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30 Cards in this Set

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What is a Corporation?
A legal entity created by statute governing incorporation. It is strictly a creature of statute, existing only because permitted by statute.
What are the Characteristics of a Corporation?
1) Power to acquire, own, and dispose assets in the corps name
2) Power to sue & be sued
3) Continuous existence, despit death of individual shareholders
4) Limited liability of shareholders,
5) Centralized management of assets by directors and officers
What Mandatory Provisions are Required in the Article of Incorporation?
1) Intent to Incorporate
2) Name (of Corp)
3) Name & Address of Initial Registered Agent
4) Name & Address of Incorporators and Initial Board of Directors
5) Purpose for Which Corp is Formed
6) Relevant Information Regarding Stock (# Shares & Value, Etc)
7) Period of Duration (may be perpetual)
What are the Option Provisions of the Articles of Incorporation?
1) Restrictions on X-fer of Shares
2) Preemptive Rights of Stockholders (Right of current stockholder to buy additional shares before Corp sells to public)
3) Corporation Repurchase of Shares
How are the Articles of Incorporation Filed?
1) Submitted to Secretary of State
2) SoS reviews, endorses approval
3) Issues Certificate of Incorporation

*Once Issued Corp is Deemed to have Begun.
What must the Corporation Due once the Certificate of Incorporation is Issued?
The Board of Directors MUST hold a meeting to:
1) Adopt Bylaws
2) Elect Officers
3) Transact Initial Business

*3 Days Notice by Mail Requiered
What are Bylaws?
Internal rules and regulations enacted by the Corp to govern its actions and relation to shareholders, directors, and officers. (May NOT be inconsistent with law or Article of Incorporation)
Who Maintains the Power to Materially Alter the Bylaws?
Board of Directors

*Unless Reserved by Shareholders
Typical Bylaws Include:
1) Time & Place for Shareholder Meeting
2) Date of Record for Determining Shareholders Right to Vote
3) # Shareholders Necessary for Quorum
4) % of votes necessary to authorize corporate action
5) Restrictions to transferability.
Types of Defective Corporations
1) De Jure Corporation (Proper Corporation)
2) De Facto Corporation (Good Faith Attempt to Comply with Incorporation Statute)
3) Corporation by Estoppel (If Creditors dealt w/ Principals as if Corporation)
What is a Promoter?
One who causes a corp to be formed, organized, and financed.

***FIDUCIARYRELATIONSHIP***

>1 Promoter -> Joint Venture (Owe Fiduciary Duty to Each Other)
Pre-Incorporation Contracts
(Promoter Liability vs Corporation Liability)
Promoter:
1) General Rule IS liable

*Exception: If 2nd Partylooked only to corporation for performance.

2) If Promoter Signs as Agent then IS liable (can't sign for non-existent principal)

3) Joint Venture IS liable (all liable for actions of 1)

4) Novation (all parties agree) can defeat liability

5) Indemnification - If held liable, entitled to reimbursement by corp is acting in good faith

Corporation:
1) Generally, NOT liable

*Exception if assumes liability once created

2) Novation or Adoption(Accepts Liability by Action)

3) Acceptance of Benefits (If K is in name, on its behalf, and accepts benefits) IS liable.
Subscription for Shares
1) Irrevocable for 6 months (unless provided otherwise)
2) Payments Terms (Part of agreement or set by Directors)
3) A Call for Payment Must be Uniform

Default of Subscription:
1) May treat as debtor
2) May rescind agreement and sell shares when not paid within 20 days.
Piercing the Corporate Veil (Requirements)
1) Common Ownership - Active & Direct Participation in Control, Intermingling of Activity of Common Enterprise w/ Substantial Disregard for Seperate Nature of Corps
2) Common Control - Failure to make clear seperation of action, fail to observer formal barriers (comingling of records finances, etc).
3) Inadequate Capitalization - If insufficient to stand along w/o parent corp.
If Pierced who Is Generally Held Liable?
Shareholders active in Management can be held liable. (Full amount of Debt)
General Rights of Shareholders?
1) Dividend Rights
2) Liquidation Rights
3) Voting Rights
Types of Stock
1) Common Stock (Upon liquidation - divide all assets remaining after satisfaction of credit and payment to preferred stockholders)

2) Preferred Stock (Entitled to receive fixed divdends before any dividends are paid to common stock).

a. Cumulative - Shareholders entitled to yearly dividend (whether or not sufficient earnings)

b. Non-Cumulative - Entitled to a dividend only if and when declared by the board.
Valid Consideration for Shares:
1) Money
2) Property
3) Services
Types of Inadequate Consideration for Stock and Consquences
1. Discount Stock - payment less than stated value
2. Bonus Stock - no consideration
3) Watered Stock - stock issued for property worth less than stock

*Inadequate stock subject to call and sale by the coporation.
How Long can the Board Close the X-fer books after Deciding to Declare a Dividend?
No more than 50 days.
Shareholder Basics
1. Annual meeting
2. Special meetings (by President, Board, shareholders %)
3. Notice of Meetings (not <10 or >50 days)
4. Quorum (unless specified, then majority)
5. Election of Directors (Straight, Cumulative,
Director Basics
1. Minimum of 1 to make board
2. No residency required
3. Initial Directors until 1st annual meeting then elections (usual 1 year term)
4. Resignation allowed
5. Removal allowed (with or without cause by majority vote of shares)
Officer Basics
1. Authority (Actual or Apparent - Express or Implied)
2. Ratification of Acts by Directors
3. Removal (with / without cause by majority & best interest)
What is the Standard of Care associated with the fidicuary duties & management of a Corp?
"Prudent Person" Standard
Duties applicable to officer/directors/promoters/employees of Corp?
Duty of Care
Duty of Loyalty
Duty to Disclose (to othere board members)
Definition & Characteristics of a Close Corporation
Defined as a Corp having:
1) Small # of stockholders
2) No ready market for stock
3) Substantial majority stockholder participation in everything
Rights of Dissenting Shareholders
Dissent to:
1) Amendment which materially alters/affects their rights
2) Sale of all assets
3) Merger or Consolidation

Right to require Corp to appraise their shares and buy at fair marker value.
LLC Formation Requirements
1) Statement it is LLC
2) Name of LLC
3) Name & Address of registered agent
4) Name of Members
Direct Suit vs. Derivative Suit
Direct - Shareholder sues to account for wrong done to his holding.

Derivative - Shareholder sues on behalf of wrong done to Corp which it fails to pursue itself.
Dissolution of LLC
1. Expiration of Term
2) Consent of Sufficient Members
3) Judicial Decree
4) Administrative Dissolution