Review Flashcards
(31 cards)
What is required for incorporation?
Articles of incorporation, containing:
1) corporate name;
2) number of shares corp. is authorized to issue;
3) address & name of initial registered agent; &
4) name & address of each incorporator
must be filed with the state.
When articles of incorporation conflict with bylaws, which controls?
Articles of incorporation
How are the articles of incorporation amended?
By a majority vote of the directors and shareholders
Are corporations liable for a contract entered into prior to incorporation?
No, unless the corporation ratifies the contract
How can a corporation amend its bylaws?
Through a shareholder vote; or Board of Directors vote unless the articles exclusively reserve the power to shareholders
What is a promoter?
A person who acts on behalf of a corp. that has not yet been formed
When is a promoter personally liable for a pre-incorporation contract?
When he:
1) purports to act as or on behalf of the corporation, &
2) knows no corporation was formed
What is the business judgment rule?
There is a presumption that in making a business decision, the directors acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company
When does the business judgment rule apply?
When someone is challenging a director’s duty of care
When does the business judgment rule NOT apply?
When someone is claiming the directors breached their duty of loyalty
Describe a director’s duty of loyalty
A director must act in good faith and with a reasonable belief that what he does is in the corporation’s best interest
The duty of loyalty forbids directors from doing which activities?
a) entering into conflicting interest transactions;
b) usurping a corporate opportunity;
c) trading on inside information; OR
d) competing with the corporation
What are defenses to liability for breach of the duty of loyalty?
MBCA includes three safe harbors
1) approval by disinterested directors after full disclosure of material facts;
2) approval by disinterested shareholders, or
3) if transaction is judged to be fair at the time it was entered into
Explain the duty of loyalty in an LLC
The duty is the same, but may be waived so long as it is not “manifestly unreasonable”
Describe shareholder voting
In order for a resolution to pass, there needs to be a quorum present at the meeting, and more votes must be cast in favor of the resolution than against it
Who votes at a shareholder meeting?
The record owner on the record date, even if the SH sells their shares before the meeting.
What is the earliest possible record date?
70 days before a meeting
What is a proxy?
A proxy grants the proxy holder the ability to vote shares as they deem appropriate.
Proxy agreement must be signed on either (a) appointment form or (b) electronic transmission
For how long is a proxy agreement valid?
11 months
When may a shareholder sue a corporation?
A shareholder may file an action to establish that the acts of the directors are illegal, fraudulent, or willfully unfair and oppressive to either the corporation or the shareholder
Direct Suit
A lawsuit by a shareholder against the corporation when the wrong done amounts to a breach of duty owed to the individual personally
Derivative Suits
A derivative suit is a suit brought by a shareholder when the injury is caused to the corporation at large, and a shareholder is trying to enforce the corporations rights
What are the three requirements for commencing a derivative suit?
1) Standing to bring a lawsuit;
2) Shareholder adequately represents interests of the corporation, and
3) Demand (written demand + 90 days typically)
What is “piercing the corporate veil”?
Courts will disregard limited liability and hold a shareholder personally liable for a corporate debt
