01 Az Biz Orgs Bar Exam

Front 1

Corporations: Formation

Back 1

With the ACC: File ARTICLES OF INCORPORATION = K btw. corp and state AND corp and shareholders
1) Name of corporation, including the word: "association," "corporation," "incorporated," "limited"
2) Names and addresses of agent for service of process, directors, place of business, incorporators
3) Character of initial business
4) Capital structure: authorized stock, shares per class of stock, par value, voting rights, and preferences
CERTIFICATE OF DISCLOSURE
1) Whether officers, directors, incorporators, and 10% SH have been convicted of certain felonies
2) Whether they have held 20% or more of a currently bankrupt corp.

Front 2

Corporations: Formation invalid but treated as a corporation

Back 2

DE JURE = valid legal formation
DE FACTO = good faith attempt to incorporate and use of corporate powers
ESTOPPEL= 3rd party treated them like a corp, now can't hold personally liable

Front 3

Corporations: Formation -- Legal Significance

Back 3

1) Disadvantage of formality of formation and operation
2) AZ law governs corp internal affairs
3) Corp is a separate legal person
4) Double taxation on profits and SH dividends
5) Only corp is liable on torts and Ks not SH, D or O.

Front 4

Corporations: Ultra Vires Doctrine: Generally

Back 4

1) Articles of Incorporation contain a brief statement of corporate purpose--the business that the corporation initially intends to conduct.
2) Common law rule of UV is that corporations are prohibited from acting beyond the scope of their purpose.

Front 5

Corporations:
Ultra Vires Doctrine: AZ when UV can be raised

Back 5

1) IN AZ: UV Ks are valid; Corp purpose does not limit corporations conduct.
2) SHs can enjoin UV acts
3) Os, Ds and employees are PERSONALLY liable for UV losses.

Front 6

Corporations: Formation:
Corporation De Facto: 4 factors

Back 6

1) Relevant incorporation statute (always met)
2) Good faith attempt to comply with statute (technical failures)
3) Exercising corporate privileges (board meetings, exercise corporate privilege, execution of bylaws)
4) UNAWARE of defective formation
-- De Facto corporation valid as against all parties EXCEPT the state in a Quo Warranto action.

Front 7

Corporations: Formation:Corporation by Estoppel

Back 7

1) Available ONLY in K actions (not tort)
2) Person has himself out as corporation OR
3) Party treated entity as a corporation.
4) Estopped from personal liability

Front 8

Corporations: Formation: Bylaws

Back 8

1) Bd. or SH can adopt or amend, cannot remove these rights.
2) Articles control in conflicts with bylaws.

Front 9

Corporations: Pre-incorporation Ks (Promoter Liability)

Back 9

1) Promoter liable on all pre-incorporation Ks
2) Corporation liable when it adopts the K (express or impliedly by accepting benefits of the K)
3) Novation replaces liability of promoter with corp.

Front 10

Corporations: foreign corps

Back 10

1) Any corporation outside of AZ
2) Can qualify to do business: register articles, cert, fee, place of biz, statutory agent in AZ.
3) Penalties are: liability for back fees, fine up to $1000, cannot sue in AZ.

Front 11

Corporations: Overview - 6 fact patterns

Back 11

1) Organization and formation
2) Issuance of stock
3) Directors and Officers
4) Shareholders
5) Fundamental Corporate Changes
6) Fed Securities violations.

Front 12

Corporations: Issuance: stock issues

Back 12

- subscriptions
- valid issuance
- classification of stock
- dividends
- repurchase/redemption

Front 13

Corporations: Issuance: stock subscriptions

Back 13

Agreements to purchase stock issued by corp. IS IT ENFORCEABLE/REVOCABLE?
1) pre-inc. subscriptions are irrevocable for 6 mo (unless parties agree otherwise)
2) post-inc. subscriptions:revocable any time before acceptance by corp.
3) Obligation enforceable once Bd. accepts the offer.

Front 14

Corporations: Issuance: Form of consideration for stock

Back 14

1) any tangible/intangible property of benefit to the corp.
2) BUT NOT unpaid stock -- promissory notes and future services

Front 15

Corporations: Issuance: Amount of consideration for stock

Back 15

1) NO par in AZ
2) CL: Par stock: price determined by Bd. (min price)
3) Treasury stock is no-par
4) Watered Stock: sold for less than par

Front 16

Corporations: Issuance: Watered stock

Back 16

1) Generally not a problem because Bd. Set price
2) Liable for improper form of consideration
3) D and SH liable for lack of consideration
4) 3rd Pty not liable if didn't know about watering

Front 17

Corporations: Issuance: Pre-emptive rights

Back 17

1) Right of shareholder to maintain percentage of ownership
2) Limited to new issuance of stock: unissued, reacquired
3) Must exist in articles
4) Does not attach to SH-approved transactions and first 6 months of corp life.

