Texas Corporations Flashcards
(151 cards)
1
Q
what governs all texas corporations?
A
the Texas Business Organization Code (TBOC)
2
Q
List the general requirements to form a Texas Corporation (3)
A
- People
- Paper
- Act
3
Q
The People required to form a Texas Corporation
and what he does
A
the organizer (one or more)
Organizer executes the certificate and delivers it to the secretary of state
4
Q
does the organizer have to be a texas residence?
A
nope
5
Q
What Paper is required to form a corporation in Texas?
who is it a contract between?
A
the certificate of formation
it’s both a contract between:
the corp. and it’s shareholders
the corp and the state
6
Q
List the requirements of the Certificate of Formation
5
A
certificate of formation is the document filed by the organizer with the secretary of state to form a Texas corporation. it requires:
- Corporate Name
- Names and Addresses of required people
- Duration
- Statement of Purpose
- Capital Structure (stock)
7
Q
The Certificate of Formation requires a corporate name.
A
name must have some form of ‘corporation’
can’t be misleading (have word bank in it)
can reserve an appropriate name for 120 days
8
Q
what if your corp. is doing business under a different name than what it’s registered under?
A
file assumed name certificate w/secretary and county clerk in county of registered office
can’t sue in texas until you do, but you can be sued
9
Q
the Certificate of Formation requires peoples names/addresses
3 things it must include
A
name/address of each organizer
number of initial directors or ppl who will manage
name of registered agent and post office address
10
Q
The Certificate of Formation requires a duration…
A
if the certificate doesn’t include one it will be presumed to have perpetual existence
11
Q
the Certificate of Formation requires a statement of purpose
A
can be general “all lawful activity’
can be specific
12
Q
Ultra Vires
A
when the corporation includes a specific statement of purpose in it’s certificate of formation and goes beyond the statement
contracts that go beyond are still considered valid but the shareholders can seek an injunction
the responsible managers will be liable to the corp for ultra vires loses
13
Q
the certificate of formation requires explanation of the capital structure (stock)
3 things it must include
A
certificate must include:
- authorized stock
- numbers of share per class
- information on par value, voting rights, preferences of each class
14
Q
Authorized Stock v. Issued Stock
A
authorized stock: max number of shares the corp. can sell
issued stock: shares the corp does sell
15
Q
What Act is Required to Form a Texas Corporation?
Filing
Meeting
A
File:
organizers must sign the certificate and deliver it to the secretary of state (and pay fee)
secretary will file
–filing forms De Jure Corporation (legal corp. even if there were problems with form, it’s legal once filed)
secretary will send acknowledgement to the corp
Meeting:
Board holds organizational Meeting (must give 3 days notice of meeting and it doesn’t have to be in Texas)
Directors
- select officers
- adopt bylaws
- do any company business
16
Q
Internal Affairs Doctrine
A
if the company was formed in Texas then Texas law governs the internal affairs of the corp
-regardless of where it does business
17
Q
Corp. is a separate legal entity. This means Corp can/must:
A
- sue/be sued
- own property
- must pay income tax
- can be partner in partnership
18
Q
Double v. Pass Through Taxation
A
Typical (C Corp) subject to double taxation.
- income tax paid by entity
- shareholders pay income tax on dividends
S Corps have pass through taxation-only shareholders pay tax
19
Q
Characteristics of S Corp
A
- -100 fewer shareholders
- -all shareholders US human citizens/residents
- -one class of stock
- -stock not publicly traded/held
20
Q
Corporations have Limited Liability. This means
A
just the corporation is liable on things it does (debt, breaches contract, torts)
- -directors/officers/shareholders not personally liable
- -shareholders only liable to pay for their stock, not business’s obligations
21
Q
What happens if you fail to form a de jure partnership?
A
then you’re just a partnership and you don’t have limited liability
22
Q
De facto corporation
Elements (3)
and if this applies…
A
Elements:
- there is a relevant incorp stat (TBOC)
- Parties made a good faith, colorable attempt to comply with it and
- Some exercise of corporate privileges (acting like we have a corp)
if this doctrine applies:
-business is treated as corp. for all purposes except in an action by state
23
Q
Corporation by Estoppel
A
one who treats business as a corp can be estopped from denying it’s a corp (both the customers and the business)
generally only applicable to contracts not to torts
24
Q
Does a Corporation have to write bylaws?
is any particular content required?
