California Business Associations - Ca Bar Exam

Front 1

How should you start the CA business associations essay?

Back 1

Start with: Laws regarding agency, partnership, and corporations govern.

Front 2

What is the rule for agency?

Back 2

Agency is a consensual fiduciary relationship wherein one person, the agent, agrees to act for and under the direction or control of another, the principal.

Front 3

In a corporation, to whom does the director owe a fiduciary duty?

Back 3

To the corporation and shareholders.

Front 4

What is the definition of a partnership?

Back 4

An association of two or more persons who share a business for profit.

Front 5

What is the rule for partnership profits and losses?

Back 5

Each partner is entitled to be repaid his contributions, whether made by way of capital or labor to the partnership property, and to share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied.

Front 6

What is the first step to incorporation?

Back 6

Filing of the Articles of Incorporation with the Secretary of State by the incorporator.

Front 7

When is piercing the corporate veil permitted?

Back 7

Although a corporation is generally viewed as a separate legal entity, its "veil may be pierced" if it is used to commit fraud or to achieve inequitable results.

Front 8

What are the statutory requirements for forming a de jure corporation?

Back 8

(1) One or more incorporators need to file the signed Articles of Incorporation w/ the Secretary of State and pay the required fee.

(2) After filing, the Board of Directors need to hold an organizational meeting where they select officers, adopt any bylaws, and conduct other appropriate business.

Front 9

Who can be incorporators?

Back 9

Can be a person or entity.

Front 10

What must Articles of Incorporation include?

Back 10

Must include:

(1) Purpose: Can be general or specific
(2) Names and addresses of incorporators and registered agent
(3) Business name must have corporation, Inc., Co., etc
(4) Financial Structure: (a) authorized stock, issued stock, outstanding stock; (b) number of shares per class, par value, voting rights, preferences of each class.

Front 11

What is the effect of defective incorporation?

Back 11

Directors, officers, owners, etc are still personally liable.

Front 12

What is a de jure corporation?

Back 12

A corporation formed through fulfilling statutory requirements.

Front 13

What is a de facto incorporation?

Back 13

An institution can still be treated as a corporation if it put in a good-faith effort to create corporation and exercises corporation privilege.

Front 14

What is corporation by estoppel?

Back 14

(1) If a person deals with and treats an institution like a corp they can't later deny the existence of a corp

(2) A corp can't say it is not a corp to avoid obligations

Front 15

What is a promoter?

Back 15

A person acting on behalf of a corp not yet formed.

Front 16

What is the extent of promoter liability?

Back 16

Promoters are liable for their actions on behalf of a pre-incorporated corp until there is a novation (corp replaces existing contracts).

Front 17

Are corporations liable for pre-incorporation contracts?

Back 17

Not unless they are later adopted.

Front 18

How does a corporation adopt a pre-incorporation contract?

Back 18

(1) Express: Board of Directors resolution

(2) Implied: If corp accepts benefits of the contract

Front 19

Is a novation needed after a corporations has adopted a pre-incorporation contract to release a promoter from liability?

Back 19

Yes

Front 20

What is the secret profit rule?

Back 20

Promoter can't make secret profit on dealings with the corporation.

Front 21

What happens to a promoter's property acquired before becoming a promoter if he/she breaks the secret profit rule?

Back 21

Promoter gives back anything received over fair market value.

Front 22

What happens to a promoter's property acquired after becoming a promoter if he/she breaks the secret profit rule?

Back 22

Promoter gives back anything over cost.

Front 23

Do bylaws need to be filed when forming a corporation?

Back 23

No

Front 24

When are bylaws adopted?

Back 24

Adopted after formation by Board of Directors and can be amended or repealed by Shareholders.

Front 25

Why document controls if the bylaws are inconsistent with the Articles of Incorporation?

Back 25

Articles control.

Front 26

When does an issuance of stock occur?

Back 26

When a corp sells or trades its own stock.

Front 27

What is a subscription of stocks?

Back 27

Written offers to buy stock from a corporation.

