________.
Each time a vote is taken
55
The affirmative vote of a majority of directors present is needed to pass a resolution, unless the articles or by-laws require a ________ number.
Greater
56
M Corp. has 15 directors. Its articles and by-laws are silent on quorum and voting requirements for directors. Eight directors are present at a board meeting. Five vote in favor. Did the resolution pass?
Yes. The default rule is that quorum is a majority (8/15). Need a majority of these 8 to vote in favor (5/8).
57
Set corporate policy, supervise officers, declare dividends, recommend fundamental changes, etc.
Directors
58
A committee ______ amend bylaws; fill vacancies; or authorize the issuance/sale/reacquisition of shares except within limits set by board.
Cannot
| Otherwise, delegation is ok.
59
Duty of Care: A director must act with the care that an ________________ would exercise in a like position under similar circumstances.
Ordinarily prudent person
60
A director does nothing
Nonfeasance
61
A director of Nike, Inc. fails to attend board meetings. Has he breached his duty of care?
Yes. A prudent person would show up once in a while, but hard to show causation for liability (so there is a breach but not necessarily personally liable).
62
A director does something that causes the corporation a loss.
Misfeasance
63
In 2010, the directors of Nike, Inc. hired Joe Paterno to be Nike's spokesman. Profits tanked in the wake of the Penn State scandal. Did the directors breach their duty of care in hiring Joe Pa?
No because protected by the business judgment rule.
| Don't have to be right, just careful... court won't second-guess unless there is gross negligence
64
Duty of Loyalty: A director must act _________ and with a reasonable belief that what she does is ____________________.
In good faith; in the corporation's best interest
65
Where a director is on both sides of a transaction.
Interested Director Transaction
66
Donald Trump is a director of NBC, Inc. Donald also rents space to NBC, Inc. Is that bad?
Not necessarily (may even benefit corporation), but there is a potential for abuse.
67
An Interested Director Transaction can be set aside unless the interested director shows that the transaction was _______________ or was ________ by a majority of all disinterested directors or shares (not just those present at the meeting) after _____________ of all material facts.
Fair to the corporation; ratified; the full disclosure
68
Interested director can show up at the meeting, and even vote, but ________________.
His vote is ignored
69
NBC, Inc. has 7 directors. 4 are interested in the deal. Of the 3 disinterested directors, 2 vote to approve the deal and 1 votes against it. Can the deal be set aside as an Interested Director Transaction?
No, as long as there is full disclosure of all material facts. The majority of the disinterested directors voted for it.
70
Mike Tyson and Darth Vader are directors of a motivational firm called Nice Guys Finish Last, Inc. Can Mike start his own motivational firm across town?
No. They are fiduciaries so almost any competition is bad.
71
A director cannot usurp an opportunity the corporation _______________ without full disclosure and board approval.
Might be interested in
72
JR is a director of circle C Realty Corp., which develops condo projects. JR learns of some land that's been zoned for condos and buys it for himself.
Is this a corporate opportunity?
If so, what are Circle C's remedies?
Yes it is a corporate opportunity.
Circle C either gets the land at JR's cost OR the profits (benefits of JR's transaction).
73
Directors are liable for ____________ losses they cause.
Ultra vires
74
Loans to directors are allowed if the board reasonably expects the corporation to benefit. They are treated as ________________________.
Interested director transactions
75
Is a dissenting director liable?
Not liable if his vote is recorded in the minutes.
76
Is an absent director liable?
No
77
Directors may rely ____________ on the book value of assets; on the opinoin of, or information provided by, competent officers, employees or professionals; and on financial statements prepared by auditors.
In good faith
78
"Raincoat" Statute: Directors are ________ for damages for breaching the duty of care or loyalty ____________ violated criminal law; received an improper personal benefit; authorized an unlawful dividend; or engaged in reckless or willful misconduct. This immunity is effective even against 3rd parties!!
Not liable; unless they also
79
Officers are corporate __________.
Agents
80
Are there particular officers required?
No, and anyone can hold multiple offices.
81
Selection/Removal of Officers:
By the directors
82
Nike Inc.'s directors hire Coach Sue Sylvester as president for a five-year term. Can the directors remove her from the presidency before her five years are up?
Yes, but Nike will be liable to Sue for breach of contract.
83
The CEO and CFO must certify that reports filed with the SEC fairly represent the corporation's financial position. Civil and criminal penalties are imposed for willfully certifying an untrue report.
