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94 Cards in this Set
- Front
- Back
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What's a quasi-reorg and what's the steps?
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Proc that eliminates an acc deficit so da corp can pay div again.
Steps: 1) Assets revalued at NRV, but there is no net asset increase (any loss increases the deficit) 2) A min amt of the def must be avail in PIC. This may be created by donation of stk from s/h's or reduction of the par value. 3) The deficit is charged against PIC & thus is eliminated! |
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What's the effect of a stk div on a corps side?
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Reduce RE & inc legal cap! IT DONT EFFECT ASSETS!
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What are constructive dividends?
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When salaries in closely held corps are unreasonable, IRS counts it as a div!
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What are 4 things that an agent is NOT allowed to do?
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1. Cant act for 2 prins with conflicting interests unless both consent!
2. Cant deal for their own int! 3. Cant compete with prin w/o prins consent. 4. Cant disclose to others confidential info learned during da agency relationship. |
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Does an agency agreement have to be in writing?
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No! Unless stat of frauds. ex. selling real prop or greater than 1 yr!
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What's ratification?
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Acts performed by 1 who isnt an agent, or unauthorized acts by da agent, may be ratified by da prin! A single trans must be ratified in its entirety or not at all! Can be ratified expressly or implied!
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In a derivative suit, any recovery goes to whom?
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Da Corp!
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Explain cum voting for directors.
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Each s/h receives votes equal to da # of her/his share times the # of directors to be elected.
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Explain a voting trust.
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s/h's turn over their voting rights to a trustee for a period not more than 10 yrs. Trustee becomes record s/h.
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What's a pooling agreement?
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Any 2 or more s/h's may agree to vote their shares in a given way & must be in writing & signed by them!
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What are the 5 basic rights of a s/h?
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1. Derivative action
2. Asset share on dissolution 3. Right to vote 4. Inspect books 5. Preemptive right to subscribe to new stk |
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What's a direct action?
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A s/h has the right to sue for her/his own benefit!
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What are 3 s/h control devices?
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1. Voting trust
2. Pooling agreements 3. Proxy |
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Explain a proxy.
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Authorization to vote for another. A s/h may appt an agent to vote or take other action.
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Who in a corp is responsible for apptment & oversight of any audit work performed by an audit firm?
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Audit Commitee!! NOT MNGMT!
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Explain da removal of a director.
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A director can be removed at any time during their term, with or w/o cause with the consent of s/h's!
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What's an exec committee?
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It is a common practice in many jurisdictions for the BOD to appt an "exec comm" to handle specific matters or the day-to-day affairs of da corp. This comm MUST be composed of directors!
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What's the bus judgement rule?
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Courts adopted the bus judgement rule that when da acts or ommissions involve a question of policy or bus judgement, a director who acted in good faith will not be held personally liable for "mere errors of judgement or want of prudence, short of clear & gross negligence!
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Is CS entitled to liquidating distributions?
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Yes
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Should AC contain at least one financial expert?
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yes
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What are the 5 gen'l responsibilities of da AC?
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1. Oversee da fin reporting process
2. monitoring da choice of accting policies and prins 3. monitoring the internal control process 4. Appt, comp & oversight of da external auditors 5. Receipt of communications & audit reports directly from the external auditors |
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What's a quorum?
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In order for board action to be binding, a simple majority of da directors must be present at da meeting. Furthermore, a simple majority of those % is sufficient to bind da corp legally, unless da articles call for a higher %.
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Explain the pwrs of da BOD.
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Gen'ly BOD has da pwr to manage da bus of da corp, initiate fundamental changes subject to final approval by the s/h's, fill vacancies on da board, adopt & amend da bylaws, elect & fix da comp of officers, remove officers & declare div's!
Directors are personally liable for dividends unless they acted with due care! Directors have duty to act with reasonable care & loyalty. |
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Are s/h's liable in a noncorp?
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Yes! Pretty much the only time!
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Are you allowed to issue a greater # of shares than authorized?
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No!
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Does TS only be purch with a surplus?
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Yes
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Explain participating pref stk.
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They share ratably with common s/h's in any profit distributions beyond the prescribe preferred rate. Fully participating preferred holders share equally with common holders in xs profit dist, while partially participating holders share in a more fixed manner.
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Can da same individual be an officer & director?
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Yes
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Do officers need to be s/h's in da corp?
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No
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What's respondeat superior?
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A corp is liable for da tortious acts of its employees, provided that da acts were committed within da course & scope of employment.
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Explain piercing the corp veil.
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Individual s/h's may be held personally liable for da debts of da corp.
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When does corp existence begin?
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At the time of filing & before the cert is issued.
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Who's the promoter?
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Person who is primarily repsonsible for forming, arranging for cap & initiating the gen'l bus of da corp. Also duties include drawing up corp charter & promoting stk subscriptions. Also, they are said to be a fiduciary of the not yet formed corp. good faith, etc.
