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92 Cards in this Set
- Front
- Back
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What are teh requirements for organization of a corporation
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1. People--incorporators
2. Paper--Articles of Inc. 3. Act--deliver AOI to Georgia Secretary of State with request to publish the companie's formation |
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What do the incorporators do?
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Must execute the articles and deliver them to SS. Might select initial directors, elect officers and bylaws.
Can be a person ro an entity |
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What is the purpose of the AOI
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1. K btwn. corporation and shareholders
2. K btwn. corporation and state |
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What information must be in the AOI
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1. Names and addresses of corporation (must have magic words), each incorporator, registered agent (must be in GA), principal office (in or out of GA).
Statement of purpose and duration |
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If AOI are silent what is the purpose of the corporation
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General lawful purpose and unlimited duration are presumed
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Ultra Vires
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Beyond the scope of the artilces
1. Ultra Vires ks are valid, not void like at common law 2. SHs can seek an injunction to stop the action 3. Responsible Os and Ds are liable to the Corp. fro ultra vires losses |
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What must be in the articles about the stock?
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Authorized stock, number of shares per class, voting rights adn preferences of each class.
At least one class must be given unlimited voting rights and at least one must be entitled to receive the corp's net assets upon dissolution |
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What is a de jure corporation
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Filing AOI is conclusive proof of valid formation, at that point we have a de jure corporation
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Legal Signficance of formation of a corporation
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1. Internal affairs of a GA corp. are governed by GA law
2. Separat legal person, can sue and be sued, hold property etc. 3. SH generally not personally liable for debts, neither are people who run the corp. |
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Defacto Corporation doctrine/Corporation by Estoppel
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Doctrines by which a business failing to achieve de jure corporate status is treates as a corporation (so SH not liable) if the one asserting is without knowledge of failure to form
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How do you get a de facto corporation
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1. Relevant incorporation statute
2. Parties made a good faith colorable attempt to comply 3. Some exercise of corporate privileges (Probably abolished in GA) |
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How do you get a corporation by estoppel?
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One dealing with a business as a corporation, treating as a corporation, may be estopped from denying teh businesses corporate status. May also keep a company from trying to avoid an obligation by saying they weren't validly formed
(Good law in GA) |
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BYLAWS
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1. Not a requirement for formation, they are for internal governance
2. Adopted by Board or incorporators 3. Board or SHs can amend or repeal (AOI can remove board's right to do so) 4.**If AOI and Bylaws convlict the AOI control** |
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Is a corporation liable for pre-incorporation Ks
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Not until it adopts the Ks
1. Express--Board adopts 2. Implied--Corp accepts benefits of the K |
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Is a promoter liable on a pre-incorporation K
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Generally, unless the K clearly provides otherwise, the promoter remains liable until there has been a novation.
Adoption makes corp. liable too but does not relieve promoter |
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What is a novation
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An agreementof the promoter, the corporation, adn teh other contracting party that the corporation will replace the promoter under the K
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Secret Profit Rule
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Promoter cannot make a secret profit on her dealings with the corporation.
Prop. acquired before prom. Pricer paid by corp. - FMV What the promoter paid is irrelevant, only FMV Prop. acquired after prom. price paid by corp. - price paid by prom. Only liable if it was secret! |
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What is an issuance of stock?
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Whan a corporation sells or trades its own stock, not when a member of the public sells the stock
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Subscriptions to buy stock
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1. A pre-incorporation subscription is irrevocable for 6 monts unless it provides otherwise or all subscribers agree
2. A post-incorporation subscription is revocable until acceptance 3. Corp. and subscriber become obligated when the board accepts the offer |
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What is permitted consideration for stock
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Any tangible or intangible proeprty or benefit to teh corporation
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What amount of consideration must a corp. receive for its stock
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A determination by the board that the amount is adequate. This is presumed once they authorize the issuance. Par shares are not required.
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Par Value
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Minimum issuance price, but if the board authorizes a sale for less, still valid in GA
Board has full discretion |
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What are preemptive rights?
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The right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for money (or its equivalent)(not if they trade for property)
If AOI silent, no preemptive right exept in a close corp. |
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What is a poison pill
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Directors can adopt a plan to permit existing SHs to acquire additional stock at a reduced price to fend off a hostile takeover. It reduces the % of shares owned by the person trying to take over and increases the price of gaining control.