Sarbanes-Oxley
84
If a director was held liable to the corporation or held to have received improper personal benefit or held to have violated criminal law.
Prohibited Indemnification of Directors and Officers
85
If a director is wholly successful on the merits or otherwise, the corporation _______ indemnify the director.
Must
86
For anything not prohibited or mandatory, including settlement.
Permissive Indemnification of Directors and Officers
87
Eligibility for Permissive Indemnification: A director must show she acted _____________ and with the reasonable belief that her actions were ________________________.
In good faith; in the company's best interests
88
Unless the conduct is ________________, a director will get indemnification.
very, very bad
89
Is there judicial discretion to indemnify directors notwithstanding the rules?
Yes. Court can ALWAYS decide.
90
Pursuant to a unanimous shareholder agreement if the corporation has 100 or fewer shareholders and its shares are not publicly-traded.
Shareholder management
91
X and Y are the shareholders of C Corp. X commingled personal and corporate funds and used C Corp.'s credit card to make personal purchases. Can a C Corp. creditor collect from X or Y?
From X because X treated corp. assets as his own, so treat X's assets as if they belong to the corp.
92
Does piercing the corporate veil apply in a parent-subsidiary relationship?
Yes (pierce sub to get at parent)
93
S is a shareholder of G Corp., which hauls nuclear waste. G Corp. has an initial capitalization of $1,000 and carries no insurance. V is injured when a G Corp. truck melts down. Is S liable to V?
Yes! Dangerous business, no $, and no insurance (like gross negligence).
94
A and B form AB Corp. Each buys shares for $100 and loans the firm $49,000. After a year, AB Corp. owes its suppliers $750,000, but has only $250,000 in assets. Aware of this sticky situation, A and B have the corporation repay their loans. What recourse do the other creditors have?
Ask the court to take a back seat until ALL 3rd party creditors get repaid.
Key fact? Didn't invest much BUT loaned a lot.
95
A shareholder is suing to enforce the rights of the corporation. If the corporation could have brought the suit, it is this type of suit.
Shareholder Derivative Suit
96
S is a shareholder of C Corp. Which of the following involves a shareholder derivative suit?
(A) S sues X for breaching its contract with C Corp.
(B) S sues C Corp's directors for violating their duty of care to C Corp.
(C) S sues C Corp's directors for not honoring her preeptive rights.
(D) Both (A) and (B)
(D) Both (A) and (B)
Because the corporation could have brought the suit itself.
97
Recovery in a shareholder derivative suit.
To the corporation, but π gets attorneys' fees and expenses.
98
Standing for a shareholder derivative suit: A shareholder must have owned stock __________________ or acquired it _____________ from someone who did
When the claim arose; by operation of law (e.g., by inheritance, or divorce, not gift or purchase)
99
Angelina bought Brad Co. shares from Jen on August 12, 2013. Jen had owned the shares since 2001. May Angelina bring a shareholder derivative suit against Brad Co. directors for breaching their duty of loyalty to Brad Co. in 2006?
No. Angelina did not acquire shares by operation of law. She bought them!
100
Is there a requirement that a demand be made for a shareholder derivative suit?
Yes. Must always make a demand on board that the corporation bring suit [no "futility" exception in FL].
101
Disinterested directors (or a committee of them) can move to dismiss shareholder derivative suit if they find after reasonable investigation it is ____________________. Corporation has the burden to show the decision-makers' independence/good faith.
Not in the corporation's best interests
102
A judge may require π to pay ∆'s reasonable expenses if she finds the shareholder derivative suit was commenced _________________.
Without reasonable cause
103
Joinder of corporation in shareholder derivative suit.
The corporation is joined as a nominal ∆.
104
Dismissal/Settlement of shareholder derivative suit.
Only with court approval (like a class action)
105
Who votes in a corporation?
Record owner on record date.
106
Record date may ___________________________. If no record date is set, it is the close of business the day before first notice of meeting is delivered to shareholders.
Not be more than 70 days before a meeting.
107
The board of C Corp. set its annual shareholder meeting for June 7 and a record date of May 6. S sells B her C Corp. stock on May 25. Who is entitled to vote the shares at the meeting, S or B?
S because S owned the shares on the record date, so from corp's perspective, S still owns.
