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51 Cards in this Set
- Front
- Back
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Articles of Incorporation Formalities (Requirements for De Jure Corp.) |
1. Name of Corp 2. Number of authorized shares 3. Names and address of incorporators 4. May include clause limiting corp.'s purpose
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Promoter Liability |
Promoters are generally liable for pre-incorp. contracts.
1. Liability continues even after corp formed absent a novation. 2. Corp. does not become liable unless it adopts contract. |
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De Facto Corp. |
No liability if de facto corp: 1. Colorable compliance with the incorp. statute; AND 2. exercise of corp privileges (good faith) |
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Corp by Estoppel |
No liability if corp by estoppel - ppl treating business as valid corp are estopped from denying corp's existence |
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Ultra Vires |
Activities beyond scope of corp purpose are ultra vires and may be enjoined or directors held liable for authorizing such acts |
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Court disregards corp. entity by piercing the corp veil |
1. Alter Ego Doctrine a. Owners do not treat corp as a separate entity b. Commingle personal & corp funds c. Use corp assets for personal purposes d. Owners do not hold meetings 2. Inadequate Capitalization at inception a. Must start corp w/ sufficient unencumbered cap to meet prospective liabilities 3. Fraud a. cannot be formed to avoid existing liabilities b. Can be formed to avoid future liabilities 4. Effect - only shareholders liable for tort obligations
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Capital Structure of Corp Equity Securities - Terminology |
Equity securities create ownership interest (stock) Authorized but unissued - shares described in the articles but not issued Issued & Outstanding - shares sold to investors Treasury shares - former name for shares repurchased by corp.
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Capital Structure of Corp Equity Securities - Subscription agreements |
Agreements to purchase shares from corp. 1. Preincorporation subscription agreements are irrevocable for 6 months. |
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Capital Structure of Corp Equity Securities - Consideration for shares |
1. Under RMBCA, any benefit to corp. 2. UNder RMBCA, amount set by directors, and their good faith valuation of the consideration received is conclusive |
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Shareholder's General |
- Shareholders do not run corp on day-to-day - Shareholders indirectly control corp. by electing directors, amending bylaws, and approving fundamental changes |
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Shareholders - Voting |
- Shareholders of record on the record date have a right to vote at the annual mtng to elect directors and regarding fundamental corp changes. Notice - Notice of mtng must be given to shareholders Proxies - Valid for 11 months, generally revocable unless they specifically provide otherwise & are coupled with an interest. - May be revoked by attendance or later appointment. - Solicitations must fairly and fully disclose all material facts - No misstatements or fraud |
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Shareholders - Voting - Quorum |
- Generally a maj. of the outstanding voting shares must be present for valid vote - Once quorum reached, shareholder leaving does not invalidate voting. |
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Shareholder Agreements |
Voting Trust - Shareholders transfer share ownership to a trustee who votes shares as agreed. Shareholder mgmnt agreement - Shareholders may agree to run the corp in any way and can even dispense with BoD. (used in small corp) Share transfer restrictions - Ownership interests generally are freely transferable - Shares may conspicuosly provide for restriction if they are reasonable. |
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Shareholder - inspection Rights |
- Limtied to books, papers, acct records, etc with 5 days notice and valid corp. purpose - Unqualified right to general info, bylaws, minutes, names and address, etc. |
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Shareholder - Pre-emptive right |
Right to purchase shares to maintain proportionate ownership interest |
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Shareholder Suits - Direct |
Direct suit is to enforce right of shareholder and recovery goes to the shareholder
Dismissal if maj. or directors w/ no personal interest determine in good faith that suit is not in best interest or corp. |
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Shareholder Suits - Derivative |
Suit to enforce a right belonging to corp. 1. Must have owned shares at time of wrong 2. Must maintain ownership througout suit 3. Demand board to bring suit
Dismissal if maj. or directors w/ no personal interest determine in good faith that suit is not in best interest or corp. |
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Shareholder Distributions |
Generally in the for of dividends or assets after dissolution. 1. No dist. if corp is insolvent and cannot pay liabilities. 2. Dist. can accumulate if not declared. 3. Directors are liable if they vote for an unlawful dist. a. Other directors may seek contrubution b. Director may recover from s/hldr who received unlawful dist. and knew it was unlawful. c. Can use good faith defense if accts. screwed up. |
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Shareholder Liabilities |
Shareholder may act in self interest - Must refrain from obtaining power to disadvantage min. s/hldr's |
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Directors Voting |
-Directors must attend in person or through electronic communication if all directors can hear each other. -No notice required -Special meetings require notice of two days -Quorum must be present to vote -51% of those present |
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Director Voting Delegation |
Executive committee may exercise authority given to them by board 1. composed of two or more directors. |
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Director Liability - BJR |
BJR protects directors from personal liability to corp shareholder. 1. Director must act in good faith 2. With the care that an ordinarily prudent person in a like position would exercise 3. in manner reaonsbly believed to be in the best interest of the corp. |
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DIrector Liability - Reasonable Reliance |
Director may defend suits with a claim of reasonable reliance on opinions, reports, etc. prepared by experts or reliable employees |
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Director Liability - Duty of Loyalty |
A transaction between a corp and director will not be set aside for self dealing if: 1. The director disclosed all material facts, and transaction was approved by disinterested director or shareholder OR 2. The transaciton was fair to the corp. |
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Director Liability - Corp Opportunity Doctrine |
A director may not divert to himself a business opportunity w/in the corp line of business w/out first giving the corp an opportunity to act (usurpation)
COrp may recover directors profits or force director to convey the opportunity to the corp. |
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Director Indemnification |
- If director is sued as a director and successfully defends, corp must indemnify - If director is unsuccessful in defending, corp has discretion to indemnify if the director complied with BJR. |
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Officers |
RMBCA allows corp to have officers described in bylaws or appointed by directors. A person may hold more than one office. |
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Officers - Appointment, authority, liabilities |
- Officer are appointed and removed bo BoD. - Officers have actual authority given by BoD, bylaws. - Have apparant authority to do whatever someone in their position would have authority to do. - Owe corp duties similar to those of directors - Have a right to indemnification |
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Fundamental Corp Changes - Types |
Amendments to articles, mergers, consolidations, share exchanges, dispositions of substantially all assets outside of the regular course of business. |
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Fundamental Corp Changes - Procedure |
1. Board resolution 2. Notice to shareholders 3. Shareholder approval 4. Articles of the change filed w/ the state. |
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Fundamental Corp Changes - Merger |
Must be approved by directors and shareholders of both corporations. Exception for parent-subsidiary merger.
