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29 Cards in this Set

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01 Content of a Certificate of Incorporation
(1) name - in English letters and distinguishable from the names of other corporations
(2) purpose - any lawful
(3) city and county - in which the office is located
(4) info about shares:
i. amount to be issued
ii. classes
iii. par / no par value
iv. preemptive rights, if any
(5) designation of the Secretary of State (SOS) as an agent of the corporation for service of process AND an address to which SOS can forward process
(6) i. consideration for no par value shares
ii. duration - if not perpetual
iii. stock sale restrictions - in COI and on the face of stock
iv. quorum - 1/3 - 100%
v. cumulative voting to be allowed must be in COI
vi. voting agreements - to vote a certain way to be allowed must be in COI
vii. lowering the threshold of shareholders forwarding a petition for dissolution to less than 10% to be effective must be in COI
02 Powers of a Corporation
do not have to be articulated in COI:

(1) to continue perpetually
(2) to sue and be sued
(3) to purchase and receive real or personal property
(4) to borrow or lend money
(5) to make donations
(6) to be a partner in another business corporation
(7) to act as a surety to further its purpose
03 Ultra Vires
The claim of ultra vires is available:

(1) to the Attorney General to enjoin the corporation for activities taken beyond its express purpose
(2) to the corporation against directors for loss caused by unauthorized acts (a derivative shareholder action)
(3) to the shareholders to enjoin a contract with a third party entered into by a director or agent that is beyond the corporate purpose.

Ultra vires can be very limited if the corporation is created for "any lawful purpose."
04 De Facto Corporation
exists when a business fails to achieve de jure corporate status, but is still generally treated as a corporation. Requirements:

(1) colorable compliance with the BCL
(2) good faith
(3) use of corporate privilege

NY does not recognize corporations by estoppel
24 Dissolution
(1) voluntary - COI may contain a provision specifying who may require the dissolution and what proportion of the outstanding shares is required for the dissolution (but not less than the majority)

(2) judicial (involuntary) - can be brought by:
i. the Attorney General
ii. the directors
iii. shareholders
25 Dissolution by the Attorney General
Grounds:

(1) the corporation procured its formation through fraudulent misrepresentation or concealment of a material fact
(2) the corporation exceeded its authority by violating the law or public policy
26 Dissolution by the Directors
by a petition for dissolution if the majority of the board adopts a resolution that:

(1) the assets are not sufficient to discharge liabilities
(2) a dissolution will be beneficial to the shareholders
27 Dissolution by Shareholders
(1) a meeting can be called, despite any provision in COI, by 10% of the outstanding shares (or less if allowed in COI), and a resolution may be adopted by the majority of outstanding shares (or more if required by COI):
i. assets are not sufficient to discharge liabilities, OR
ii. a dissolution will be beneficial to the shareholders

(2) 50% of the outstanding shares entitled to vote in an election of directors may petition for dissolution if:
i. the directors are so divided that votes required for action cannot be obtained
ii. the shareholders are so divided that votes required for election cannot be obtained
iii. there is an internal dissent (between the directors) so divided that dissolution would be beneficial to the shareholders

(3) fraud - 20% or more of the outstanding shares can petition if:
i. the directors or those in control have been guilty of illegal, fraudulent or oppressive actions toward to petitioning shareholders
ii. the property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control
28 Factors to Consider in Case of Judicial Dissolution
(1) whether liquidation is the only feasible means whereby the petitioners may reasonably expect to obtain a fair return on their investment
(2) whether liquidation is reasonably necessary for the protection of rights and interests of any substantial number of shareholders or the petitioners
11 Changes to the COI That Can Be Authorized by the Board Without Approval by the Shareholders
Generally, a change to COI may be authorized by vote of the board, followed by vote of a majority of outstanding shares. Exceptions - changes that do not require approval:

(1) to specify or change the location of the corporation's office
(2) to specify or change the post office address to which the SOS shall mail a copy of process of service
(3) to make, revoke, or change the designation of a registered agent or to specify or change his address
21 Merger and Consolidation
Procedure:

(1) the boards of each corporations shall adopt a plan setting forth:
i. the name of each corporation and the name of the surviving corporation
ii. the designation and number of outstanding shares of each class and their voting characteristics as to each corporation
iii. the terms and conditions of the merger or consolidation
iv. in case of a merger, a statement of any amendments or changes in COI of the surviving corporation OR, in case of a consolidation, all statements required for any COI
v. any other provisions

(2) the boards shall submit the plan for voting by the shareholders - the plan must be adopted by a majority of votes for each class of shares for after 02.22.98 corporations and 2/3 for each class of shares for other corporations

