Flash Card - Corporations
(45 cards)
When does a Corporation’s existence begin?
On the date the Articles of Incorporation are properly filed with the Secretary of State (unless a delayed date is specified).
*An earlier date CANNOT be specified.
What must the Articles of Incorporation contain?
They must contain:
1) The corporate name;
2) The number of shares the corporation is authorized to issue;
3) The address of the corporation’s initial registered office and the name of its initial registered agent’ AND
4) The name and address of each incorporator.
What is a de jure corporation, and when is it formed?
It is a legally formed corporation, and is formed when the Articles of Incorporation are filed with the Secretary of State.
Can a corporation that is NOT a de jure corporation enter into contracts?
It CANNOT, unless the De Facto Corporation and/or Corporation by Estoppel doctrine applies.
*If the De Facto Corporation and Corporation by Estoppel doctrines are not applicable, then the personal liability of the owners/promoters will result.
What does a de facto corporation arise?
When the entity:
1) Made a good faith attempt to incorporate;
2) Is otherwise eligible to incorporate; AND
3) Took some action indicating that is considered itself a corporation.
Who may asset the de facto corporation doctrine?
Only a person who was unaware that the corporation was not properly formed.
What is the doctrine of Corporation by Estoppel, and who does it apply to?
When any person/entity treated a business as a corp., they may be estopped from denying that the business is a corporation (even if a valid corp. was NOT formed).
It applies to both:
a) 3rd parties that treated the business as a corp; AND
b) An entity that held itself out as a corporation and benefited from that claim.
What is a Promoter?
A person who acts on behalf of a corporation that has not yet been formed.
When does a Promoter have personal liability; and what are the TWO exceptions to this?
Upon entering any pre-incorporation contracts, EVEN the corporation subsequently adopts the contract.
Two exceptions are:
a) There is a subsequent novation; OR
b) The contract explicitly provides that the promoter has no personal liability on the contract.
When a corporation liable on pre-incorporation contracts entered into by a Promoter?
When the corporation expressly or impliedly adopts the contract post-incorporation.
EXPRESSLY = through board resolution.
IMPLIEDLY = corp. knows the material terms and accepts/retains the benefits.
When are a Corporation’s activities deemed ultra vires?
When a corporation’s activities are outside of the scope of the state corporate purpose.
Ultra Vires acts under:
Common Law
vs.
RMBCA
Common Law = deemed void and unenforceable.
RMBCA = generally valid and enforceable (those who approved the transaction can be held personally liable).
A court will Pierce the Corporate Veil, and hold the shareholders personally liable in what situations?
1) The corporation is acting as the alter ego of the shareholders (little or no separation between the shareholder and corporation);
2) Where the shareholders failed to follow corporate formalities;
3) The corporation was inadequately capitalized at its inception to cover debts/liabilities; OR
4) To prevent fraud.
*Even if a court doesn’t pierce the veil, a person is ALWAYS liable for their own torts.
What do shareholders in a Close-Corporation owe the other shareholders?
The duty of loyalty and good faith, and will be liable for any damages resulting from a breach of duties.
What is watered stock?
Stock that is issued at a price that is greater than its actual market value.
Who has the power to issue dividends and make distributions in a corporation?
Only the Board of Directors have the power to issue dividends/distributions.
*Once declared, the SH has a legal right to the distribution.
A shareholder DOES NOT have the right to compel a corporation to issue a distribution, but when may a court interfere with the Board’s discretion?
They WILL interfere and order a distribution upon a showing of:
1) Bad faith or dishonest purpose; AND
2) That funds were available for the dividends/distributions.
A shareholder may vote shares at a meeting without physical attending through use of proxy.
What is required for a valid proxy?
It must be signed on:
a) An appointment from; OR
b) An electronic transmission.
(oral proxy is invalid)
A proxy must be accepted by the corp. if on its face there no reasonable grounds to deny its genuineness and authenticity.
Are proxy agreements freely revocable by the shareholder?
YES, even if the proxy states that it is revocable.
One exception to this rule is a proxy coupled with an interest or legal right, which is irrevocable if the proxy expressly states as such.
What is a Shareholder Voting Agreement?
An agreement (with no durational limit) providing how shareholders will vote their shares. It is specifically enforceable and must be in writing and signed by all parties.
*CANNOT remove the shareholder’s right to elect or remove directors.
How is a voting trust different from a voting agreement?
A voting trust is more formal and requires:
1) Shareholders sign a trust agreement;
2) Legal ownership of the shares to be transferred to the trust; AND
3) Proper notice to the corporation.
*it can only last for 10 years under previous versions of the MBCA. The 2021 version of MBCA no longer has a limit.
When can the Board of Directors act or vote?
A quorum must be present at the time when the vote is being taken.
Quorum = a majority of the Board of Directors unless otherwise stated in the Articles of Incorporation (however at minimum one third must be present).
The Board of Directors is allowed to determine the compensation of Directors and Officers.
What duty do they have concerning this?
A duty to set compensation in accordance with reasonable parameters, taking into account the needs of corporation and ensuring they don’t waste assets.
How may a Director be removed from the Board of Directors?
By a vote of the majority of shareholders for or without cause (unless stated otherwise in the Articles of Incorporation).