A
Generally yes. not in a close corporation
no particular content is required b/c they are for internal governance only (not filed)
25
When are bylaws adopted?
who can amend bylaws
what happens if the bylaws and the certificate of formation contradict each other?
the bylaws are adopted by the initial board at the organizational meeting
the board or the shareholders can amend/repeal the bylaws
--but the certificate of formation can reserve this power to just the shareholders
if the bylaws and the certificate of formation contradict each other, the certificate wins
--however the bylaws can change the number of directors
26
Who is a promoter?
the person who is acting on behalf of a corporation that isn't formed yet (making contracts for the not-yet-formed corp)
27
Liability of the Corporation and the Promoter when the Promoter enters contracts for the un-formed corp
Corporate Liability:
none unless it adopts the contract
--express adoption by board action
--implied adoption by accepting benefits of contract
Promoter LIability:
- -always liable, unless novation (where promoter is replaced by corp)
- -if corp. accepts benefit, the corp is also liable, but it doesn't relieve promoter liability
28
What is a Foreign Corporation and how do they do business in Texas
what does 'doing business' mean
Foreign: anything outside of Texas
to do business in texas they must qualify by getting certificate of authority and pay a fee
doing business: intrastate transactions on regular basis
29
what if a foreign company does business in texas without qualifying?
foreign business must qualify by filing getting a certificate of authority and paying a fee
if they do not there will be a civil fine and they can't sue in Texas on claims from business in Texas (but can be sued)
30
What is an Issuance (stock)?
Issuance is when the corp sells it's own stock (to raise capital)
31
What is a Subscription?
a written, signed offer to buy stock from a corp.
32
Can you revoke a pre-incorporation subscription? a post incorporation subscription?
when is a subscription accepted
when does a subscriber become a shareholder
Pre-Incorporation
-irrevocable for 6 months unless the subscription says otherwise or all subscribers agree to let you revoke
Post-Incorporation
-revocable until it is accepted by the corp
it's accepted and the subscriber is obligated when:
- board accepts the offer and
- corp notifies subscriber in writing
subscriber is a shareholder when he pays for the stock
33
what sort of consideration is allowed in a stock purchase?
any. any tangible/intangible benefit to the corp can be stock (literally anything that's a benefit)
34
Var Value of Stock
No Par Value
Par: min issuance price
- par stock isn't required, but if the corp. has it, it is set in the Certificate
- -(can sell for more than par, but not less)
No Par: no minimum issuance price
-board can sell it at any price
35
Treasury Stock
previously issued and then re-required by the corp.
considered authorized and issued but not outstanding
corp can resell it but it is treated as no par stock (even if there is par stock)
36
How do you value stock issued for property/service?
the board puts a valuation on the consideration received
37
What is Watered Stock?
who is liable for it?
issuing par stock for less than par.
Directors are liable if they knowingly authorized the issuance
purchaser is liable b/c he is charged with notice of the par
3rd party after the purchaser: not liable if in good faith and didn't know
38
Pre-Emptive Stock Rights
right of existing shareholder of common stock to maintain his percentage ownership by buying stock whenever a new issuance of stock for MONEY
39
do pre-emptive rights attach to treasury stock?
yes, pre-emptive rights attach to the re-issuance of treasury stock
40
how do you know if stock has pre-emptive rights?
the certificate of formation must say so
41
When do pre-emptive rights not apply?
there are no pre-emptive rights if issuance is w/in 6 months of formation (unless the certificate says otherwise)
42
How many directors does a corp need?
who can be director?
corp must have one or more directors and the number is set initially in the certificate (afterwards in the cert. or the bylaws)
must be adult, natural person
43
How are Directors Elected?
How do you Remove a Director before his term is up?
directors are elected by the shareholders
-at an annual meeting
remove a director before his term is up by:
- shareholder majority vote of those entitled to vote
- can remove w or w/o cause
44
What is a Classified Board?
when you are electing the board a fraction at at time
45
What do you do if there is a vacancy on the board?
