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7 Cards in this Set

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Promoter liability
A promoter is one who helps to form a corporation. He is liable on contracts he signs on hehalf of a corporation-to-be-formed unless: 1) the intent of the creditor was to hold only the corporation liable or (2) the corporation enteres into a novation of the contract.
Piercing the corporate veil
Generally a corporation shields individual shareholders from personal liablility on corporate actions. However, a court can disregard the corporate form and hold individuals liable by piercing the corporate veil.
What are the factors that courts employ in determining whether to pierce the corporate veil?
1. Tort creditor or contract creditor: Because tort creditors are less likely to be voluntarily doing business with the corporation, a court is more likely to pierce. Here,
2. Fraud or misrepresentation?
3. Undercapitalization or siphoning off profits: When directors siphon off profits, courts treat this the same as under capitalization.
4. Failure to follow corporate formalities. Courts are generally more liberal in requirin adherence to corporate formalities in close corporations, so long as the relaxed procedures favor shareholder control.
Where are shareholder agreements permitted?
Shareholder agreements are permitted only in close corporations.
What are the factors in determining whether a corporation is a close corporation?
Factors in determining whether a corporation is a close corporation are:
1. Limited number of shareholders. Some states set a limit on the number of shareholders, but most states do not.
2. No ready market.
3. Shareholders are also directors.
What are shareholder agreements?
Shareholder voting agreements limit the discretion of shareholders to vote on a particular issue. In such agreements, shareholders retain title to their shares and the right to vote them. However, they are contractually bound to vote according to the agreement.
What factors are considered when determining validity of shareholder agreement?
1. Shareholders unanimously approve it. The purpose of shareholder agreements is to protect minority shareholders. So they are more likely to be upheld if they are unanimous. Here, ...
2. Board discretion is only slightly limited. The general rule remains that business of the corporation is to be conducted by the directors, so shareholder agreements that significantly limit board discretion are generally invalid. Courts have upheld shareholder agreements that set officer salaries and promise to vote for certain directors. But where such agreements were upheld, the agreements contained an escape clause, authorizing removal for cause. Here, ... Therefore, ...
3. Limits on board power is authorized in the articles of incorporation. Here,... Therefore, ...
4. No harm to minority shareholders or creditors. Here, ... Therefore, ...