Bar Exam Cram- Corporations

Front 1

If a corporation is formed before 2006:

Back 1

It is governed by the TBCA (Texas Business Corporation Act)

Front 2

If a corporation is formed on or after January 1, 2006:

Back 2

It is governed by the TBOC (Texas Business Organization Code)

Front 3

Magic Words Needed to name a corporation:

Back 3

1) Corporation, OR

2) Company, OR

3) Incorporated

Front 4

An Ultra Vires Activity is one that is:

Back 4

Beyond the scope of the articles of the corporation.

Front 5

Ultra Vires activities are handled in 3 ways:

Back 5

1) The activities are held valid.

2) Shareholders can seek an injunction against the activity.

3) Managers responsible for the activity are liable to the corporation for losses associated with the activity.

Front 6

Corporation formation requires:

Back 6

1) People - 1 or more

2) Paper - valid certificate of formation

3) Act - filing the certificate with the Secretary of State

Front 7

Certificates of Formation require

Back 7

1) Name of the Corporation

2) Names and Addresses of the organizers, and/or initial directors.

3) Statement of purpose.

Front 8

A corporation is a separate legal person, meaning:

Back 8

1) it can sue or be sued

2) it can hold property

3) must pay income taxes

4) can serve as a partner in a partnership.

Front 9

Corporations are subject to double taxation, meaning:

Back 9

1) the corporation pays income tax

2) the shareholders pay income tax on their dividends.

Front 10

An S corporation is formed in order to avoid taxation of the corporation. Forming an S corporation means:

Back 10

1) having 100 or fewer shareholders

2) all shareholders are human

3) there is only one class of stock

Front 11

A De Facto Corporation requires:

Back 11

1) Failure to form a De Jure corporation

2) a relevant incorporation statute

3) a good faith, colorable attempt to comply with the relevant statute

4) some exercise of corporate privileges

Front 12

A De Facto corporation is treated as a corporation for all purposes except:

Back 12

an action by the state.

Front 13

ByLaws can be repealed or amended by:

Back 13

The Board of directors or shareholders, unless the certificate of formation reserves power to shareholders exclusively.

Front 14

The certificate of formation preempts the by laws in all matters except:

Back 14

deciding the number of directors.

Front 15

Corporations are not liable on pre-incorporation contracts until:

Back 15

they adopt the contract

Front 16

A promoter:

Back 16

acts on behalf of a corporation not yet formed.

Front 17

Promoters are liable on pre-incorporation contracts until:

Back 17

1. A formed corporation adopts the contract

2. There is a novation of the contract replacing the promoter with the corporation.

Front 18

Foreign corporations transacting business in Texas must qualify and pay fees. What happens if such a corporation does not qualify:

Back 18

1) Civil Fine

2) Corporation cannot sue in Texas on a claim arising from business in Texas.

Front 19

Foreign Corporations qualify by:

Back 19

1) getting a certificate of authority from the Secretary of State.

Front 20

A court will not second guess a failed business decision if:

Back 20

It was made in good faith, was informed, and had a rational basis.

Front 21

Duty of Loyalty (burden on the defendant):

Back 21

A director owes the corporation a duty of loyalty. She must act in good faith. with a reasonable belief that what she does is in the corporation's best interest.

Front 22

Interested Director transactions will be set aside unless:

Back 22

1) the director shows that the deal was fair to the corporation when approved.

2) the director's interest and the material facts were disclosed or known and the deal was approved in good faith by either:

a) a majority of disinterested directors.

b) the shareholders.

Front 23

A director cannot compete with his/her own company:

Back 23

without the approval of the disinterested directors.

Front 24

Constructive Trust on Profits:

Back 24

When a director goes into competition with their own company, the company gets any profits made by the director's competing venture.

Front 25

A director cannot USURP a corporate opportunity. He or she cannot use the opportunity until:

Back 25

1) the board is told about the opportunity.

2) the board rejects the opportunity.

Front 26

Sarbanes- Oxley Act:

Back 26

Prohibits loans to executives in large publicly traded corporations. Requires the establishment of an audit committee, and accurate/complete financial reports.

Front 27

A director is presumed to have concurred with the Board action unless:

Back 27

the director's dissent or abstention is noted in writing in corporate records.

Front 28

A directors dissent is noted in writing in three ways:

Back 28

1) having it put in the minutes

2) sending a note to the corporate secretary at the meeting

3) sending a registered letter to the corporate secretary immediately after the meeting.

Front 29

Directors are not liable for decisions based on:

Back 29

1) good faith reliance on financial statements or other information represented as correct by an officer, competent professional, employee, or committee that the director is not a member of.

Front 30

Officers are agents of the corporation that:

Back 30

can bind the corporation by acts within their authority.

Front 31

The president of a corporation has inherent authority to convey real property if:

Back 31

and ONLY if the board gives him/her such authority.

Front 32

President generally has inherent authority to:

Back 32

bind the corporation to a contract entered in the ordinary course of business.

