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;
45 Cards in this Set
- Front
- Back
|
Characteristics of a Corporation
|
-free transferability of shares
-continuous existence -limited liability of shareholders -centralized management of assets and operation by directors and officers |
|
|
Formation Requirements for a Corporation
|
-Articles of organization:
include: >corporate name >number of shares authorized >description of classes of shares >name and address of registered agent -the "incorporator(s)" sign the articles and file them -File articles with the state corp commision. |
|
|
What is the organizational meeting and
When is it scheduled |
The organizational meeting is held by the initial directors and occurs after incorporation.
The initial directors: -approve the bylaws -appoint officers -address any other business |
|
|
Bylaws of a corporation
|
Bylaws are the internal rules and regulations of the business.
The often specify: -time and place of annual shareholders meeting -record date for determining shareholders entitled to vote -number of shares constituting a quorum -percentage of votes necessary to authorize corporate action and -any restrictions on transferability of shares -the board may also adopt a set of "emergency bylaws" |
|
|
Defective Incorporation
|
>de jure
I corporation organized in compliance with the statute is de jure >De facto A corporation that did not meet the statutory requirements but was formed in good faith and the incorporators made a valid attempt to comply with the law is a de facto corporation. It will be treated as if it were in compliance with the statute. >Corporation by estoppel If a defective corporation has dealt with creditors as a valid corp they will be estopped from claiming they are a corporation if it prejudices the creditors. |
|
|
Ultra Vires Acts
|
These acts are outside what is permitted in the articles and bylaws. A corporation cannot be obliged to undertake a contract or activity beyond the scope of its powers.
|
|
|
Piercing the corporate veil
|
>General Rule:
-A corporation will be looked upon as a separate and legal entity unless the entity is used to commit fraud or to achieve inequitable results. -Unless otherwise provided a shareholder is not held personally liable for the acts or debts of the corporation. >HOWEVER, a court may disregard a corporation's separate entity and hold shareholders or affiliated corporations liable on corporate obligations when there is a compelling reason of equity to look beyond the corporate form. > the party seeking to pierce the corporate veil has the burden of proof. |
|
|
Factors considered by the court when looking to pierce the corporate veil
|
-Alter Ego: parties are using the corporate form for protection without compliance with the requirements to be a corporation
-common ownership -pervasive control -intermingling of business assets -inadequate capitalization -failure to comply with corporate formalities -siphoning of corporate funds -use of corp. in promoting fraud |
|
|
Reverse Piercing of the corporate veil
|
Occurs when a 3rd party creditor seeks to pierce the corporate veil to hold the "corporation" liable for acts or debts of the shareholder or parent corp.
|
|
|
Equitable subordination
|
A shareholder may loan money to a corporation but if company becomes insolvent the debt of outside creditors will be paid before paying the loan from the shareholder.
|
|
|
Promoters
|
-Set up the corp
-manage initial financing -arrange meeting of investors -negotiate preincorporation agreements -lease office and factory space -contract for initial needs |
|
|
Promoter Liability
|
-Liable for preincorporation agreements unless other party knew that no corp existed but would be formed and liable for the contract
-Novation: Promoter liable unless and until a novation is formed between creditor and newly formed corp. -Promoter must make clear the intent of the contractual obligations -the corporation's liability happens upon novation or adoption of preincorp. Ks |
|
|
Other ways a corporation may be bound by precorp Ks
|
-accepting benefits of K
-unjust enrichment (quasi K) -accepting assignment of the K |
|
|
Sources of Finance
|
Debt Securities:
-debentures: unsecured obligations-holders are general creditors -bonds: secured by mortgage or specific assets: holders are secured creditor -notes: short term debt that may be secured or unsecured; typically used with institutional lenders >Equity Securities: -holders have no right to repayment but do have right to the residual (left over assets) -They do have right to dividends -They do have Dividend rights -They have liquidation rights |
|
|
Classes and Series of Stock
|
>Common Stock:
-voting rights -right to receive assets upon dissolution -"residual ownership interest" >Preferred Stock -entitled to dividends before common stock -nonvoting -nonparticipating -dividends limited and cumulative -liquidation preference -redeemable |
|
|
Preemptive Rights
|
Before 12/31/05 shareholders had a right to acquire new shares so a to maintain their level of ownership.
after 12/31/05 these rights do not exist unless in articles of incorp. |
|
|
Waiver of preemptive rights
|
if sharehholder does not purchase the stock at the offering he has waived.