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Who must be a director
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One or more natural adult persons
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How are directors elected
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Initial directors can be named in the AOI or a bylaw adopted by SHs or elected by incorporators.
Thereafter, SHs elect directors at the annual meeting |
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Whan are elections of directors
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Elect each year unless the board is staggered into halves or thirds and then 1/2 or 1/3 elected each year
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Can SHs remove directors?
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Yes, before their term expires with or without cause by a vote of a majority of shares entitled to vote.
But if there is a staggered board, can only remove them for cause. |
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Who selects person who fills a vacancy on the Board?
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Board or SHs
But if a director was elected by a particular class, that class of SHs selects the replacement |
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How can the Board take a valid act?
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1. Unanimous written (email ok) consent to act without a meeting
2. A meeting that satisfies quorum and voting requirements (conference call ok) If neither 1 or 2, the act is void unless later ratified by a valid corporate act |
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Notice requirements for directors meetings
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Can be set in the bylaws. Two day notice required for special meetings but failure to give can be waived in writing or by attending without objection
--Notice can be written, fax, email or oral if practicable |
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Can directors have voting agreements?
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Technically, no specific provision prevents a director from giving a proxy but seems to breach the duty of care
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What is a Quorum
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Must have a majority of all directors to do business (unless different # stated in bylaws)
-If a quorum is present, passing a resolution reuies a majority of those present |
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Can a quorum be lost at a meeting?
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Yes, if people leave the quorum is "broken" and no futher action can be taken at the meeting
(different in SH voting) |
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What is the role of the directors
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To manage teh business of the corporation, including selection and supervision of officers and declaring distributions, recommending fundamental changes etc.
Managers of Corp., elected by SHs who are the owners |
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Can the Board delgate to a committee?
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Yes, can delegate substantial management functions to a committee of one or moer directors. Committe cannot fill a vacancy, amend or repeal bylaws, or propose a fundamental corporate change.
--Presence of a committee does not relieve other members from their duties to corp. |
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Standard Statement for duties of directors
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A director must discharge her duties in what she believes in good faith to be the best interests of the corporation and with the care that an ordinarily prudent person in like position and similar circumstances would use.
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Who has the burden in a duty of care case
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P has the burden
On exam, look for directors as Ds |
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Two basic duty of care fact patterns
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1. Nonfeasance--director does noting and should have
(P must show breach and causation, hard to win, usually corp would have lost $ anyway) 2. Misfeasance--board does something that hurts the corporation --not liable if meets BJR |
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Business Judgment Rule
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A court will not seond guess a business decision if it was made in good faith, was informed and had a rational basis
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Who has burden of proof in duty of loyalty cases
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D, these cases are all about conflicts of interest. BJR does not apply
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What is the test for an interested director transaction
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1. Corp. must enter a transaction
2. Director must know of the deal andof her interest 3. Deal is between the corporation and --the director --memer of director's household --another business of directors |
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Interested director transactions will be set aside unless the director shows:
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1. The deal was fair to the corp.
2. She disclosed her interst adn the material facts and got approval from --a. a majority (at least 2) of the disinterested directors actually voting --b. A majority of all disinterested shares |
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Can directors set their own compensation?
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Yes but it must be fair and reasonable. If excessive it's waste of corporate assets and thus a breach of the duty of loyalty
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Can a director compete with her corporation
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Cannot compete directly or unfairly, but making plans to compete is not a problem
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What is the remedy if a director competes with her corporation
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A constructive trust on the profits of the competing venture
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Corporate Opportunity
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Director cannot usurp a corporate opportunity. Cannot take it until he:
1. Tells the board and 2. Waits for the board to reject the opportunity Only an opportunity if the corporation is financiall able to undertake it. Something the corp. has a legitimate interest or expectancy in. |
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Which directors are liable
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A director is presumed to have concurred with the action unless she objected in writing or had her dissent or abstention noted in writing in corporate records:
1. in the minutes 2. delivered written notice of dissent or abstention to presiding officer at the meeting 3. in writing to corp. immediately following the meeting |
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Exceptions to director liability
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1. Abstn directors are not liable
2. Good faith reliance on information presented by an officer, employee, comittee (if not a member), or professional reasonbly believed competent |
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Selection and removal of Officers
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Officers are selected by and removed by the directors, not SHs. Directors set officer compensation.