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Fundamental Corp Changes - Dissenters' appraisal remedy |
Shareholders who do not like a fundamental corp change may force the corp to purchase their shares at a fair price if they: 1. Give corp notice of intent to demand appraisal rights before vote is taken 2. Do note vote in favor of the change 3. Demand payment after the changes is approved. |
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Fundamental Corp Changes - Tender Offers |
A widespread offering to purchase a substantial % of the targets share. |
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Fundamental Corp Changes - Tender Offers Williams Act |
If a bidder makes a tender offer more than 5% of a class of securities, bidder must file 14d (extensive disclosure) - Offer must be open to everyone for min 20d - S/holders must be permitted to withdraw - If offer is increased, higher price paid to all tendering s/holders - Mgmnt of target must give its s/holders rec. or explain why it cant give rec. - No false of misleading statemetns. |
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Fundamental Corp Changes - Control Acquisition Statutes |
State law providing that if a designated stock ownership threshold is crosed, the shares so purchased will not have voting rights unless the holders of a maj. of the disinterested shares vote to grant voting rights in the acquired shares. |
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Voluntary Dissolution |
If shares have not yet been issued or business has not yet commenced, a maj. of the incorporators or initial directors may dissolve corp. by delivering articles of dissolution to the St. - After shares have been issued, corp may dissole by a corp act approved under the fundamental change procedure. |
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Effect of Dissolution |
- Corp existence continues - Corp cannot carry on business except winding up - A claim can be asserted against dissolved corp to extent of corp undistributed assets. 1. If assets distributed must make a claim against shareholders for pro rata share. |
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Administrative dissolution |
The St. may bring an action to dissolve corp for failure to pay fees or penalties, failure to file an annual report, and failure to maintain a registered agent. |
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Judicial Dissolution |
AG may seek to dissolve a corp if the corp fraudulently obtained its articles or incorp. or that the corp is exceeding or abusing its authority.Shareholder |
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Shareholders seek JD if: |
1. The directors are deadlocked in the mgmnt of corp, s/hldrs are unable to breack deadlock, & irreparable injury to corp is threatened. 2. Directors have acted or will act in illegaly, oppressive or fraudulent 3. S/hldrs deadlocked in voting power & failed to elect one or more directors for a period that includes at least two consecutive annual mtg's. 4. Corp assets are being wasted, misapplied, or diverted. |
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Creditors seek JD if: |
1. The corp admitted in writing that creditors claim is due and owing and the corp is inolvent 2. The creditors claim has been reduced to judgment, execution of the judgment has been returned unsatisfied and the corp is insolvent. |
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10b-5 |
Makes it illegal to use any means or instrumentality of interstate commerce in connection w/ the purchase or sale of any security to employ any scheme to defraud, make an untrue statement of material fact, or engage in any practice that operates as a fraud. |
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10b-5 - Materiality & Intent |
Materiality - A substantial liklihood that a reasonable investor would consider it important in making an investment decision Intent - The conduct must have been undertaken w/ an intent to deceive, manipulate, or defraud (scienter). Recklessness as to truth also appreas to be sufficient culpability |
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10b-5 - Defendant need not purchased securities |
A non purchasing D can be held liable to aperson who purchased or sold securities on the market on the basis of a misleading press release |
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10b-5 |
A private P must prove reliance on D's fraud statement or conduct - If omission, reliance generally presumed
A private P must show that D's fraud caused damages - damages are limited to the diff between the price paid or received & the avg. share price in the 90 day period after corrective info is disseminated. |
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10b-5 Trading based on inside info |
A person violates 10b-5 if by trading he breaches a duty of trust and confidence owed to 1. the issuer 2. shareholders of the issuer 3. In the case of misappropriators, another person who is the source of the material non purblic info. |
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10b-5 Trading based on inside info |
- Anyone who breaches a duty not to use inside info violates 10b-5 - Tipper can be liable under 10b-5 if the tip was made for an improper purpose (exchange for $, kickback, gift, etc.) - Tippee can be held liable only if the tipper breached a duty and the tippee knew that the tipper was breaching the duty |
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16b |
Requires surrender to the corp of any profit realized by any director, officer or s/hldr owning more that 10% of a class of the corp stock from the purchase & sale, or sale & purchase, of any equity period w/in 6 mo. period |
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16b sale or purchase test |
Type of sale in which abuse of inside info is likely to occur |
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16b Type of transaction |
Transactions occurring before one becomes an officer or director are excluded, but transactions occurring w/in 6 mo. after ceasing to be an officer or director are covered. |
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16b Profit |
Profit is determined by matching the highest sales price against the lowest purchase price for any 6 mo period. |
