Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
53 Cards in this Set
- Front
- Back
|
Corp formation
What are promoters? Subscribers? |
Promoters are persons acting on behalf of a corp not yet formed
Subscribers are persons or entities who make written offers to buy stock from a corp not yet formed |
|
|
Corporations
What are the six testable issues? |
Corporate formation
Issuance of stock Action by and liability of directors and officers Rts of shareholders Fundamental corporate changes Fed securities laws |
|
|
Corp formation
What is corp liability on promotor's preincorp K? Is promoter absolved of liability then? |
Corp becomes liable on promoter's preincorp K when corp ADOPTS the K by:
EITHER express BOD resolution OR implied adoption by knowledge of K PLUS acceptance of the benefits ** NO; must have NOVATION to replace promoter |
|
|
Corp formation
What if promoter enters K and corp is never formed? What if promoter enters preincorp K, the corp is formed, and corp merely adopts the K? |
Promoter ALONE is liable on K; NOT corp
** Corp becomes liable AND promoter remains liable until novation |
|
|
Corp formation
What are consequences of promoters being fiduciaries? |
Promoters are fiduciaries of each other and corp, so they owe a duty of loyalty that prohibits:
1 Self dealing 2 Usurping opportunities 3 Secret profits to corp's detriment |
|
|
Corp formation
Promoter and secret profits problem; if promoter sells his own property to corp, what can corp recover? What tool to use for recovery? |
IF promoter sell to corp property acquired BEFORE becoming promoter: profit recoverable by corp ONLY IF sold for more than fair mrkt value
IF promoter sell to corp property acquired AFTER becoming promoter: any profit recoverable by corp Profit recovery happens via DISGORGEMENT |
|
|
Corp formation
Can a subscriber revoke offer to buy stock in not yet formed corp? |
IGNORE K LAW
Preincorp offer to buy stock in a not yet formed corp is NOT REVOCABLE for SIX months |
|
|
Corp formation
What is an incorporator? |
Merely one who signs and files the articles of incorp with the state
|
|
|
Corp formation
What must articles of incorp contain? What do the articles NOT NEED to contain? |
A PAIN
1 Authorized shares: max # of shares the corp is authorized to issue 2 Purpose (general vs specific) 3 Agent (for purposes of service of process) 4 Incorporators 5 Name of corp (MUST contain some indicia of corp status, like Inc.) NO NEED for bylaws in articles |
|
|
Corp formation
In articles of incorp, what is the relationship btw purpose and duration in the purpose requirement? What is the default position? What are consequences of going beyond narrow purposes? |
General purpose AND perpetual duration: valid AND presumed in absence of specific purpose and/or limited duration
** If the purpose is specific, and there's an ultra vires activity? 1 State can enjoin ultra vires activity AND/OR 2 Corp may sue its own directors/officers for losses caused by the activity |
|
|
Corp formation
How to obtain de facto corp status? |
Organizers have made good faith attempt to comply w/corp formalities
AND Have NO knowledge of lack of corp status |
|
|
Corp formation
What is legal significance of corp? |
Corp is a SEPARATE legal person, so shareholders and directors/officers are NOT personally liable for corp debts (unless corp veil pierced)
I.e. limited liability |
|
|
Corp formation
When should ct be allowed to pierce corp veil? 3 scenarios. Why would ct be more willing to pierce veil for torts than for Ks? |
1 Alter ego: failure to observe sufficient corp formalities
2 Undercapitalization at the time of formation for foreseeable liabilities 3 To avoid fraud ** Veil piercing is equity, so torts are easier to justify than Ks |
|
|
Corp formation
How can foreign corp engage in regular intrastate business? |
File CERTIFICATE OF AUTHORITY with state that includes all info required in articles of incorp
|
|
|
Issuance of stock
When does issuance occur? |
ONLY when corp is selling its own shares of stock; NOT when 3rd parties buy/sell stock on after mrkt
|
|
|
Issuance of stock
What constitutes consideration for most stock issuance? |
Par value: minimum issuance price, so corp can never receive less than par value
|
|
|
Issuance of stock
What is treasury stock? What is consideration for treasury stock? |
Treasury stock is stock that previously issued and then reacquired by corp
Any valid consideration deemed adequate by BOD is okay (no par value) |
|
|
Issuance of stock
Can property be used as consideration? |
Any valid consideration may be received IF BOD values it at least par value
|
|
|
Issuance of stock
What if par value is required, but corp issues shares for less than par value? Can corp recover? From whom can it? From whom can't it? |
YES; corp can recover from directors personally for authorizing a below par issuance b/c that is ultra vires per se
