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61 Cards in this Set

  • Front
  • Back
Effect of defective formation
"Generally, if investors intend to form a business as a corp, but fail to do so, the investors will not have the limited liability as shareholders & may be held personally liable for the business's debts"
De Facto Corp
(1) there was a statute under which the corp could have been formed; (2) the investors made colorful compliance with the statute; (3) the investors acted as if there were a corporation
Corporation by Estoppel
"If a 3rd party treats a business as a corp, the 3rd party cannot hold the investors personally liable for the business's obligation"
Requirements for the articles of incorporation
(1) name of the corp; (2) the place in Ohio where the corp's principal office will be located; (3) the purposes for which the corp is formed
Rule 10b-5
"Prohibits fraud in the purchase and sale of securities - trading on inside info is unlawful and the insider can be sued for damages by persons who: (1) who sold stock to, or purchased stock from, the insider, or (ii) who traded contemporaneously with the insider (fraud on the market theory) - SEC can impose fines and criminal sanctions"
Who is an insider
"Anyone who owes a duty to keep info confidential - persons who receive tips from insiders can also be held liable, but not persons who innocently overhear such tips"
How are distributions paid out
"from surplus accounts, including surpolus derived from revaluation of assets"
What is the notice requirement for distributions
"If dividends are paid out of any source other than the retained earnings (earned surplus), the shareholders must be notified of the source"
What is the insolvency limitation for distributions
"A distribution cannot be made if the corp is insolvent or would be rendered insolvent by the distribution, taking into account preferences that would have to be paid if the corp were to dissolve on payment of the distribution"
What is the business judgment rule
"A director is required to act in good faith in the best interest of the corp, using the care that an ordinary prudent person would use in a like position - failure to meet is a breach of fiduriary duty"
What may a director consider when making a decision
"(1) effect of shareholders; (2) the interests of employees, suppliers, creditors, customers, the community, and society as a whole; (3) both long term and short term effects"
What are director conflicts of interest & how are they handled
Conflicts can be a personal interest or business interest; They are handled by the director disclosing the material facts of the conflict and transaction to the board of directors or shareholders & let them decide
What is a usurpation of corporate opportunities
If a director sees an opportunity he is personally interested in & could also benefit the corp he must give the corp the first opportunity to purchase it. It is no defense if the corp doesn't have enough funds. Could be a defense if the seller refuses to sell to the corp or personally offers the sale to the director or is related to the director
What is a fundamental change
"fundamental change - merger, consolidation, sale of assets outside the usual course of business (not the buying of another corp's assets)"
What can a shareholder do when a fundamental change occues
"If shareholder did not vote for the change, he can file a written demand for the corp to pay him the fair market value for his shares. If they don't agree on a value w/I 3 months after demand, then either side can file suit to determine value"
Are other remedies available other then appraisal remedy
"Yes, action for fraud or breach of fiduciary duty"
When must a notice of a shareholders meeting be delivered and what must it contain
"7-60 days before meeting & state time, place, and purpose of meeting"
How can the defects in the shareholder meeting notice be waived
Attendance at the meeting w/o protesting the notice or waiver
Who can call special meetings
"Chair of the board, majority of the board, the president, or persons holding 25% of the voting shares"
How long are proxies valid for
11 months unless they provide otherwise
What are the cumulative voting requirements
Those who wish to vote cumulatively muse give corp at least 48 hours notice
What duties does a principal have
"Whatever duties he undertook in the K he made with the agent. If no K, principal has the duty to reasonably compensate the agent and to reimburse the agent for reasonable expenses"
What duties does an agent owe to the principal
"A duty of reasonable care and loyalty. Principal may seek damages, refuse to pay agent, or recover the agent's secret profits if the agent acts of behalf of herself or another principal."