108
Exceptions to voting rule:
(1) Death: the record owner's executor may vote the shares
(2) Proxy: the record owner may appoint another person to vote the shares (a "proxy") by sending the corporation's secretary a signed, written authorization.
109
On October 8, 2013, Munch sends a letter to the secretary of C Corp. authorizing Detective Benson to vote his shares. Can Benson vote Munch's shares at the August 2014 annual meeting?
Yes. Proxy voting by shareholders is ok.
110
On October 8, 2013, Munch sends a letter to the secretary of C Corp. authorizing Detective Benson to vote his shares. Can Benson vote Munch's shares at the August 2015 annual meeting?
No because proxy is only good for 11 months unless it states otherwise.
111
On October 8, 2013, Munch sends a letter to the secretary of C Corp. authorizing Detective Benson to vote his shares. What if Munch changes his mind and wants the Chief to vote his shares at the 2014 annual meeting?
That's ok. Shareholders can revoke a proxy.
112
On October 8, 2013, Munch sends a letter to the secretary of C Corp. authorizing Detective Benson to vote his shares. Can Munch revoke his proxy even though the proxy he gave Benson states that it is irrevocable?
Yes. Saying that the proxy is irrevocable is not enough. Need more like selling shares to proxy.
113
On October 8, 2013, Munch sends a letter to the secretary of C Corp. authorizing Detective Benson to vote his shares. Munch sells his shares to Benson after the record date, but before the annual meeting, and gives her a proxy stating that it is irrevocable. Can Munch revoke this proxy?
No, because this irrevocable proxy is "coupled with an interest": Benson has her own interest in the shares (she has already bought - but- can be someone with option to buy or someone who holds as collateral on loan)
114
Voting Trust: Trustee gets irrevocable right to vote the shares, but the shareholders retain other rights of ownership. Need _______________ (copy to corporation) and ___________________.
Written trust document; transfer of legal title to trustee
115
Voting Agreement: Unlike directors, shareholders can agree in advance how they will vote as long as they do so ___________.
In a signed writing
116
Are shareholders allowed to vote without meeting?
Allowed if there are written consents from the minimum number of shares [not shareholders] needed to take action at a meeting where all shares entitled to vote on the action are present and voting.
117
C Corp. has 1,000 shares, all of which are entitled to vote on a plan of expansion. The holders of how many shares must consent for the plan to be effective without holding a shareholder meeting?
501 (a majority of 1,000)
118
If no annual meeting is held, a shareholder can ___________________.
Ask the court to order an annual meeting
119
How may special meetings be called?
By the board, the holders of at least 10% of the voting shares, or a person named in the articles or by-laws.
120
Must give written notice of special meeting to every shareholder entitled to vote no fewer than _______, nor more than ________, before the meeting date.
10 days; 60 days
121
Shareholder Quorum: A ___________ represented at the meeting. A quorum is determined at the start of the meeting, not each time a vote is taken; thus, once a quorum is established, a shareholder cannot break it.
Majority of outstanding shares
122
X Corp. has 120,000 shares outstanding owned by 700 shareholders. Who or what is a quorum?
60,001 (majority of shares). The # of shareholders is irrelevant.
123
Can the articles of X Corp. provide that 75% of the outstanding shares must be represented at a meeting in order to have a quorum?
Yes. Quorum can be moved up or down in articles, but never less than 1/3 shares entitled to vote.
124
Can the articles of X Corp. provide that 100% of the outstanding shares must be represented at a meeting in order to have a quorum?
Yes. Quorum can be moved up or down in articles, but never less than 1/3 shares entitled to vote.
125
Can the articles of X Corp. provide that 40% of the outstanding shares must be represented at a meeting in order to have a quorum?
Yes. Quorum can be moved up or down in articles, but never less than 1/3 shares entitled to vote.
126
Can the articles of X Corp. provide that 25% of the outstanding shares must be represented at a meeting in order to have a quorum?
No. Quorum can be moved up or down in articles, but never less than 1/3 shares entitled to vote.
127
Voting on matters OTHER than electing directors: A matter is approved if the votes cast for it _______________, unless the articles require a greater number of affirmative votes.
Exceed the votes cast against it
128
X Corp. has 120,000 shares outstanding. 62,000 shares are represented at the meeting. 30,000 shares vote for a proposal, 25,000 shares vote against, and 7,000 shares abstain. X Corp.'s articles and by-laws are silent on quorum/voting requirements. Has the proposal been approved?