List the two ways the board takes an act
Vacancy: board or shareholders select the person who serves the remainder of the term
Board can take an act by either:
1. unanimous written consent to do something or
2. meeting that satisfies quorum and voting requirements
46
Does the board meetings have to be in Texas?
When is notice required?
no, the meetings do not have to be in texas
notice is not required for regular meetings
notice is required for special meetings
-must state time and place
(NOT purpose)
47
What happens if there is failure to give notice for a special board meeting?
failure to give proper notice voids what's done at the meeting
--unless the defect was waived by the person not notified by him attending w/o objection or in writing
48
What is the proper method of notice?
whatever the bylaws says it is
| --email is ok only if the director says so
49
Can Directors have voting agreements?
Can directors have proxies?
no, directors cannot have voting agreements or proxies
50
What is a Quorum?
to do business at a board meeting, there must be a majority of all directors there (unless the certificate or bylaws pick diff number)
then the passing resolution must pass by a majority of the vote present
51
Can you lose the quorum in the board of directors meeting?
yes, you lose the quorum if during the meeting enough ppl leave that you lose the majority
52
What is the Role of the Board of Directors?
| and exceptions of what they can't do
they manage the business of the corporation (make all important decisions)
exceptions:
close corps
shareholder agreements
53
Can you have a committee of directors?
if the certificate/bylaws allow, a board can appoint a committee to delegate management power
Can:
-declare dividends
Can't
- amend bylaws
- select officers
- recommend fundamental change to the shareholders
54
What is the Duty of Care for the Directors?
directors owe the corp a duty of care:
- act in good faith
- exercise ordinary care and prudence
- do what a prudent person would do in similar circumstances
director is a fiduciary so owes duty of care and loyalty
55
Nonfeasance
the director does nothing
Liable only if the beach of the duty of care caused a loss to the corp
easy to prove breach, harder to prove causation
56
Misfeasance
the director does something to hurt the corporation
easy to prove breach and causation but director not liable if action meets the Business Judgment Rule
57
Business Judgment Rule
director won't be held liable if his business decision is one that a prudent person, who had done his homework, would also chose.
did they deliberate? did they analyze things?
court won't second guess a business decision if it was in good faith, informed and rational
Director doesn't have to guarantee success
58
Duty of Loyalty of Directors
a director owes a corporation a duty of loyalty:
- act in good faith and
- with reasonable belief what director is doing is in the corporations best interest
59
Does the Business Judgment Rule Apply to the duty of loyalty?
no, the business judgment rule only applies to the duty of care, not the duty of loyalty
--b/c it couldn't apply where there is a conflict of interest
60
Interested Directors Transaction
any deal between Corp. and one of its directors (or directors close relative or another business of which the director has financial interest)
B/c the director has a duty of loyalty the interested director transaction will be set aide unless the director shows:
1. deal was fair to the corp when it was approved or
2. interest and material facts were disclosed/known and approved in good faith by:
- shareholders
- majority of disinterested directors (interested directors will count towards quorum)
61
who sets the board's compensation?
the board can set it's own compensation as long as it's reasonable
--unreasonable is waste and breaching duty of loyalty
62
Corporate Opportunity
anything the director has reason to know the company would be interested in
a duty of loyalty issue for directors
director can't usurp a corp. opportunity until:
1. tell the board and
2. wait for the board to reject the opportunity
63
what is the remedy if the director usurps a corporate opportunity?
director must sell it the corp. at his cost
| -if he has sold it at a profit, the corp gets the profit (constructive trust)
64
Can a corp renounce the corporate opportunity doctrine?
yes, in the certificate of formation or by board action
lets directors take advantage of the opportunity
65
Improper Loans
and the Sarbanes Oxley act
directors can vote to lend funds to a director and it's ok if it's reasonably expected to benefit the corp
Sarbanes Oxley
- prohibits loans to executives of large, publicly traded corps
- req board of such committee to est. audit committee and oversee work of accounting firm
- chief executive/financial officers must certify accuracy and completeness of financial reports
66
When/Which Directors are Liable for Actions?
how to make sure you aren't liable
who is exempted from general liability
directors are presumed to concur with board actions unless they dissent/abstain by:
1. having it put in minutes
2. send note to corporate sec at meeting or a registered letter to sec after meeting
NOT just dissenting alone
Exceptions:
absent directors not liable
good faith reliance on financial statements other info by someone in the know
67
What is an officer?
what duties to the corp. do they owe?