Front 33

Officers are selected, removed, and paid according to:

Back 33

the decisions of the directors.

Front 34

Shareholders hire and fire:

Back 34

Directors, but not officers.

Front 35

Directors hire and fire:

Back 35

officers.

Front 36

Corporations reimburse directors and officers for all fines, judgments, settlements, costs, and attorney's fees unless:

Back 36

the director or officer is held liable for willful or intentional misconduct in performing a duty to the corporation.

Front 37

If a director or officer is held liable to the corporation, or to have received an improper personal benefit:

Back 37

reimbursement is limited to expenses and attorney's fees.

Front 38

A corporation's certificate can limit or eliminate director and officer liability for damages, but never for:

Back 38

willful or intentional misconduct.

Front 39

Shareholders can manage in Closed Corporations. A Close corporation:

Back 39

1) has few shareholders

2) the stock is not publicly traded.

Front 40

2 methods of proclaiming a corporation Close:

Back 40

1) certificate provides that it is a close corporation.

2)certificate or unanimous shareholder agreement provides for shareholder management.

Front 41

If a corporation is not listed on a national exchange or market:

Back 41

the certificate, bylaws, or unanimous shareholder agreement can govern almost any aspect of corporate powers including shifting management powers to the shareholders.

Front 42

Shareholders do not owe each other fiduciary duties as a matter of law in Texas, but:

Back 42

any oppression of a minority shareholder warrants an argument of the court's ability to find a fiduciary duty.

Front 43

Courts can pierce the corporate veil and hold shareholders liable if:

Back 43

1) they have abused the privilege of incorporating and

2) fairness requires it to prevent fraud or to achieve equity.

Front 44

Undercapitalization?

Back 44

failure to invest enough to cover prospective liability.

Front 45

Texas Courts generally are more willing to pierce the corporate veil for:

Back 45

a tort victim than for a contract claimant.

Front 46

You cannot pierce the corporate veil for a contract claim based on fraud unless:

Back 46

the shareholder made the corporation commit fraud for his/her own personal benefit.

Front 47

In a derivative suit:

Back 47

a shareholder is suing to enforce the corporation's claim.

Front 48

What are the requirements for bringing a shareholder derivative suit?

Back 48

1) Stock ownership - shareholder must have owned stock when the claim arose or have lawfully obtained it from someone that did.

2) Shareholder must fairly and adequately represent the corporation's interests.

3) Shareholder must make a written demand on directors that the corporation bring suit.

Front 49

Derivative suits must be filed 90 days or more after written demand unless:

Back 49

1) demand is rejected OR

2) waiting 90 days would cause irreparable damage to the corporation.

Front 50

A derivative suit can only be settled or dismissed:

Back 50

with court approval.

Front 51

The Record Shareholder as of the "record date" has the right to vote. The record shareholder is:

Back 51

the person shown as the owner in the corporate records.

Front 52

The record date is:

Back 52

a voter eligibility cut-off set no more than 60 days before the meeting.

Front 53

The Corporation does not vote treasury stock:

Back 53

even if it was the record owner on the record date.

Front 54

Shareholders can enter in voting (pooling) agreements if:

Back 54

1) the agreements are in writing.

2) the corporation is given a copy.

Front 55

Shareholders can take a valid corporate act if there is:

Back 55

1) unanimous consent in writing, signed or by electronic transmission of holders of all voting shares.

2) A meeting that satisfies quorum and voting rules.

Front 56

Shareholders have two kinds of meetings:

Back 56

1) Annual meetings are held to elect directors (among other things) and are mandatory.

2) Special meetings

Front 57

Special shareholder meetings can be called by:

Back 57

1) the Board

2) the President

3) the holders of at least 10 percent of the shares entitled to vote

4) anyone else permitted in the certificate.

Front 58

Written notice must be given to every shareholder entitled to vote for every meeting at least:

Back 58

1)10-60 days before a meeting

2) 21-60 days if the meeting is to consider a fundamental change.

Front 59

The only thing that can be accomplished at shareholder meetings is:

Back 59

the stated purpose of the meeting.

Front 60

Shareholders vote by a quorum which focuses on number of share represented and is determined by:

Back 60

a majority of outstanding shares.

Front 61

Cumulative voting is available to elect directors. Cumulative voting is for small shareholders and is calculated by:

Back 61

shares times the number of directors to be elected.

Front 62

Stock transfer restrictions are set by:

Back 62

1) certificate OR

2) bylaws OR

3) shareholder agreement

Front 63

Any Shareholder can inspect and/or copy the books and records of the corporation if:

Back 63

1) they own stock for at least 6 months OR

2) they own at least five percent of the outstanding shares.

Front 64

Distributions are declared at the boards discretion and there is no right to distribute unless:

Back 64

1) the board declares it OR

2) there is a strong showing of abuse of discretion.

Front 65

Which funds can be used for any distribution?