If fired, an officer can sue for breach of k but can't get the job back |
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When is corporation barred from inemnifying a director or officer?
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If adjudged liable on the basis of improper financial benefit
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Whan is there mandatory indemnification of an officer or director?
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If wholly (10 counts, must win all 10) on the merits or otherwise, in defending suit.
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When is there permissive indemnification of an officer or director?
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Must show she acted in good faith and with reasonable belief she acted in corp's best interest
-If held liable, indem. coves only expenses and atty fees not the judgment -Court can order indemnification |
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Can AOI limit director/officer liability?
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Yes, can provide for elimination of director liability to corporation for damages except for intentional misconduct, usurping corporate opportunities, unlawful distributions or improper personal benefit.
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When may a court pierce the corporate veil and hold SHs liable
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If:
1. They have abused the privilege of incorporating AND 2. Fairness reqires it Georgia courts may PCV to avoid fraud or evasion of k or tort responsibility or evasion of public policy |
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Alter Ego Doctrine
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Court might PCV if Xs disregard of the corporate entity harmed creditors. X treated the corporation as his alter ego if he made teh personal and corporate business interchangeable.
-Sloppy administration is not enough -Only do if fairness requires |
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Undercapitalization and PCV
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Here court might PCV if corporation was undercapitalized with the intent of avoiding obligations.
Courts more willing to PCV for tort victim than contract claimant who could have investigated |
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Can SHs manage the corporation
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If the corporation is not listed or regularly traded on a national exchange, SHs can authorize elimination of the board and can then run corp.
Managing shareholders owe duty of care and loyalty. |
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What forms can the authorization of SH management take
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1. In AOI or bylaws and approved by ALL SHs OR
2. Unanimous written SH agreement Either way should be conspicuously noted on front and back of stockcertificates 20 year maximum but renewable |
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Close corporations
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1. 50 or fewer SHs and shares not publicly traded
2. If SH managed, owe fiduciary duties to each other, especially controlling SHs shold not oppress minority SHs 3. Courts may protect minority SHs b/c there is no market for the shares so can't sell and get out |
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What is a SH derivative suit
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SH is suing to enforce the corporation's claim, not a personal claim.
--Only can do if the corporation could have brought suit. |
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What are the consequences of a successful derivative suit
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Generally teh recovery goes to the corporation, the SH gets fees and atty costs.
If unsuccessful, SH gets nothing and is liable to X if sued without reasonable cause Res judicata |
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What are the requirements for bringing a SH derivative suit
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1. Must have owned stock at the time the claim arose or have gotten it by operation of law from somone who did
2. Must make a written demand of the corporation that it bring suit --can't file until 90 days after the demand unless --a. Directors reject the demand before that OR --b. Waiting 90 days would damage corp. irreparably 3. Must demonstrate adequate representation of corp's interest |
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Can a corporation move to dismiss a derivative suit?
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Yes, upon a showing that independent investigation showed the suit was not in the company's best interest
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Can a SH derivative suit be dismissed?
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Not without court approval. Court can give notice to those who would be affected and allow their input on whether to approve dismissal or settlement
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Who votes?
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General rule is that record shareholder as of record date hs the right to vote
Exceptions: 1. Death of shareholder 2. Proxies 3. Voting trusts and agreements |
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Can a SH revoke a proxy that says it is irrevocable?
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Yes unless the proxy holder has some interest in the shares other than voting. "Proxy coupled with an interest".
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Requirements for a voting trust
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1. Written trust agreement controlling how the shares will be voted
2. Transfer of legal title of shares to voting trustee 3. Transfer of legal title recorded with corporation 4. Original SH receives trust certificate and retains all SH rights except for voting --Ten year max, renewable for terms of up to 10 yrs |
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Requirements for voting pooling agreement
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1. SH enter in writing and signed (email ok)
2. Specifically enforceable by statute 3. 20 year max, renewable up to twenty years more |
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Where do SHs vote
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Usually take action at ameeting that satisfies quorum and voting rules, but can take action without a meeting if unanimous written consent signed by holders of all voting shares.