Front 18

Directors: General

Back 18

1) SH elect
2) SH can remove without cause
3) Can act through meeting vote or unanimous written consent
4) Individual acts void unless ratified by Bd.

Front 19

Directors: Meetings, notice

Back 19

1) No notice of regular meeting needed
2) Notice of 2 days needed for special meetings: time and place (bylaws can change)
3) Meeting can be telephonic and take place anywhere
4) Failure of notice makes Bd. actions void UNLESS waiver in writing or attendance without objection
5) No proxies or voting agreements allowed

Front 20

Directors: Meetings, quorum

Back 20

1) Majority of D must be present
2) Majority vote of present D needed for valid action
3) No proxies or voting agreements allowed

Front 21

Directors: committees

Back 21

Committees CANNOT:
1) fill a Bd. vacancy
2) authorize a distribution
3) recommend a fundamental change to SH
4) amend bylaws

Front 22

Directors: Duties

Back 22

1) CARE
2) LOYALTY

Front 23

Directors: Duty of Care

Back 23

1) Care of a prudent person in a like position
2) Burden on P to prove breach
3) Defenses of: BJR, reliance on experts, absence, ratification by SH

Front 24

Directors: Duty of Loyalty

Back 24

1) Act in good faith with a reasonable belief that his actions are in the corp's best interest.

Front 25

Directors: Duty of Care violations

Back 25

1) Nonfeasance: D did nothing, liable only for a loss to the corp
2) Misfeasance: Act that caused a loss.
3) Defense = BJR, directors are not guarantors of success

Front 26

Directors: Business Judgment Rule

Back 26

Courts will not second-guess a director's decision made
1) in GOOD FAITH,
2) was INFORMED and
3) had a RATIONAL BASIS.

Front 27

Directors: Duty of Loyalty: Violations

Back 27

1) Self-dealing, interested director transaction
2) Competing Ventures
3) Usurping corporate opportunity

Front 28

Directors: Duty of Loyalty: Interested director transaction

Back 28

1) Deal between director and corp
2) Upheld if fair to the corp when made OR
3) Material disclosure and approval by all disinterested D or SH
4) Remedy = Set aside deal and damages

Front 29

Directors: Duty of Loyalty: Competing venture

Back 29

1) D competing with the corp is a violation of loyalty
2) Remedy = constructive trust on profits

Front 30

Directors: Duty of Loyalty: Usurping corporate opportunity

Back 30

1) D cannot take a corp opportunity until informing the Bd and the Bd rejects it.
2) Opportunity = interest, expectancy or related to the business line
3) Corp inability to pay for opp is not a defense
4) Constructive trust = sale at cost or profits.

Front 31

Directors: Duty not trade on inside information

Back 31

1) Special facts doctrine: D cannot trade on confidential information that investors would consider important
2) CL breach of duty
3) Remedy = ? constructive trust?

Front 32

Directors: Who is liable?

Back 32

1) D presumed to have concurred in Bd. action UNLESS
2) Dissent or abstention noted in writing to secretary or minutes
3) Absent
4) Reliance on experts

Front 33

Officers: general

Back 33

1) Officers are agents of the corp.
2) Officers are selected and removed by the Bd, NOT by SH

Front 34

Officers: Scope of agency

Back 34

1) Actual, express or implied authority
to bind corporation in Ks
2) Apparent authority

Front 35

Indemnification of D and O

Back 35

Suit against D or O in capacity of office
1) Required when wins a judgment
2) Prohibited when held liable to corp.
3) Otherwise discretionary by vote of disinterested D or shares or special legal counsel

Front 36

Directors: Liability

Back 36

1) Articles cxan eliminate director liability for damages to the corp or SH BUT NOT for
2) improper financial benefit
3) unlawful distributions
4) intentional acts

Front 37

Shareholders:Management

Back 37

1) Cannot mange unless
2) Close corporation
3) Professional corporation (must obey licensing rules)

Front 38

Shareholders: Close corporation management to SH

Back 38

MUST have few shareholders, not publicly traded
1) Eliminate Bd.
2) In SH approved change to Articles or Bylaws
3) writing signed by all SH

Front 39

Shareholders: Managing shareholders

Back 39

1) Hold the duties of loyalty andcare
2) Duty not to oppress minority shareholders
3) Can sell stock at a premium BUT
4) All SH must share in the premium

Front 40

Shareholders: Managing shareholders Oppression

Back 40

1) Freezing minority SH out of the perks of ownership (distribution etc.)
2) Watch for interested transactions
3) Duty to investigate controlling stake buyer
4) Watch for buyout and looting.