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Explain adoption.
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To circumvent the harsh results of placing the complete financial burden on the promoter for preincorp contracts, the crts formulated da theory of adoption. Adoption is da acceptance of da promoters preincorp contract. Can occur in one of 3 ways: statute, agreement or implied.
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What are the 4 things an officer has?
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1. Authority to contract
2. Tort liab - the usual rules of agency apply to officers 3. Fiduciary duties 4. SOX |
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what's da corp opportunity doctrine?
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A director may not divert to her/himself a bus opportunity belonging to da corp (ie, one in which da corp has a right, interest, or expectancy) w/o 1st giving da corp a chance to act.
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What's da basic corp liab?
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A corp is liable on da contracts of it's employees & in particular situations, for torts committed by employees.
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Can a corp be liable on preincorp contracts entered into on behalf of da corp by da promoter?
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Gen'ly no! can become liable however by adoption.
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Explain continuing promoter liab.
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Even if da corp adopts da contract, da promoter remains personally liab unless one of the following occurs:
1. they state in da contract that he/she are not personally liable 2. a novation occurs when a 3rd party creditor agrees to look to da corp for satisfaction of da contract, thereby releasing promoter. |
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Who are incorporators?
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They sign da AOI. Genly same person as promoter.
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When do preincorp subs become binding?
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Gen'ly courts have held that a subscription for shares in a corp not yet formed is an unenforceable contract due to the lack of parties. Therefore, some act of acceptance by the corp, after incorporation is req'd b4 preincorp subscription agreements will become binding.
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What's ultra vires?
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These are acts by da corp or it's manmgt that are beyond da scope of corp authority as granted by it's charter, bylaws, or state laws.
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Do conditional subscriptions need to be in writing?
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yes!
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Can capital be contributed in the form of $, prop or svcs?
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Yes!
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What's sec rule 10b-5?
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Unlawful to:
1. employ any device or scheme to defraud 2. make untrue statements of mat'l fact 3. any fraud activity in the purch or sale of any security in interstate commerce |
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What are corps express pwrs?
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A corp has da express pwr to perform any act authorized by state law, AOI or the bylaws.
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What are 4 particular pwrs that a corp may have but not implied due to public policy considerations?
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1. Gifts
2. P/S 3. Surety 4. Acquiring & reacquiring shares |
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What's an AC?
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The AC is an operating committee of board members who are independent of da corp.
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What's a subscription agreement?
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It's a contract by which da subscriber agrees to purch a # of shares of corp stk at a sub price specified in the agreement.
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Explain what an enforceable preincorp sub is?
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if INDIVIDUALS agreed to subscribe to corp stk & it appears that each parties promise was dependent on the other parties also subscribing, then an enforceable contract exists. Da subscription is enforceable NOT btw the corp & each subscriber, but rather among da subscribers themselves!
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When are subscriptions binding for sure?
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Post-incorp subs! Any agreement after da corp is formed constitutes a binding obligation to sell or purch stk.
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Does the AOI have to specify the types & # of shares a corp may issue?
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yes! can't issue greater amt!
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What's a foreign corp?
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One that does bus in any state except the 1 in which it is incorporated.
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What is sec rule 16b?
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Insider Trading - applies to officers, directors & holders of more than 10% of the stk.
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What are 4 examples of implied pwrs?
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1. pwr to sue & be sued in da corporate name
2. pwr to make or amend corp bylaws 3. pwr to acquire, mortgage & transfer prop for corp purposes 4. pwr to issue corp bonds |
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Do directors need to be s/h's?
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No
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what's legal capital (state capital)?
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The # of shares issued times their par value or stated value. This fund primarily is reserved for da pymt of creditors in da event of a liquidation. Dividends may NOT come from this source!
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What has to be publicly filed? bylaws or AOI?
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AOI
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Who sets forth the measure of liability to be borne by a corp with regard to it's issued securities.
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UCC!
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what's a defacto corp?
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Did not comply substantially with mandatory req's. This status forces 3rd parties to perform on corp contracts & shields s/h's from direct liab!
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Can a corp place certain restrictions on da transfer of stk?
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yes
1. right of 1st refusal 2. has to be noted on face of stk 3. restrictions must be reasonable |
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What are da essential elements of a defacto corp?
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1. a valid statute under which da bus could have been inc legally
2. existence of a corp charter 3. a good faith effort to incorporate 4. some good faith business dealings in da corp name |
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Does a corp recognize a taxable g or L for da contributions of prop by s/h's?
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No!
1. If tax free to s/h, corps basis is the same as there's 2. If gain recognized by s/h, corp adds the gain to da basis |
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What's a corp by estoppel?