(A) No, because there was no quorum present.
(B) No, because the proposal did not get an affirmative vote of a majority of the shares represented at the meeting.
(C) Yes, if the articles allow shareholders to act with less than a majority in favor.
(D) Yes, because the number of votes in favor exceeded the number of votes against.
(D) Yes, because the number of votes in favor exceeded the number of votes against.
Only need ore for than against.
129
Plurality Election of Directors: The ____________ are elected, whether they got a majority or not, unless otherwise provided in the articles of any corporation or in the ________ of a public corporation.
Top vote-getters; bylaws
130
S Corp. is electing 3 directors. 3,000 shares (a quorum) are represented at the meeting. Adam gets 1,400 votes; Bette 2,600; Carol 800; David 3,000; and Ed 1,200. Who was elected to the board?
David, Bette, and Adam.
| Plurality means the top 3 vote getters (doesn't need to be majority)
131
A shareholder may vote the number of shares he owns for as many persons as there are directors to be elected.
Straight Voting
132
You own 1,000 shares of C Corp. stock. 9 directors are to be elected. You think Katniss Everdeen should be director. Under straight voting, how many votes can you cast for Katniss?
1,000 votes - for each 9 candidates, but can't add up.
133
Multiply the number of shares owned by the number of directors to be elected. A shareholder may cast the product for one candidate or divide it up among several.
Cumulative Voting
134
You own 1,000 shares of C Corp. stock. 9 directors are to be elected. You think Katniss Everdeen should be director. Under cumulative voting, how many votes can you cast for Katniss?
9,000 votes (because can add up)
| 1,000 shares x 9 directors
135
Formula for how many shares needed to elect a director with cumulative voting:
More than S ÷ (D+1) shares
S = the number of shares voting
D = the number of directors to be elected at that meeting
136
N Co. has cumulative voting, 9 directors, and 1,000 shares outstanding. How many shares are needed to elect 1 director if 800 shares are voting and 3 directors are to be elected at the meeting?
(A) 100 shares
(B) More than 100 shares
(C) 200 shares
(D) More than 200 shares
(D) More than 200 shares
800 ÷ (3+1)
800 ÷ 4
200
137
N Corp's articles are silent about cumulative voting. May its shareholders cumulate their votes?
No. No right to cumulate unless provided in articles (not bylaws)
138
S owns 100 shares of $4 par value C Corp. stock. Can S sell her shares for less than $4 a share?
Yes. Par value only applies to corporations (not shareholders).
139
Validity of stock transfer restrictions.
Must be REASONABLE. It cannot operate as a "restraint on alienation" (e.g., can't sell shares AT ALL)
140
Batman and Wonder Woman are the only shareholders of Marvel Comics, Inc. Their agreement states that they may sell or transfer their stock only to a superhero. Is this restriction valid?
Yes, because they want to control who they are in business with.
141
Batman and Wonder Woman are the only shareholders of Marvel Comics, Inc. Their agreement states that they may sell or transfer their stock only to a superhero. If Batman sells his stock to Lois Lane, is the restriction enforceable against Lois?
Yes, if she knew about it OR conspicuously noted on shares (constructive notice).
142
______________ may inspect corporate books and records.
Any shareholder (no minimum stake or holding period required as in many other states).
143
Shareholder must make a written demand to inspect books and records at least 5 days in advance stating a __________. Burden is on the corporation to show that this does not exist.
Proper purpose (i.e., related to being a shareholder)
144
_______________ is needed to inspect articles, by-laws, minutes of shareholder meetings, written communications to all shareholders for past 3 years, a list of current directors, and the most recent annual report.
No proper purpose
145
In the case of refusal to allow shareholder to inspect books and records, the shareholder can get:
A court order, costs, and attorneys' fees
146
Types of distributions
(1) Dividend (most common form of "distribution")
(2) Repurchase
(3) Redemption (forced sale to corporation at price set in articles)
147
A court won't compel a distribution absent an ___________________.
Abuse of discretion
148
"Preferred" means:
Pay first
149
The board of C Corp. decides to distribute dividends totaling $400,000. Who receives dividends if the outstanding stock is 100,000 shares of common and 20,000 shares of $2 preferred?