Officers are the agents of the corporation. they can bind the company if it is w/in the scope of their authority
Officers have inherent authority if it is a contract entered in the ordinary course of business
owe the same duties of care and loyalty as a director
68
Who are the required officers?
how do you select and remove officers?
req:
- president
- secretary
(one person can hold multiple offices and officers can also be directors)
selection/removal:
by board
board can fire even if it breaches a contract (can sue for damages but you still lose your job)
69
who sets the officer's compensation?
the board
70
3 Categories of Indemnification of Directors and Officers
1. Reimbursement is Prohibited
- -director/officer liable for willful/intentional misconduct in performing duties to corp
2. Reimbursement Required
- -corp is required to indemnify b/ judgment won on the entire case
3. Reimbursement is Permitted
- -left over cases. but if the officer/director is held liable to the corp or if he received improper personal benefits then only expenses and attorney's fees are reimbursed (not judgment)
71
How does an officer/director become eligible for indemnification?
must show good faith/reasonable belief that his actions were in the corps best interest
eligibility determined by a majority of the disinterested directors, disinterested committee or disinterested shares
72
Indemnification and Court Orders
court can always order reimbursement if justified on all circumstances (but the three categories still applies)
73
Can the Certificate change right to indemnity?
Can the Corp advance litigation expenses to officer/director?
Certificate can eliminate liability for damages but never for willful or intentional misconduct
Court can advance litigation expenses if the director/officer gives an affidavit of good faith belief that he meets the eligibility requirements and promises to repay if it turns out he doesn't
74
Do Shareholders control the corporation?
No, shareholders do not manage the corp., unless it is a close corp
75
What is a Close Corporation?
How do you form one?
Few Shareholders, stock not publicly traded
same as with a normal certificate but it must say that it's a close corporation
76
How do you change management in a close corporation (since it's shareholder managed)?
must have shareholder agreement authorizing change
must be authorized in the certificate and must be approved by all the shareholders or have a written agreement by all the shareholders
77
What are the Duties in a Close Corp?
duty of care and loyalty owed to the corp by the managing shareholders
78
Close Corps and Stock Issues
stock certificate must note it's a close corp and that the shareholders manage
each shareholder should get a copy of the agreement
(but if they don't, their stock is still valid)
79
In Texas, do shareholders of a close corp owe each other a fiduciary duty as a matter of law?
no, in texas shareholders do not owe each other fiduciary duties
But, court may find fiduciary duty if controlling shareholders are oppressing minority shareholders
- -freezing them out
- -selling control w/o reasonable investigation to one who loots company
- -selling corp. assets for personal gain
80
Shareholder Liability and Piercing the Veil
what type of corp is the only type that can be pierced?
Generally shareholders aren't liable for acts/debts of corp.
court might pierce the veil and hold shareholders liable if:
- -they abused privileges of incorporating
- -limited liability would be unfair
only close corps can be pierced
81
Undercapitalization Theory
a reason why the corp. veil might be pierced--when the corp is undercapitalized b/c the shareholders failed to invest enough to cover possible liabilities
factors
- -dangerous business
- -no insurance
82
When is Piercing the Corp. Veil most likely?
Can you Pierce when a shareholder is a parent corp?
piercing is most likely in tort, not in contract
piercing allows liability to be directly on the shareholder. it doesn't matter if that shareholder is person or a corp.
83
What is a shareholder derivative suit?
what do you ask to know if it's one?
what is the typical derivative suit?
shareholder is suing to enforce shareholders claim. not a personal claim, but a claim they are brining b/c the corporation won't.
ask: could corp have brought this suit? if yes, it's derivative
typical: breaching duty of care/loyalty b/c corp could sue on a breach of duties owed to it
84
what if the shareholder wins the derivative suit?
what if the shareholder loses the derivative suit?
wins:
corp gets the money from the judgment and shareholder gets costs/attorney fees from the corp.