Can also recover from shareholders b/c shareholders are ALWAYS liable for paying full consideration of their shares, so BUYER is liable too Must choose BOD OR BUYER to sue; NOT BOTH |
|
|
Issuance of stock
What are preemptive rts? Can they be presumed if not granted in articles of incorp? |
Rt of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for cash
** NO; must be express grant of preemptive rts |
|
|
Directors and officers
Statutory requirements for directors? |
BOD with at least one member
Shareholders elect directors Shareholder can remove director before term expiration for NO cause Valid meeting for ALL BOD behavior |
|
|
Directors and officers to their own corp and shareholders
What is limitation on director liability? What is the way to impose liability? |
Business judgment rule, presumption that directors manage corp in good faith so innocent mistakes are okay
BUT, directors are FIDUCIARIES and have duties of care and loyalty |
|
|
Directors and officers to their own corp and shareholders
What are the directors' two duties? |
DUTY OF CARE
Act w/care of a prudent person UNLESS articles of incorp have limited liability for breach of duty of care DUTY OF LOYALTY Director canNOT receive unfair benefit to detriment of corp or its shareholders UNLESS there has been material disclosure AND independent ratification 1 NO self-dealing by interested directors w/o disclosure and approval by majority of disinterested directors 2 NO usurping corp opportunities 3 NO secret profits |
|
|
Directors and officers to their own corp and shareholders
How can director defend against claim of breach of duty of loyalty? |
By obtaining DISCLOSURE +++ INDEPENDENT RATIFICATION via MAJORITY VOTE of:
1 Majority vote of independent directors 2 Majority vote of a committee of at least 2 independent directors 3 Majority vote of shares held by independent shareholders |
|
|
Directors and officers to their own corp and shareholders
What are the duties of officers? |
Same as directors
|
|
|
Directors and officers to their own corp and shareholders
What is relationship of directors to officers? |
Directors can fire officers at will
|
|
|
Directors and officers to their own corp and shareholders
Can directors/officers seek indemnity from corp for litigation costs? Whom can a corp indemnify for sure? Maybe? Never? |
Corp can NEVER indemnify director/officer IF they lost a suit to their OWN corp
Corp MUST ALWAYS indemnify IF directors/officers WON a lawsuit against any party, including their own corp Corp MAY indemnify IF: 1 Liability to third parties or settlement with corp OR 2 Director/officer shows that she acted in good faith and that she believed her conduct was in corp's interest |
|
|
Directors and officers to their own corp and shareholders
Who may determine whether to grant indemnity if it's a maybe situation? |
1 IF majority of independent directors approves indemnity
2 Committee of at least 2 independent directors approves indemnity 3 Majority of shares held by independent shareholders can vote 4 Special lawyer's opinion can recommend it |
|
|
Rts of shareholders
What is shareholder derivative suit? |
Shareholder sues to enforce the corp's cause of action
ALWAYS ask, could corp have brought this suit itself? |
|
|
Rts of shareholders
What are all shareholder rts? |
Shareholder derivative suit
Voting Examine books/records of corp Dividends IF directors/officers are really misbehaving |
|
|
Rts of shareholders
Threshold requirements for shareholder dertivative suit |
1 Contemporaneous stock ownership: at least own ONE share of stock when claim arose AND throughout entire litigation
2 Demand: Must generally make demand on directors that they cause their own corp to bring suit, and demand must be rejected OR at least ninety days must have passed since demand |
|
|
Rts of shareholders
Who has right to vote at upcoming meeting where voting occurs? |
ONLY the record date owner votes
Record date is the voter eligibility cut-off date set by the BOD within the 70 day period leading up to the meeting period Therefore, you must own a share by the record date; no matter the meeting date |
|
|
Rts of shareholders
When can shareholders vote by proxy? Proxy must...(5) |
1 In writing
2 Signed by record sharedholder 3 Directed to secretary of corp 4 Authorizes another to vote shares 5 Valid for ONLY 11 months |
|
|
Rts of shareholders
Are proxies revocable? Exception? |
Proxies are revocable UNLESS:
1 Labeled irrevocable AND 2 Coupled w/an interest in the shares themselves |
|
|
Rts of shareholders
Where do shareholders vote? Two kinds of meetings. |
Properly noticed annual voting at which at least one director slot is open to election, so time/place required
Specially noticed special meeting: called by BOD, the president OR holders of 10% of voting shares; meant to vote on proposal or fundamental corp changes; notice must ALSO describe the special purpose of the meeting b/c meeting is LIMITED to that purpose |