Preferred shareholders get a $2/share dividend off the top. Then common shareholders split the balance for a dividend of $3.60/share ($360,000 ÷ 100,000 shares). Common gets a larger dividend than preferred, but that's OK since preferred means "pay first," not "pay more."
150
"Participating" means:
Pay again
151
"Cumulative" means:
Carries forward
152
The board sets a _________ to determine who's entitled to a distribution. If not this date is the date the board authorizes the distributions.
Record date
153
A corporation may make a "distribution" only if it can satisfy 2 tests:
(1) Insolvency test
| (2) Balance sheet test
154
The corporation will be able to pay its debts as they become due in the ordinary course of its future business.
Insolvency Test
155
Total assets will be equal to or greater than total liabilities + (unless articles permit otherwise) dissolution preferences [if the examiners tell you they exist, subtract them from the assets, too].
Balance sheet test
156
Y Corp. has $500,000 in assets and $250,000 in liabilities. If Y Corp. dissolved today, it would have to pay dissolution preferences of $50,000. What is the maximum dividend allowed by law?
500,000 assets - 250,000 liabilities - 50,000 dissolution preferences = $200,000 available when under balance sheet test
157
Do par value shares receive distributions from stated capital?
No
158
Directors can get contribution only from shareholders who knew the distribution was unlawful, but the corporation can recover from shareholders ___________________________.
Whether they knew the distribution was unlawful or not
159
Purpose of non-profit corporation: Formed for the __________. Note: the purpose must be stated in the articles.
Public benefit (e.g., for a charitable, religious, scientific, or educational purpose)
160
A non-profit may not pay ___________ but may pay _____________________.
Dividends; reasonable salaries, rent, etc.
161
Initial by-laws for non-profit corporation must be adopted by ___________. The power to amend is also vested in __________, unless otherwise provided in the articles or by-laws.
The board; the board
162
For- and non-profit corporation statutes are _______ in most respects.
Similar
163
Need at least ____ directors for non-profit corporation. Directors may be removed _____________ cause by a majority of members.
3; with or without
164
Non-profit corporation dissolved by a _______________ (and a _______________ if the corporation has __________ entitled to vote on dissolution).
Majority vote of the board; majority vote of the members; members
165
In dissolution of a non-profit corporation, ________ are transferred to another non-profit doing substantially the same work.
Assets
| Not distributed to members
166
Appraisal rights for dissolution: ________________ may have the right to compel the corporation to buy back his shares for their fair value.
A dissenting shareholder (who does not approve)
167
Appraisal rights for dissolution: ____________ if shares are publicly-traded or have a market value of $10 million + 2,000 shares + shareholders
Not available
| Since there's a market
168
Before the vote for appraisal rights, send __________ of intent; abstain/vote against the change; after the vote, send ____________ for payment.
Written notice; written demand
169
Amendment of Articles approval by the board and shareholders. IF the rights of _______________ are adversely affected, the amendment mus talso be approved by _______________________.
A particular class; a majority of that class - even if it does not have voting rights
170
The directors of Red Inc. vote to amend its articles to eliminate the liquidation preference of is non-voting preferred shares. Which classes of shares must approve the amendment?
Common shares (more for than against) AND a majority of approved shares.
171
Corporation must file amended articles with _____________________.
Department of State
172
Appraisal rights for amendment of the articles: For shareholders whose voting and/or distribution rights are adversely affected, but only for _______________________.
Shares prescribed in the articles before 10/1/03
| Don't automatically get!
173
Mergers and share exchanges: Approval by the boards of both corporations and by an _______________________ of both corporations.
Absolute majority of the shares
174
An absolute majority means a majority of _________________.
All shares outstanding
| Not just a majority of the shares represented at the meeting. That's because merger is such a big deal!
175
A Corp. wants to merge with B Corp. Each has 6,000 outstanding shares entitled to vote. How many shares of each corporation must be voted in favor of the merger for it to be approved?
At least 3,001 of EACH corporation.
176
A Corp. wants to merge with B Corp. Each has 6,000 outstanding shares entitled to vote. How many shares of each corporation must be voted in favor of the merger for it to be approved if only 5,000 shares of A Corp. are represented at the A Corp. shareholder meeting?
STILL need at least 3,0001 in favor (absolute majority).
177
"Short-Form Merger": No shareholder approval required if an __________ owned sub is merged into a parent or another sub the parent owns.
80% or more
178
Must file articles of merger or share exchange with __________________.