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In da absence of even a defacto corp, many courts have protected s/h's from 3rd party suits still. If da 3rd party believed they were dealing with a corp, da crts will not allow da 3rd party to hold the s/h's liable on da contract.
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what are da bylaws?
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They are the rules & regs that govern the internal manmgmt of a corp.
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What's a dejure corp?
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Under common law, any corp that substantially complies with da mandatory statutory req's of incorporation is deemed dejure and it's status cant be attacked by anyone including the state.
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What's a quo warranto proceeding?
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Suit challengin the corp existence.
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Explain what noncorp status is.
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Gen'ly if corp fails to meet any of da protection status, it may be attacked by anyone. S/h's are liable here!
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What's the def of contributed cap.
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The total amount paid for stk when issued, stated cap plus paid in surplus.
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Explain consideration for it's shares.
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a corp may only receive certain types & quantities of consideration for it's shares.
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Explain the legality of a stk transfer.
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Can be transferred by endorsement & delivery. If a stk cert is endorsed in blank, it may be transferred by delivery alone. A transfer becomes legally effective against the corp only when the security is presented to da corp, or a duly appointed agent for registration.
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How is a taxable G or L calculated for stk purchased or traded to a s/h that don't have immediate control (80% rule)?
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FMV minus the basis of prop exchanged for da stk.
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What's respondeat superior?
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The prin is vicariously liable (liable regardless of whether s/he is at fault) for da torts of an agent if they are committed within da scope (actual or apparent) of da agency.
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When is respondeat superior not valid against prin?
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If da agent departs from da performance of her/his duties & acts on their own. It's usually to benefit themselves.
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Does da promoter have to comply with SEC Act of 1933?
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Yes! Da act req's da filing of a registration statement with da SEC if securities are to be offered through the mail or through some other means of interstate commerce. Also, each potential purchaser must be provided with a prospectus.
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What are some common situations that would make a court pierce da corp veil?
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1. Corp Fraud or corp was formed to do illegal stuff
2. Undercapitalization 3. Sub Corp 4. Loans |
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Binding contracts brief outline.
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If principle is:
1. disclosed - P 2. partially disclosed - P & A 3. undisclosed - A only! |
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Can a fully undisclosed prin ratify?
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No! Must be fully or partially disclosed! Also, prin was in existence at the time da act was done!
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If a 3rd party withdraws b4 ratification, can prin still ratify?
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No
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Can da law create an agency relationship?
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Yes.
1. Estoppel 2. Rep, Appearance, AA 3. Necessity |
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When does a prin not have da right nor pwr to revoke da agency?
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If it's an "agency coupled with an interest"!
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What can be ratified, a tort or a crime?
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Tort!
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Once ratification occurs, what happens as to da liab of da agent?
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It goes away!
1. Prin cant charge agent with exceeding it's authority & 3rd party can't hold them liable for breach of warranty of authority. 2. Prin cant retract ratification. |
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Does notice of an agency termination need to be given?
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Yes! unless terminated by operation of law!
1. Actual Notice 2. Constructive Notice (publication) |
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What are 4 ex of an agency relationship that gets terminated by law?
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1. death or insanity by either partner
2. bankruptcy or insolvency of da prin 3. bankruptcy of da agent if it affects da agency relationship 4. illegality or impossibility |
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What are a few things that a s/h is liable for?
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1. "watered stk" if less than lawful consideration
2. unpaid portion of their stk subscription contract 3. illegal dividends, whether known or unknown, s/h is liable for repayment ONLY to an INSOLVENT corp! |
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What's the proc for a merger or cons?
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1. BOD approves
2. S/H approves 3. State filing 4. Cert Issued 5. Appraisal rights 6. Short-form mergers |
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What's a SF merger?
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When one corp owns more than 90% of sub, only BOD of parent corp needs to approve merger!
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Explain an involuntary dissolution.
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May be brought about by an individual or da state.
1. Quo Warranto Action - if corp exceeds it's authority, state can bring action for diss! 2. S/h action - can bring action if BOD did fraud, waste or deadlocked! 3. Misc grounds - diss of a corp may arise by expiration of the time period set out in da charter, cons or merger. |
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Who are NOT allowed to be s/h's of an s-corp?
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1. Nonresident aliens
2. Corps 3. Foreign trusts |
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Is an agent liable to da prin for losses cuz of there own negligence?
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yes!
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What duties can one NOT be able to appoint an agent?
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1. Those that da prin has to perform personally!
2. Those precluded by statute. ex. execution of will 3. Those that da prin CANT perform! ex. a minor cant appt an agent to convey real estate since da minor can void da conveyance! |
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What are the prins duties to an agent?
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1. Comp for svcs
2. Reimbursement of expenses 3. Indemnification - to imdemnify the agent against loss or liab for acts performed at the prins direction, unless they are unlawful. 4. Compensation for injury |
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What's A + B = A
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Merger
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