loses:
no attorney fees for shareholder and shareholder liable to D for any attorney fees if the court finds the suit was w/o reasonable cause or for an improper purpose
-shareholder can't re-sue the same D later
85
Requirements for a Shareholder Derivative Suit
1. stock ownership when claim arose
- -owned stock or got it by operation of law (like inheritance or divorce) from someone who did
2. fairly/adequately representing corps interests
- -must continue to own stock throughout litigation
3. make a written demand on the directors that the corp. bring the suit instead
- -can't file derivative until 90 days after rejected (unless waiting would cause irreparable damage)
- -demand is never excused
- -must set forth nature of claim
4. Corp. must be joined as D
86
Settlement and Dismissal of a Derivative Suit
can only settle/dismiss w/court approval
corp can move to dismiss based on determination by independent/disinterested directors or committee that it's not in the corp best interest
--if court finds determination made in good faith by these ppl then tit must dismiss
87
Derivative Suit in a Close Corp
in close corp of 35 or less shareholders the court might treat derivative suit as directors action so the various requirements don't have to be met
then recover go to shareholder and not corp
88
When shareholders vote, who votes?
Record Shareholder, Record Date
what if shareholder dies?
any record shareholder as or the record date has a right to vote
record shareholder: person shown as owner in corp. records
record date: voter eligibility cut off set no more than 60 days before meeting
if shareholder dies, the executor can vote or him
89
Proxy Voting for Shareholders
what is a proxy (4)
how long does it last
a proxy is:
1. writing
2. signed by record shareholder
3. directed to secretary of corp
4. letting someone else vote the shares (agency)
lasts for 11 months unless says otherwise
90
How is a Proxy Revoked
shareholders can revoke proxy by writing to secretary and naming someone else (even if it says it's irrevocable)
Unless the proxy is coupled with an interest:
- -proxy says it's irrevocable
- -proxy holder has some interest in the shares other than voting (buying them, option to buy them, something)
91
Voting Trust Requirements (3)
It's a written trust agreement controlling how shares will be voted
1. file copy with corp
2. transfer of legal title of shares to the trustee
3. original shareholder receives trust certificates and retains all rights other than voting
92
Voting (pooling) agreement Requirements
are voting agreements enforceable against transferees of the stock?
1. writing, copy sent to corp
2. voting trusts/agreements must be for a proper shareholder purpose
- -it's ok for the shareholders to agree to vote shares to elect each other as directors
- -but it's not ok to agree on what they will do once they are directors
voting agreements are specifically enforceable against transferees, if the affected stock certificates conspicuously note the agreement
93
How do shareholders make a valid corporate act?
| 2 req
1. unanimous consent in signed writing of all voting shares
| 2. meeting that satisfied quorum and voting rules
94
Two kinds of shareholder meetings
where can the shareholder meetings be held?
shareholder meetings can be held anywhere
Annual Meeting:
- -must be held
- -if none held w/in 13 months or no unanimous consent in lieu of meeting, shareholder can petition court to get one
- -elect director
Special Meeting:
- -called by board or by president
- -holders of at least 10% of shares entitled to vote or anyone permitted in the certificate
(remember shareholder's can't remove officers)
95
Notice Requirement for Shareholder Voting
written notice to every shareholder entitled to vote between 10-6 days before the meeting (21-60 days if the meeting is for a fundamental change)
Content:
when
where
why (purpose)
96
Consequence of Failure to Give notice to Shareholders about meeting
action taken at meeting is void unless the ppl who didn't get notice or got defective notice waived the defect in writing or by attending the meeting w/o objection
97
Do shareholders need a quorum?
yes, and quorum is based on the number of shares represented, not the number of shareholders
so you need a majority of outstanding shares, and then once met, ppl can come and go
majority vote in quorum for action
98
Cumulative Voting
to vote for directors, lets people with smaller votes make more of an impact
number of shares x directors to be elected
certificate must expressly say shareholders can vote cumulative
at least one shareholder must given written notice to the corp. secretary that they are going to and then everyone can
99
Stock Transfer Restriction
usually stock is freely transferable but sometimes in a close corp shareholders want to impose restrictions to keep outsiders out.