Front 28

For how long is a pre-incorporation subscription of stock irrevocable?

Back 28

For six months unless all parties agree.

Front 29

For how long is a post-incorporation subscription of stock irrevocable?

Back 29

Can be revoked up until acceptance.

Front 30

What is valid consideration for stocks?

Back 30

Can be in the form of money, property, or services already performed for the corp BUT can't be in the form of future services or promissory notes.

Front 31

What is an appropriate amount of consideration for stocks?

Back 31

Generally, consideration must be at least equal to the par value of stock (face value or min issuance price).

If the stock is no par then the Board sets a price.

Front 32

What is a treasury stock?

Back 32

Reacquired stock.

Front 33

Can a corp tak in property instead of money when issuing par value stock?

Back 33

Yes

Front 34

What is watered stock?

Back 34

Issuing par for less than the corp's value.

Front 35

What recourse does the corp have if the Board of Directors issues watered stock?

Back 35

Corp can go after Board of Directors buyers if they did it knowingly.

Corp cannot, however, go after bona fide purchasers.

Front 36

What preemptive rights do shareholders have when additional stock is issued?

Back 36

Traditional rule: Shareholder has the right to buy stock during new issuance to maintain his/her proportion when the new issuance is for money.

Modern Trend: Preemptive rights do not exit unless mentioned in articles.

Front 37

What power does a corp have to repurchase shares?

Back 37

Corp can get treasury stocks back and sell them again, but the stocks are treated as no par if resold.

Front 38

Can the Board of Directors give gifts and loans on behalf of the corp?

Back 38

Yes, loans or gifts can be given out by the Board if they are reasonably expected to benefit the corp.

Front 39

What is needed in order for a corp to sell or transfer all of its assets?

Back 39

Must have:

(1) Board of Directors resolution,
(2) notice to all voting shareholders, and
(3) Majority approval of all shares entitled to a vote.

Front 40

What are Ultra Vires acts?

Back 40

Acts attempted by a corp that are beyond the scope of power granted by the corp's founding documents.

Front 41

How are ultra vires acts punished?

Back 41

Ultra vires deals are valid, but Shareholders can get an injunction and the responsible individuals are liable to the corp.

Front 42

What duty do officers and directors owe the corp if they are involved in a transaction with the corp?

Back 42

A director or officer has a duty of loyalty to act in good faith and with the conscientiousness, fairness, morality, and honesty that the law requires of fiduciaries.

Front 43

How much may a corp's officers be compensated?

Back 43

Compensation is set by the directors.

Front 44

How much may a corp's directors be compensated?

Back 44

Directors can set their own compensation, but it must be reasonable and in good faith.

Front 45

What happens if directors set their compensation to high?

Back 45

If the compensation is excessive, then it is a waste of corp assets and a breach of duty of loyalty.

Front 46

What level of indemnification do officer and directors enjoy from the corp?

Back 46

They can seek reimbursement from the corp if they are sued in their capacity as an officer or director and incur costs such as attorney fees, fines, a judgment, or settlement.

Front 47

When is officer/director indemnification prohibited?

Back 47

Reimbursement is prohibited if officer or director was held liable to the corp or held to have received an improper personal benefit.

Front 48

When is officer/director indemnification mandatory?

Back 48

Corp must reimburse officer/director if they were successful in defending the action.

Front 49

What is the rule for permissive indemnification of officers/directors?

Back 49

Use this rule if mandatory/prohibited indemnification don't apply.

(1) A corp may reimburse if the officer/director acted in good faith and reasonably believed the act to be in corp's best interest.

(2) The ct can order the Corp to reimburse litigation expenses and attorney fees if the corp is reasonably entitled to the fees, but reimbursement can't include judgment against the officer/director.

Front 50

What types of acts cannot be indemnified by the corp through inclusion of a provision in its Articles?

Back 50

Articles can provide for limitation or elimination of liability for damages, but not for breach of duty of loyalty, intentional misconduct, or wrongful personal benefit.

Front 51

Can a corp buy insurance to cover director and officer liability?

Back 51

Yes