Front 41

Shareholders: Management: (PC) Professional Corporation

Back 41

1) Must obey rules of licensing
2) 51% of stock must be held by licensed professionals
3) Half of Bd. plus president must be licensed professionals
4) Individuals liable for malpractice but not for that of others

Front 42

Shareholders: Liability

Back 42

1) Only liable when court Pierces the Corporate Veil
2) SH has abused the privilege of incorporating
3) fairness demands that SH be personally liable
4) usually happens when ALTER EGO and UNDERCAPITALIZATION occurs
5) Courts more willing to PCV under a tort claim than a K claim

Front 43

Shareholder: Direct Suit

Back 43

1) direct action against officers and/or directors
2) To succeed, shareholder must show that she suffered harm from a breach of duty owed to her individually as a shareholder.

Front 44

Shareholder: Derivative Suit

Back 44

1) brought by a SH on behalf of the corporation.
2) SH must have owned shares at the time of the breach.
3) SH must adequately represent corp.
3) SH must have made a demand on the directors that the corporation bring suit, wait 90 days or SOL, UNLESS
4) Futile (usually futile if all directors are wrongdoers)
5) Court may order independent board to decide whether in interest of the corp to dismiss.
6) SH can recover fees, or may be required to pay D's or O's fees.

Front 45

empezará:

Back 45

it will begin

Front 46

Shareholders: Proxy requirements

Back 46

1) writing
2) signed by SH
3) sent to secretary
4) authorizing another to vote in lieu of SH

Front 47

Shareholders: voting block requirements

Back 47

VOTING TRUST:
1) SH signed writing
2) agreeing on voting
3) transfer legal title to trustee for voting ONLY
VOTING BLOCK
1) SH signed writing
2) Agreeing on how to vote

Front 48

Shareholders: restraint on alienation

Back 48

1) Restraints on alienation are valid if reasonable
2) Enforceable against 3rd parties if had notice

Front 49

Shareholder: Right to Inspect

Back 49

1) Eligible SH (6 months ownership)
2) written request 5 days in advance UNLESS
SENSITIVE DOCUMENTS: accounting, minutes, financial statements
1) good faith request in writing for particular documents
2) proper SH interest purpose
3) directly connected to SH purpose

Front 50

Shareholders: Distributions generally

Back 50

1) Bd. decides, SH cannot compel unless strong showing of abuse
2) Must be paid out of earned surplus or capital surplus
3) AZ does not allow insolvent corps to distribute (liabilities include preferential dissolution rights)

Front 51

Fundamental Corporate Changes: voting

Back 51

1) Bd. approval
2) Notice to all SH
3) Majority of voting shares required, not just quorum

Front 52

Fundamental Corporate Changes: right of appraisal

Back 52

1) dissenting SH
2) file dissent and intent to demand payment
3) abstain or vote against AND
4) demand payment after vote

Front 53

Fundamental Corporate Changes: types

Back 53

1) Change Articles: must refile with ACC
2) Merger: approval of both corps UNLESS 90% owned subsidiary, must re-file, successor liability
3) Disposition of substantially all of Corp's assets: only fundamental change for seller NOT for buyer
4) Dissolution

Front 54

Fundamental Corporate Changes: Dissolution

Back 54

Voluntary and
INVOLUNTARY:
1) Creditor with unsatisfied judgment or Corp admission of debt
2) AG, due to abuse or fraud
**3) SH if
a) director deadlock
b) shareholder deadlock
c) waste or diversion of funds
d) Illegal, oppressive or fraudulent acts
4) Buyouts allowed
5) ACC can dissolve if failure to perform statutory duties to ACC

Front 55

Fundamental Corporate Changes: Winding Up

Back 55

1) Gather all assets
2) convert to cash
3) pay creditors
4) Distribute to dissolution preference SH
5) Distribute to rest of SH

Front 56

Shareholders: Distribution by stock type

Back 56

1) Preferred = pay first for preference amount
2) Participating = pay preference and pay regular dividend
3) Cumulative = pay preference each year
4) Common = paid per share