(3) the certificate of merger or consolidation must be signed by each corporation and delivered to SOS. The effective date can be up to 30 days after the filing
22 Appraisal Rights in Cases of Merger or Consolidation
A shareholder of a domestic corporation shall have the right to receive payment of the fair value of his shares, except:

(1) to a shareholder of the parent corporation in short form merger or merger or consolidation of domestic and foreign corporation

(2) to a shareholder of the surviving corporation in a regular merger UNLESS such merger effects changes to COI that would entitle the shareholder to appraisal rights
(3) shareholders of companies listed on a stock exchange
23 Asset Purchase - Assumption of Tort Liability with Acquired Assets
A corporation does not generally assume liability for the torts of its predecessor in cases of assets purchase, except:

(1) where the acquirer expressly assumes
(2) where the purchaser in fact a continuation of the seller
(3) if the transaction was effectuated to fraudulently escape tort liability
29 Features of Professional Service Corporations
(1) it must be organized by one or more individuals duly authorized by law to render the same professional service within NY for pecuniary profit for the purpose of rendering the same professional service

(2) the licenses of each of the proposed shareholders, directors and officers must be attached to COI

(3) a certified copy of COI and amendments must be filed with the licensing authority within 30 days after the filing with SOS

(4) such corporations are supervised

(5) shareholders, directors, and officers must be licensed to practice the service rendered by the corporation

(6) each shareholder, employee or agent is personally and fully liable for any negligent or wrongful act or misconduct committed by him
or by any person under his direct supervision and control
05 Consideration for Shares
(1) money or other property, tangible or intangible
(2) labor or services
(3) a binding obligation to pay
(4) a binding obligation to perform services
(+5) any combination
06 Dividends
may be paid if:

(1) the corporation is not insolvent, AND
(2) COI does not restrict, AND
(3) the dividend is paid out of surplus (the amount of net assets over the stated capital)
17 Liability - Shareholders
As a general rule, shareholders are not liable for the actions of the corporation. Exceptions:

(1) for wages or unpaid benefits of employees - by the ten largest shareholders of closely-held corporations that are not public, if demand was made timely

i.e., by a written notice within 180 days of termination of services + must sue within 90 days of notice

(2) piercing the corporate veil - when a shareholder uses a corporation to further his own business purpose:
i. when the shareholder's domination and control so complete that the corporation has no mind of its own:
1 - all shares are owned by only one shareholder
2 - the corporation is using the parent's name in its business
3 - the corporation has the same (or primarily the same) directors and officers as the parent corporation
ii. the shareholders use this control to perpetrate fraud, AND
iii. injury results to P as a result of this control
18 Liability - Directors and Officers - Grounds
Directors are jointly and severally liable to the corporation if they vote or concur in an action involving:

(1) illegal dividends
(2) illegal stock repurchase
(3) illegal distribution of assets in a dissolution
(4) illegal loans to directors

A director present (OR absent) at a meeting is presumed to have concurred unless his dissent entered in the minutes (or he causes his dissent to be filed with the minutes within a reasonable time after learning of the action) or unless he submits his written dissent to the secretary of the meeting before or promptly after the adjournment.
19 Liability - Directors and Officers - Relief
(1) subject to COI, to compel D to account for his official conduct in the case of:
i. nonfeasance
ii. misfeasance

(2) to set aside an unlawful conveyance, assignment or transfer of corporate assets, where the transferee knew of its unlawfulness

(3) to enjoin such a deal (evidently, if it has not been yet made)
13 Directors and Officers - Duty of Loyalty
includes problems of:

(1) interested directors - as a general rule, a contract between a corporation and its director, is not per se void or voidable
(2) corporate opportunity doctrine
(3) competing with the corporation - as a general rule, a director cannot compete
(4) loans to a Director - as a general rule a corporation may not lend money to or guarantee the obligation of a director
15 Directors and Officers - Duty of Loyalty - Corporate Opportunity
a director, officer, or controlling shareholder cannot usurp a corporate opportunity:
(1) property or business opportunity in which the corporation has a tangible expectancy
(2) property or other business opportunity that the director, officer, or shareholder has a duty to acquire for the corporation

Exception - if:
(1) he tells the board, AND
(2) waits for the board to reject the opportunity
16 Directors and Officers - Duty of Loyalty - Loans to a Director
A loan or guarantee is allowed if:

(1) approved by the shareholders, but "interested" shares must be excluded from voting and calculating the quorum, OR
(2) the board determines that the loan or guarantee benefits the corporation and either approves the loan or guarantee or has a general plan authorizing loans and guarantees (for 02.22.98 corporations it must be expressly provided in COI)

Note: the fact that a loan or guarantee is in violation of the prohibition does not affect the borrower's liability on the loan
14 Directors and Officers - Duty of Loyalty - Interested Directors
not void or voidable if either test is met (unless COI establishes other rules, more or less stringent):