|
|
Rts of shareholders
What is quorum? |
A majority of all outstanding shares (NOT people) must be represented when the meeting begins, unless otw provided in articles of incorp
|
|
|
Rts of shareholders
What is required for voting to produce a winner? |
Votes cast in favor must simply exceed those cast against by one share
NO abstentions |
|
|
Rts of shareholders
What is alternative voting method to increase voting power? What two ways to achieve it? |
Pooled/block voting; two ways to do this
VOTING TRUST: formal delegation of voting power to voting trustee for 10 years unless extended by agreement SHAREHOLDER VOTING AGREEMENT: Agreement in writing to vote shares as required by the agreement |
|
|
Rts of shareholders
What is cumulative voting of directors? |
Multiply shares by number of open director slots, but ONLY if agreement allows for it
|
|
|
Rts of shareholders
Relationship of dividends to solvency? |
NO dividends issued IF
Corp is insolvent OR Dividend issuance would render corp insolvent BOD members are liable personally if they issue wrongly |
|
|
Rts of shareholders
What is the dividend priority of distribution, depending on share type? |
COMMON STOCK
Get paid last AND equally COMMON STOCK + PREFERRED STOCK Preferred stock get dividends first COMMON STOCK + PARTICIPATING AND PREFERRED STOCK Participating preferred stock get paid TWICE b/c they get preferred treatment, and common treatment after COMMON STOCK + PREFERRED CUMULATIVE STOCK Preferred cumulative stock gets paid for yrs when there were no dividends |
|
|
Rts of shareholders
Do shareholders have a rt to dividends? |
NO; BOD has discretion
UNLESS directors have behaved very badly |
|
|
Rts of shareholders
How can shareholder agreement eliminate corp formalities (closely-held corps)? Two benefits?? |
Unanimous shareholder election in writing
AND Some reasonable share transfer restriction Benefits: 1 NO piercing the veil, EVEN IF failure to observe formalities AND 2 Possible Subchapter S corp status; therefore, deemed partnership for tax status |
|
|
Rts of shareholders
What are two elements of S corps? |
100 or fewer shareholders
AND ONLY one class of stock |
|
|
Rts of shareholders
What is a professional corp? |
Licensed professionals MUST be shareholders and ONLY practice one designated profession
|
|
|
Rts of shareholders
Shareholders usually have no liability for corp. Exceptions? (3) |
Piercing the corporate veil to render shareholder liable
CONTROLLING SHAREHOLDERS owe fiduciary duty to minority shareholders CONTROLLING SHAREHOLDERS are liable for selling corp to a party who loots the corp, UNLESS reasonable measures were taken to investigate buyer's reputation and plans for the corp |
|
|
Fundamental corp changes
What are the five types of fundamental corp changes? |
For sure: merger AND consolidation AND dissolution
Maybe: fundamental (not ministerial) amendment of articles of incorp AND sale of substantially all of corp's assets |
|
|
Fundamental corp changes
Five step process to effectuate any fundamental change |
1 Resolution by BOD at valid meeting
2 Notice of special meeting 3 Approval by a majority of all shares entitled to vote (NOT just a quorum) AND by majority of each voting group that is adversely affected by the change EXCEPT short-form merger where 90% parent of sub merges with sub 4 Possibility dissenter shareholder rt of appraisal by perfecting the rt to demand payment of shares for fair mrkt value 5 File notice of change with the state |
|
|
Fundamental corp changes
How does a dissenter shareholder perfect rt of appraisal? (3) |
File written notice of objection and intent to demand payment BEFORE vote
Do NOT vote in favor of proposed change Make prompt written demand to be bought out |
|
|
Fed securities laws
Insider trading |
Who is liable?
Insiders Tippers Tippees ONLY IF tipper breached duty AND tippee knew of breach TIPPERS CAN BE VICARIOUSLY LIABLE EVEN IF THEY DIDN'T SELL/BUY STOCKS THEMSELVES |
|
|
Fed securities laws
IF it's a private 10b-5 action by private investor, 6 elements |
1 Fraudulent conduct
a Materiality b Scienter 2 Connected to sale/purchase of security 3 In interstate commerce 4 Reliance 5 Damages |
|
|
Fed securities laws
Section 16(b); when does it apply? |
-Big corp (reporting corp)
OR -Big D (officer, director, 10%+ shareholder) AT THE TIME OF SALE/PURCHASE (no application to firms who were not prior shareholders) AND -Type of transaction: buying/selling stock within single six-month period (NO fraud OR deception required) STRICT LIABILITY |
|
|
Fed securities laws
Consequences of 16(b) |
All profits from short-swing trading are recoverable by corp
IF, within six months before/after any sale, there was a purchase at a lower price than the sale price, there is PROFIT actionable by 16(b) |