restrictions can be set by:
certificate
bylaws
agreement
100
Right of First Refusal
req holder of stock to first offer it to the corp
corp must offer reasonable price
it won't be invoke against a BFP third party unless:
it is conspicuously noted on the stock cert or
transferee had actual knowledge of the restriction
101
Right of a shareholder to Inspect/Copy Books and Records
Some shareholders have the right:
- -owned or held voting trust cert for at least 4 months or
- -owned at least 5% outstanding stock
everyone else only by court order
(remember directors can always inspect)
102
Procedure for a shareholder to follow to inspect records of corp
written demand stating the proper purpose
proper purpose: one related to your interest as a shareholder
corp. has burden of proving shareholder purpose improper and if they lose they have to pay attorney fees
103
When are there distributions and dividends in a corp?
whenever the board of directors decide
suit by shareholders to force distribution req. strong showing of abuse of discretion
104
Common Stock Dividends
just divide it out
ex: board decides to declare dividends of 400K and there is 100K common tock out stand then everyone gets 4 dollars a share
105
Preferred Stock Dividends
you pay them first.
so if 100K common and 20K preferred with 2 dollar dividend preference you pay the preferred stock 40K first then pay the rest to the common shares
106
Participating Stock Dividends
participating means pay again. you pay them like they are preferred stock first.
then when you are dividing the left over money out among the common stock you pay them again (count participating in with the common)
107
Cumulative Stock Dividends
means add up the years that dividends did not get paid and pay them back for the missing years before paying anyone else
108
Surplus
assets - liabilities-stated capital
used of distributions
109
Stated capital
not for distributions
par value of issuance (if you sell in excess of par it goes to surplus)
110
Insolvency (and how it means you can't issue distributions)
can't make distribution if:
- -insolvent-distriubtion would render insolvent
- -distribution would exceed surplus
111
Director Liability for Unlawful Distributions
Directors are jointly and severally liable to the corp for unlawful distributions
defense would be good faith reliance
112
How do have a fundamental change in the corp
1. board takes action adopting resolution of fundamental change
2. board submits proposal to shareholders with written notice
3. fundamental change approved by shareholders by 2/3 all shares entitled to vote
4. doc. delivered to sec of state for filing
113
Shareholders who dissent in fundamental change of corp
what can they get
what does it mean
when is it triggered
have a right of appraisal
force the corp to buy their stock for FMV
close corp only (not big, where there is a FMV outside of the corp)
shareholder has this right when the corp. acts to
trigger the right:
1. merge
2. sale of shares in a share exchange
3. transfer of substantially all assets
4. conversion
114
How does a shareholder perfect his right of appraisal?
1. before vote, file with the corp written notice of objection and intend to demand payment
2. abstain from the vote or vote against it
3. after the vote, w/in 20 days notification by corp, make written demand to be bought out
- -corm must notify shareholder if it accepts/rejects w/in 20 days
115
What if corp. refuses the shareholders right of appraisal?
the corp will counter w/its estimate of fair value
if they can't agree, the court can appoint an appraiser
116
Amendment of the Certificate of Formation
fundamental change
board of director action
shareholder approval by 2/3 of all entitled to vote
if approved, deliver amended certificate to sec. of state for filing
117
Merger
fundamental change
```
board of director action from both companies
shareholder approval (2/3 of all) req from corp of disappearing company
```
if approved file with SoS
right of appraisal only to shareholders of disappearing company
118
Short Term Merger
no shareholder vote is req if 90% or more of the company is an owned subsidiary that is merging into the parent corp.
right of appraisal for shareholders of subsidiary company
119
Effect of a Merger
the surviving corp. succeeds to all rights/liabilities of the constituent company
120
Conversion
corp can convert to another form of business org
board approval, 2/3 vote of shares entitled to vote
deliver cert of conversion to the SoS
dissenting shareholders get appraisal rights
121
Transfer
sale, lease, exchange of all/substantially all assets, not in the ordinary course of business
Fundamental change for the seller corp but not the buyer corp
so you need board of director approval for both companies and approval by the selling corp's shareholders (2/3 of all)
shareholders of the selling corp get right of appraisal
generally no successor liability b/c both still exist
122
Voluntary Termination
what you need to do it (2)
what to do after it's started
who can stop i
Need:
1. written consent of all shareholders
2. board of director action and approval of 2/3 all shares entitled to vote
send notice of intent to creditors
follow liquidation process
court can revoke it it will be fraud
corp can revoke any time before its existence is terminated
123
List the 3 ppl who can start an involuntary termination
Texas Attorney Gen
Creditors
Shareholders
124
Why does the Texas Attorney Gen initiate involuntary termination of a corp? (4)
fraudulent procurement of certificate
ultra vires activities
misrep in req reports
public interest
125
How doe creditors initiate involuntary termination of a corp?