(1) approval test - if the material facts related to the director's interest are disclosed in good faith or are known to those voting, AND:
i. the board approves by a sufficient vote without counting the "interested" votes
ii. the board approves by unanimous vote of disinterested directors, if there is no quorum without the "interested" votes
iii. the shareholders approve

(2) fairness test - if the approval test is not met, the interested directors must affirmatively establish that the transaction was fair and reasonable to the corporation at the time it was approved
20 Indemnification
The BCL rules can be changed by COI or bylaws, but indemnification cannot be provided if:

(1) the director or officer acted in bad faith, OR
(2) the acts were the result of active and deliberate dishonesty material material to the cause of action, OR
(3) he personally gained in fact a profit or other advantage to which he was not legally entitled

The BCL standard:
(1) the director was made, or threatened to be made, a party to a civil or criminal action, by reason of the fact that he was a director or officer of the corporation
(2) the director or officer acted in good faith for a purpose which he reasonably believed to be in, or not opposed to, the best interests of the corporation, AND
(3) in criminal actions, had no reason to believe that his conduct was unlawful

Authorizing indemnification - if the director met the standard:
(1) by the board by a quorum excluding the "indemnified" directors
(2) by a quorum of disinterested directors only, whether or not a quorum is obtainable without the interested directors
(3) by the board upon the opinion in writing of independent legal counsel that indemnification is proper
(4) by the shareholders
07 Management - Shareholders
do not have the direct power to control daily operations, but may have indirect control by:

(1) approving organizational changes
(2) electing directors
(3) amending COI

Meetings:

(1) annual - for the election of directors and other business on a date fixed by or under the bylaws
(2) special - called by the board or any person authorized by COI or the bylaws

If directors are not elected:

(1) If for a period of 1 month after the date fixed for the annual meeting, OR

if no date has been fixed, 13 months after the formation of the corporation or the last annual meeting,

there is a failure to elect a sufficient number of directors,

the board must call a special meeting for the election

(2) if such special meeting is not called by the board within 2 weeks OR

it is called but there is a failure to elect for 2 months,

holders of 10% of voting shares may, in writing, demand the call of a special meeting for the election

specifying the date 60-90 days from the date of the demand.

The secretary of the corporation must promptly give notice of such meeting, OR
if he fails to do so within 5 business days, any signing demanding shareholder may give such notice.

Notice for a special meeting:

(1) the bylaws may provide or the board may fix - 10-60 days before the meeting or not more than 60 days prior to any other action

(2) if no date is fixed - at the close of business on the day preceding the day on which the notice is given, OR if no notice is given, the day on which the meeting is held.

Notice must be given 10-60 days before the meeting
08 Voting by Proxy
A proxy is freely revocable (but is not revoked by the incompetence of death of the principal unless written notice was received by the officer listing shareholders) and valid:

(1) for 11 months after its issuance unless otherwise provided in the proxy

(2) if the proxy is irrevocable - for 3 years or whatever the proxy provides, whichever is less
09 Derivative Actions
(1) must be brought by a shareholder at the time of the commencement and at the time of the questioned transaction

(2) P must show the efforts to secure the initiation of such action by the board OR the reasons for not making such effort.

Once a complaint is filed, it cannot be discontinued, compromised or settled without the approval of the court.

If P prevails, he is entitled to reasonable expenses.

Unless P holds at least 5% of shares or shares in excess of $50,000 - the corporation is entitled to require P to give security for reasonable expenses.
10 Management - Directors - Removal
(1) for cause:
i. by vote of the shareholders
ii. if COI or the bylaws provide - by the board (except where the director was elected by a cumulative vote or by a class of shareholders entitled to elect the director
iii. judicially by the Attorney General
iv. judicially by the holders of 10% of outstanding shares, whether or not entitled to vote

(2) without cause - if COI or the bylaws provide, by vote of the shareholders (except where the cumulative vote of the votes against removal would sufficient for his election at a regular election of the board)
12 Management - Officers
the board may elect or appoint (unless the COI provides that officers must be elected by the shareholders):
(1) a president
(2) one or more vice-presidents
(3) a secretary
(4) a treasurer
(+5)

Officers can be removed:
(1) with or without cause by the board
(2) if elected by the shareholders - can be removed with or without cause only by the shareholders, but the board may suspend his authority
(3) judicially by AG
(4) judicially by 10% of the outstanding shares, whether or not entitled to vote

Officers must exercise duty of care,

but will not be liable if relies on information prepared or presented by:

(1) other officers or employees or of any other corporation controlled by the corporation (50%),

whom the officer believes to be reliable and competent

(2) counsel, public accountants or other persons in the fields of their expertise,

if relies in good faith and with due care.