Back 65

Surplus funds

Front 66

Surplus funds are computed by:

Back 66

Assets minus liabilities minus stated capital.

Front 67

Stated Capital is:

Back 67

the par value of stock.

Front 68

A corporation can make distributions even when losing money as long as:

Back 68

1) the corporation is not insolvent OR

2) the distribution does not render it insolvent

Front 69

A corporation is insolvent if:

Back 69

it is unable to pay its debts as they come due.

Front 70

Directors are joint and severally liable to the corporation for:

Back 70

unlawful distributions to the extent that they were impermissible.

Front 71

Fundamental changes must be:

Back 71

1) submitted to the shareholders at least 21 days before the meeting

2) must be approved by 2/3 of the shares entitled to vote.

Front 72

Shareholders have a right of appraisal in Close Corporations. This is the right to:

Back 72

force the corporation to buy his/her shares at fair value.

Front 73

Rights of appraisal are triggered by

Back 73

1) merger
2) sale of shares in a share exchange
3) transfer of substantially all assets; OR
4) conversion

Front 74

Amendment of the certificate of formation requires:

Back 74

1) Board of Director Action

2) Shareholder approval

Front 75

Succesor Liability is the effect of a merger and means that:

Back 75

the surviving entity succeeds to all rights, liabilities, and constituents.

Front 76

Corporations can convert to another form of business organization if there is:

Back 76

1) board of director action

2) approval by 2/3 of the shares entitled to vote

3) delivery of certificate of conversion to the Secretary of State.

Front 77

Shareholders can seek appointment of a receiver for:

Back 77

1) insolvency

2) director deadlock causing irreparable harm

3) shareholder deadlock

4) ILLEGAL, OPPRESSIVE, OR, FRAUDULENT ACTS BY THE DIRECTOR.

Front 78

The corporation must be given 90 days notice of Administrative termination and:

Back 78

the directors and officers are personally liable for debts incurred with their knowledge, including franchise taxes.

Front 79

Issuance of Stock:

Back 79

When a corporation sells their own stock.

Front 80

Subscriptions of Stock:

Back 80

Written, signed offers to buy stock from a corporation.

Front 81

Pre-incorporation subscriptions are irrevocable for:

Back 81

6 months.

Front 82

Post incorporation subscriptions are revocable:

Back 82

Until acceptance.

Front 83

Consideration for stock can be:

Back 83

Any tangible benefit to the corporation.

Front 84

Par:

Back 84

The minimum issuance price for stock.

Front 85

Treasury Stock:

Back 85

Stock that was previously issued and has been reacquired by the corporation. Can be resold.

Front 86

Water:

Back 86

Unpaid or Underpaid for stock.

Front 87

If watered stock is issued, who is liable?

Back 87

1) The directors if they knowingly authorized the issuance.

2) The person that receives the stock.

3) Third Parties, but only if they know about the water.

Front 88

Pre-emptive Stock Right

Back 88

Right of an existing holder of common stock to maintain his/her percentage of ownership by purchasing stock for money, whenever there is a new issuance of stock. (Includes Treasury stock)

Front 89

Corporations formed before September 1, 2003 have pre-emptive rights:

Back 89

Regardless of whether the certificate of formation calls for such rights.

Front 90

Corporations formed on or after September 1, 2003 have pre-emptive rights:

Back 90

Only if the certificate of formation calls for such rights.

Front 91

Corporations must have at least one director that is:

Back 91

An adult natural person. The number of directors is set in the certificate, and can be modified by the certificate or bylaws.

Front 92

Election?

Back 92

Shareholders elect directors at the annual meeting.

Front 93

Classified Board

Back 93

By law division of the board by half or thirds with half or one third elected each year.

Front 94

Shareholders can remove board members before their term expires by:

Back 94

1) Majority Vote, with or without cause.

Front 95

The Board must act in one of two ways:

Back 95

1) By unanimous written consent

2) In a meeting that satisfies quorum and voting requirements

Front 96

Notice to the board is required:

Back 96

For special meetings, but not for regular meetings.

Front 97

Proxies and voting agreements:

Back 97

1) Valid if given and entered by Shareholders.

2) Void as against public policy if given and entered by directors.

Front 98

Quorum

Back 98

A majority of all directors (must be present to do business at a meeting).

Front 99

Passing a resolution requires:

Back 99

Only a majority vote of those present if a quorum is present.

Front 100

Duty of Care (burden on the plaintiff)

Back 100

A director owes the corporation a fiduciary duty of care. He/she must be prudent, act in good faith and exercise ordinary care. The director must do what a prudent person would do in similar circumstances.

Front 101

Nonfeasance

Back 101

When a director does nothing. Violates the standard of care but the director is only liable if the nonfeasance causes a loss to the corporation.

Front 102

Misfeasance

Back 102

When a director does something that hurts the corporation.

Front 103

Business Judgment rule

Back 103

Protects a director from liability if a loss is caused.
States that the director did appropriate research, analyzing and deliberation prior to making the decision that caused the loss.