Meetings can be held anywhere |
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Annual meeting
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If none held for 15 months, court can order one. This is where SHs elect directors
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Special meeting
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Can be called by the board or by teh holders of at least 25% of the voting shares or by anyone else authorized to do so in AOI or bylaws.
Remember, SHs do not remove officers |
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Notice requirement of SH meeting
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Must give notice to every SH entitled to vote, for every meeting.
--Notice delivered between 10 and 60 days before the meeting |
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Contents of notice for SH meeting
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Always must tell them when and where
--Notice of a special meeting must state the purpose. (can only do what is stated) --Must always tell when fundamental corporate change or removal of director is on the agenda |
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Consequence of failure to give proper notice to all shareholders
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Action taken is void unless those not given notice waive the notice defect
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How does a SH waive a notice defect
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1. Express--in writing and signed any time
2. Implied--attend meeting without objection |
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How do SHs vote
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There must be a quorum, focues on # of shares not # of SHs
--AOI can require higher % but cannot be lower than 1/3 --If quorum, action requires a majority of shares actually voted unless AOI or bylaws says otherwise |
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How and when do SHs use cumulative voting
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Only available in voting for directors.
-Multiply # of shares times # of dierctors to be elected --Only exists if AOI provide for it |
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Are stock transfer restrictions allowed
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Will be upheld provided they are reasonable under the circumstances, which means not an undue restraint on alienation.
-Right of first refusal is OK assuming the corporation offers a reasonable price |
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Right of SH to inspect and copy the books and records
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1. For AOI, bylaws, identity of officers and directors, minutes of SH meetings adn communication with SHs in last three years
--demand in writing at least 5 business days in advance 2. For more sensitive materials --make written demand at least 5 days in advance describing the document and stating proper purpose for inspection --Proper purpose is one related to a legitimate interest as a SH |
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Distributions to SHs
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Distributions are to be declared by the Board in its discretion.
-suits to compel are tough to win, P must make a very strong showing of abuse of discretion --Cannot discriminate against SHs fo the same class |
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Which SHs get dividends
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-Preferred stock gets paid first
-Participating means pay first and then pay again -Cumulative accrues year to year |
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When is a distribution improper
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Under the GA code a distribution is improper if the corporation is insolvent or the distribution renders it insolvent
--All directors who breached duty in assenting and all SHs who knew the distribution was improper when they received it are liable (remember GF reliance defense) |
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Characteristics of Fundamental corporate change
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1. Unusual so they require board action and notice to SHs
2. Approval by a majority of shares entitled to vote 3. Possibility of dissenting SHs right of appraisal |
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What is the right of appraisal
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The right of a SH to force the corporation to buy her shares at fair value
--no discount b/c there is no public market for the stock or b/c person has a minority interest |
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What is required for amendment of teh AOI
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1. Board action AND
2. SH approval (majority of those entitled to vote) |
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Voluntary dissolution
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Board action and approval by majority of the shares entitled to vote.
--File notice of intent to dissolve with SS --Remains in existence to wind up affairs --Notify creditors so they can make claims |
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A present SH can petition for court ordered dissolution b/c of:
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1. Director deadlock causing irreparable harm to corp
2. Waste of assets--breach of duty of loyalty 3.SHs have failed at 2 consecutive annual meetings to fill a vacant board position 4. If petition by at least 20 percent of the outstanding shares, for illegal, oppressive or fraudulent acts by directors |
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Creditors can petition for court ordered dissolution when
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The corporation is insolvent and either:
1. The creditor has an unsatisfied judgment OR 2. The corporation admits in writing that the creditor's claim is due and unpaid |
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The AG can seek court ordered dissolution for:
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Procuring incorporation for fraud or exceeding or abusing authority
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A corporation can be administratively dissolved by:
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SS gives notice of failure to pay license tax for one year, failure to maintain registered office, failure to file annutal registration, etc.
--If corp. does not remedy situation in 60 days, SS can sign certificate of dissolution --Corp can apply for reinstatement |
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What is winding up
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1. Gather all assets
2. Convert to cash 3. Pay creditors 4. Distribute remainder to SHs, pro rata by share unless there is a dissolution preference |