Front 57

Fed Securities Law: Sarbanes
-Oxley

Back 57

1) No loans to execs
2) Execs must certify accounting and financial reports

Front 58

Fed Securities Law: securities defined

Back 58

1) Equity= stocks or shares
2) Debt = bonds, debentures, loans

Front 59

Fed Securities Law: Rule 10b-5

Back 59

1) Instrumentality of interstate commerce (phone, plane)
2) Material Misrepresentation, Insider trading OR Tipping
3) Material facts - investor would consider important
4) Intent to defraud
5) Reliance

Front 60

Fed Securities Law: Rule 10b-5 -- possible parties

Back 60

1) Plaintiffs = SEC, buyer, seller, but not SH who has not bought or sold
2) Defendants = Corp, buyer, seller, tipper, or tippee
3) Tipper must tip + benefit
4) Tippee must know tip was improper + traded on the tip

Front 61

Fed Securities Law: Section 16b

Back 61

1) Reporting corporation (on the stock exchange)
2) D, O or 10% SH (when buying an selling)
3) Buying or selling stock within 6 month period for profit
4) Strict liability

Front 62

Fed Securities Law: Section 16b: Analysis

Back 62

1) Focus on the SALE -- might buy after the sale for lower price.
2) Within 6 months did the seller buy for a lower price than the sale?
3) Owes the company the profit for the largest number of shares both bought and sold.

Front 63

Agency: Tort Liability

Back 63

1) Principal liable on the agent's torts within the scope of the agency
2) Agency = ABC - Assent, Benefit., Control
3) No liability for independent contractors, unless ultra-hazardous
4) Intentional torts outside the scope unless for the principal's benefit or at principal's direction

Front 64

Agency: Tort Liability -- Not liable

Back 64

1) No liability for independent contractors,
2) Unless ultra-hazardous or
3) estopped by appearance of agency
4) Intentional torts usuually outside the scope

Front 65

Agency: Tort Liability: scope of agency

Back 65

1) Scope = of the kind hired to perform
2) Frolic = outside the scope
3) Detour = within the scope
4) Intent to benefit principal = within the scope.

Front 66

Agency: Tort Liability -- Intentional

Back 66

Outside the scope unless:
1) Authorized by principal
2) Within the nature of employment
3) Motivated by desire to serve the principal
(Almost always a bouncer)

Front 67

Agency: K Liability

Back 67

Principal liable on authorized contracts

Front 68

Agency: K Liability: Actual authority

Back 68

EXPRESS:
1) Oral, except for land Kd
2) Revocable unless DURABLE ( = express plus CONSPICUOUS SURVIVAL LANGUAGE)
IMPLIED
1) Necessity
2) Custom
3) Prior dealings

Front 69

Agency: K Liability: Apparent authority

Back 69

1) Principal cloaks person in authority, 3rd party relies on appearance of authority
2) Lingering authority: Must give notice that no longer an agent or will have lingering authority

Front 70

Agency: K Liability: Ratification

Back 70

1) Principal knowledge of the K
2) Accepts the benefits of the K

Front 71

Agency: K Liability: Agent liability

Back 71

Agent liability if undisclosed or partially undisclosed principal

Front 72

Agency: Agent Duties

Back 72

1) Reasonable Care
2) Obedience
3) Loyalty: disgorge profits if self-dealing, usurping opportunity or secret profits.

Front 73

Partnership: Formation

Back 73

1) No formalities
2) Association of 2 or more owners
3) business for profit

Front 74

Partnership: Liabilities to 3rd parties

Back 74

1) General partners liable on all P-ship obligations
2) Estoppel - liable as GP if represent self as a partnership
3) LLP limited partner has limited liability
4) LLC members have limited liability

Front 75

Partnership: Relations among partners

Back 75

1) Fiduciaries, remedy = P-ship accounting for profits if duty of loyalty broken
2) Only the share of profits and losses is liquid -- NOT management, voting, etc.
3) Without agreement: equal control, no salary, equal profits, losses shared like profits.

Front 76

Partnership: Dissolution

Back 76

1) Without agreement, notice of express will of one GP to dissociate
2) Salary allowed on winding up without agreement
3) Termination

Front 77

Partnership: Property

Back 77

1) P-ship authority required to transfer P-ship property
2) Management cannot be transferred
3) Property traced back to purchase money, if individual bought, it is individual's properrty

Front 78

Partnership: Liability on winding up

Back 78

1) Old business liabilities are still owed
2) New business liability owed until notice sent to creditors or 90 days after statement of dissolution registered with state

Front 79

Partnership: Distribution on winding up

Back 79

1) Creditors
2) Partner loans
3) Partner Capital
4) Any profits or losses must be shared (default is equally or by agreement)