creditors can seek immediate termination based on irreparable harm to unsecured creditors
creditors can seek appointment of receiver b/c corp is insolvent and creditor either
- -has unsatisfied judgment or
- -corp admits in writing the amount is due
126
Why does a shareholder seek appointment of receiver b/c of insolvency?
seeks receiver b/c of:
1. waste of assets
2. director deadlocked causing irreparable harm to company
3. shareholders deadlocked and failed at 2 annual meetings to to fill empty seat
4. illegal, oppressive, fraudulent acts
127
Receiver
appointed by court
serves for 12 months and if things are not fixed by then the court can order termination
128
Provisional Director
in close corp, if management is so divided it can't take action, the court may avoid dissolution by appointing the provisional director to break ties
129
Administrative Termination
SoS can issue a cert of termination for corps failure to pay fees or failure to maintain a registered agent or file required reports
corp must be given 90 days notice
after, directors/officers are personally liable for debts (until reinstatement)
130
Liquidation Steps
1. gather all assets
2. convert to cash
3. pay creditors
4. distribute remainder to shareholders, pro rata by share unless a stock has a liquidation preference
131
Who manages the winding up process?
the board of directors unless the court does it
132
after winding up, what must happen?
cor delivers cert. of termination to SoS
includes statement of debts paid, and remaining sums distributed to shareholders
133
how late can claims against the corp, which arose before termination, be asserted after termination?
w/in 3 years after termination
134
rule on ultra vires
exceed stated business purpose
| act beyond the authority of the corporate directors
135
cows
no corps for engaging in business of raising cows and slaughtering, curing, packing meat
136
voting and loan agreements
shareholders can have voting agreements
-must deliver copy of the agreement to the corp
can have a loan agreement if the loan will benefit the corp
no voting agreements for directors
137
rule for a shareholder to enjoin an ultra vires activity
shareholder can bring suit to enjoin director from doing ultra vires acts/contracts
also could bring derivative suit
138
pre-emptive rights
before sept. 1, 2003 they were automatic, now you have to say that they exist in the cert of formation
keep current percentage of ownership by purchasing more stock when it is issued for money
139
paying franchise tax
if you don't pay you will lose corp. so then everyone is independently liable
but if it pays the tax w/in 3 years the corp will be reinstated as if never gone (so corp will become liable too)
140
close corp
must be included in the cert of formation
benefits: flexibility/informality. shareholders can limit authority of or eliminate board and run it like a partnership.
no need for bylaws if the provisions rq to be contained in the bylaws are in the vert
transferee is will be deemed to know about this if the stock says so or he got copy of shareholder agreement making it close corp
141
derivative suit
brought by shareholder
for company
must ask company to do it, and give them 90 days to take action
142
record date
not more than 60 days before meeting
only shareholders of record date are entitled to notice, can vote
for meetings where merger/consolidation considered notice must be 21-60 days
143
right to inspect
shareholder for at least 6 months or owns 5% outstanding shares
144
when corp can't make distribution
it would make it insolvent or if distribution would exceed surplus
145
Indemnity
texas corp is req to indemnify the director against reasonable expenses incurred in which director named as defendant b/c he is a director
if he has been wholly successful on the merits or otherwise in the defense proceeding
146
conveying land
corp can convey land by a deed signed by the corp officer who is authorized and appropriate resolution of board. if it is recorded presumed ok
147
proxy
revocable unless says it is irrevocable and coupled with consideration
148
sale of assets
2/3 all outstanding stock
149
piercing veil
if sham or helps perpetrate fraud
in contracts only actual fraud
not just failure to follow formalities
150
assumed name
if event occurs that causes the info in the assumed name cert to become materially misleading must file new one w/in 60 days
151
shareholder agreement
must be contained in cert of bylaws if approved by all shareholders at time of agreement and made known to corp
may eliminate the board, designate who will be officer, authorize management by shareholders
default is it lasts for 10 years
purchaser deemed to know if its on stock