Department of State
179
Effect of mergers and share exchanges
Surviving company succeeds to all rights and liabilities of both firms.
180
Approval of sale of all/substantially all the assets outside the usual course of business
Board approval from both corporations and approval by an absolute majority of the selling corporation's shares.
181
S Corp. wants to sell all its assets to B Corp. outside the usual course of business. Each has 6,000 shares outstanding. How many shares of S Corp. and B Corp. must approve the sale?
Affirmative vote of at least 3,001 S Corp shares (absolute majority) but B Corp. shares don't get the right to vote.
182
Appraisal rights for sale of all/substantially all the assets outside the usual course of business
Only for shareholders of the selling corporation
183
2 ways to voluntarily dissolve:
(1) Approval of board and absolute majority of shares
| (2) Written consent of an absolute majority of shares
184
Alleging director deadlock and harm, shareholder deadlock; waste (only if 35 or fewer shareholders); or director fraud or illegal conduct (ditto). Closely-held corporation can force buyout.
Involuntary Dissolution - Shareholder Petition
185
If the corporation is insolvent and he has an unsatisfied judgment against it or the corporation admits the debt in writing.
Involuntary Dissolution - Creditor's Petition
186
For failure to file annual report, etc.
Administrative Dissolution
187
Must file articles of dissolution with the __________________.
Department of State
188
Resolution of Unknown Claims:
(1) File notice of dissolution with Department of State
(2) Publish notice 1x/week for 2 weeks in a newspaper where its principal office is located or, if it has no principal office, where it owns real or personal property. The notice must state that a claim will be barred unless a proceeding to enforce it is commenced within 4 years.
189
What if a claimant does not commence a proceeding to enforce the claim within 4 years?
Barred!
190
What if a claimant commences a timely proceeding, but the assets have already been distributed?
Can get from shareholder whatever they got in liquidation.
191
Transactions Covered under Rule 10b-5:
Misrepresentation (fraud), non-disclosure (trading on inside information), tipping (passing inside info for a wrongful purpose)
192
π must be a _________ of securities (or the SEC) for civil action 10b-5.
Buyer or seller
193
Nike, Inc. issues a press release that Woods is buying a block or stock, but fails to say it is Elle Woods, not Tiger Woods, who's buying. As a result, I hold onto my Nike stock. Can I sue under 10b-5?
No, because didn't buy/sell Nike stock in reliance of press release.
194
Requirements for ∆ in 10b-5 civil action:
Can be "any person" - it does not have to be an insider
195
Materiality of 10b-5 civil action:
Info a reasonable shareholder would consider important.
196
Statue of limitations for 10b-5 civil action:
No more than 1 year after discovery and no more than 3 years after transaction.
197
Scienter for 10b-5 civil action:
Must have had the intent to defraud. Negligence not enough!
198
Elements in a 10b-5 civil action:
(1) π (must be a buyer or seller of securities [or SEC])
(2) ∆ (can be "any person")
(3) Materiality (info a reasonable shareholder would consider important)
(4) Interstate Commerce (mail, phone, or national securities exchange)
(5) Statute of limitations (no more than 1 year after discovery and no more than 3 years after the transaction)
(6) Scienter (must have had the intent to defraud)
(7) Reliance (presumed with a public misrepresentation or non-disclosure)
199
The Situation is a director of Jersey Corp. He tells Snooki about a secret process Jersey Corp. has developed. JWoww overhears him and buys Jersey Corp. stock. Did anyone violate Rule 10b-5?
No. May have been negligent, but that's not enough!
200
Profits an insider makes from buying and selling stock in a public corporation within a 6-month period. Fraud is not required.
§16b - "Short Swing Profits"
201
On March 1, 2014, Sookie Stackhouse sold 7,000 Dell shares for $15 a share. On April 1, 2014, she became a director of Dell. On May 1, 2014, she bought 2,000 Dell shares for $10 a share. At all times, Dell had 100,000 shares outstanding. If Sookie liable to Dell for any short-swing profits?
(A) No, because Sookie sold Dell shares before she bought them.
(B) No, because Sookie did not own 10% of Dell's shares on both dates.
(C) Yes, Sookie owes Dell $35,000 in short-swing profits.
(D) Yes, Sookie owes Dell $10,000 in short swing profits.
(D) Yes, Sookie owes Dell $10,000 in short swing profits.
On each 2,000 shares she replaced.