Who does a subagent owe duties to
"If he is appointed by an agent with authority to appoint, then the agent and principal; if agent had no authority, then just agent. In either case, it is the agent's duty to pay the subagent"
When is the principal liable of contracts entered into by the agent
"When the agent acted with authority of any kind - actual, apparent, or ratified"
When does an agent have actual authority
Whenever the principal says she does; she has the express authority + whatever the agent can reasonably imply from the principal's communications and circumstances
When does an agent have implied authority
If the actions of the principal toward the 3rd party lead the 3rd party to believe the agent has authority
When is the agent liable on contracts he enters on the principal's behalf
When the agent does not disclose the existence and identity of the principal to the 3rd party at the time the contract was made
When can the agent be held liable for breach of the implied warranty of authority
"when the agent does not have authority, but purports to. Damages are based on the 3rd party's actual damages, not the terms of the contract"
When does actual authority terminate
When principal or agent says it does
When does apparent authority terminate
When principal notifies 3rd parties that it has ended & retrieves any document from the agent that might lead a 3rd party to believe the agent has authority
When can agency not be terminated by the principal
When the agency is coupled with an interest (where seller of stock appoints the buyer as his agent at an upcoming meeting)
When does law terminate authority
Upon death or incapacity (except when coupled with an interest - survives anything; or durable power of atty that states it will survive incapacity - still terminates on principal's death)
When does ratification occur
When agent acted without actual or apparent authority in entering into K - (1) A told 3rd that he was entering on behalf of P when K was made; (2) P knows all material facts of K and agrees to whole K; (3) circumstances have not changed since K was made;
When is an employer liable for the torts of his employees
When he was an employee and the tort was committed within the scope of employment
Are employers ususall liable for the torts of independent contractors
"No, unless it was a non delegable duty"
How do you tell an employee from an independent contractor
When is an employer liable for intentional torts of an employee
When the employee performs a job where such torts will likely arise or the employer encourages or ratifies the tort
When is an employee not within the scope of his duties
"when he is not motivated by a duty to serve his employer, when there is a frolic (major deviation)"
What is the difference between a frolic and detour
"detour is a minor deviation for personal purposes, a frolic is a major deviation outside the scope of employment"
When is a partnership formed
When two or more people agree to setup a business and share profits
Who is automatically an agent of a partnership
every partner
When will the act of a partner bind the partnership
"when a partner is apparently carrying on the usual business of the partnership, when the act is within the scope of the partnership, or when the partner has actual authority to do the act"
Who can sell partnership land if the title is in the partnership
"Generally any partner, except for those that did not have actual or apparent authority for the conveyance. If the partner did not have authority, the partnership can get the land back unless it was furthur transferred by the transferee to a BFP"
What happens if a partner transfers land under his own name that was titled to the partnership
It is ineffective unless authorized by the partnership
Who can transfer land that is titled in the name of one or more individual partners
"All of the partners whose names are on the title must convey the property. If fewer than all title holders transfer the property, it will generally be considered invalid unless it was authorized by the partnership"
What happens if the partner/s on the title transfers the land without authority
The partnership can get the land back unless it was purchased by a BFP
Who has the right to assign partnership property
"Only the partnership, a partner does not have an ownership interest in specific items of partnership property b/c it belongs to the partnership"
Who is liable for partnership contracts and torts committed by a partner
"Each partner is personally and individually liable on all partnership contracts and for all torts committed by a partner, or partnership employee, while acting within the scope of the partnership"
When are partners subject to joint and several liability
wrongful acts and breaches of trust (i.e. tort actions)
When are partners subject to joint liability
All other obligations besides wrongful acts and breaches of trust (i.e. joint liability for K)
Who must be served if partners are jointly liable
"all partners, unless a partner is outside the jurisdiction of the court, if not the action cannot be maintained"
Who must be served to maintain an action in joint and several liability
Any one person/entity including the partnership or any partners
When is a judgment personally binding on a partner
A judgment is not personally binding on a partner unless the partner has been served
What is the effect of a partner assigning his interest
The assignee gains the rights the partner would receive in distributions. The partnership is not dissolved and the assignee does not have the right to participate in management decisions
What are the liabilities of an incoming partner
"Although he is liable for all partnership obligations, his liability for obligations existing before she became a partner is limited to her contribution, she is not personally liable for prior obligations"
What is the liability of outgoing partners
He is liable for all obligations incurred by the partnership before exiting and for all subsequent obligation unless she gives proper notice of withdrawl
When can a partner dissolve a partnership that is supposed to last a specific duration
"Anytime, even before the time limit, however he will be liable to his partners for damages he causes, and the remaining partners can continue the business by buying him out"
Who must a withdrawing partner inform of his withdrawl
"Current and past creditors must receive personal notice, all others are entitled to general notice (published in a newspaper in general circulation"
What can partners do after dissolution
"They can wind up old business, but may not take on new business"
How are assets divided after winding up
(1) Outside creditors; (2) Partners for any advances (loans); (3) Partners for return capital contributions; (4) Partners for profits