-if waiver in writing it is irrevocable -if waiver the corp can offer the shares at a price no lower than was offered to shareholder to purchase in exercise of preemptive rights for one year. |
|
|
Enforcement of Preemptive rights
|
Shareholder whose preempt. rights were violated may:
-enjoin the sale -require corp to issue additional shares to him -purchase the shares on open market and recover from corp the difference between offering price and market price. |
|
|
Share transfer restrictions
|
Enforceable if:
-authorized -conspicuous |
|
|
Distribution
|
A distribution is a direct or indirect transfer from a corp of money or other property, except its own shares, or incurrence of indebtedness by a corp to or for the benefit of its shareholders in respect of any of its shares.
A distribution includes: -dividend -purchase, redemption or acquisition of shares -distribution of indebtedness -a distribution of voluntary or involuntary liquidation. |
|
|
Structure to analyze Corporation Q
|
>Pre formation
-promoter Ks -incorporators >Formation -ariticles -bylaws -initial meeting >Management and Control -corporate formalities -voting/proxy voting -voting trust -meetings >Fiduciary duties of management and controlling shareholders -BJR >Dissolution |
|
|
Voting
|
>straight voting: 1 share = 1 vote
>cumulative voting: protects minority shareholders -allows each share as many votes as there are directors to be elected. |
|
|
Removal of a director
|
Unless stated otherwise in art of inc. a majority vote is needed to remove a director.
|
|
|
Fiduciary Duty of Officers and directors
|
>duty of care:
*good faith -best business judgement -best interest of corp *BJR: -rebuttable presumption -if good faith error no breach -entitled to rely on information >duty of layalty -do not promote personal interest over the corp's interest -do not usurp corp opportunity -do not compete with the corp *conflict of interest -a conflict of interest transaction is a transaction with the corporation in which the director has an interest that differs from the interest of the corp. another interest which the director has a material financial interest in is a party to transaction = conflict another entity of which he is also a director or officer is a party to transaction =conflict |
|
|
Fundamental Changes in the corporate structure
|
>amendment of articles
>merger and share exhcanges >sale of substantially all of assets >dissenting shareholders appraisal rights: -remedy = put shh in position they were in prior to change >conversion >dissolution >tender offers |
|
|
Shareholder Suits
|
>Direct suit: shh sues on his own behalf because he suffered injury
Derivative Suit: -conditions precedent *contemporaneous ownership *adequate representation -demand upon directors -directors consider allegations -dismissal -intervention -expenses -discontinuance or settlement |
|
|
When is a shareholder liable for a contract intended to bind the corp
|
If the shareholder does not disclose that they are signing on behalf of and intend to bind the corporation and they sign the K then they are personally liable.
|
|
|
Effects of thin capitalization
|
A corporation that is thinly capitalized may be subject to piercing of the corporate veil. It may be evidence that the corporation was started solely as way to protect the owners from liability for their dealings.
On The other hand a thinly capitalized corporation that is operating in compliance with corporate requirements and operating its business above board will not be seen as an ineffective corporation. |
|
|
Effects of Pledging Stock as Collateral
|
Pledging stock as collateral does not restrict the shareholder's rights.
The rights are not restricted until the stocks are transferred into the pledgee's name. When this happens the pledgee becomes entitled to vote. |
|
|
Shareholder's Right to copy and inspect Corporate books
|
A shareholder may inspect and copy accounting records if they are a shh for at least 6 months, her demand is made in good faith, she has a reasonable purpose for the request, and the records are directly connected to her purpose.
1. Inspection may be doneduring regular business hours at a reasonable location specified by the corporation 2. Shh must give 5 biz days notice 3. If reasonable shh can request electronic copies |
|
|
Does attendance to a special stock holder meeting waive objections based on notice?
|
No, UNLESS the shh objects at the beginning of the meeting
|
|
|
What are the steps required to form a business entity
|
>Corporation must file:
-articles of incorporation with the SCC. These articles must include: -Name of Biz -Registered Agent with address >limited partnership: -File a certificate of partnership with SCC. It must include: name and address of entity, name and address of all general partners, the name must include "LP" or "limited partnership" >An LLC must file certificate and articles of Organization with SCC. It must contain the name and registered office of entity, name and address of agent, name must contain a version of "LLC" -number and type of shares |
|
|
Would business entities shield owners from personal liability
|
Yes, corporations and LLCs would shield owners from liabilitys.
However, in General partnerships only general partners are liable. In Limited Partnerships, general partners are liable for debts and limited partners are liable up to the amount of their personal contribution. |
|
|
taxation of business entities
|
>C Corp: double taxed
-taxed on its income and shareholders are taxed on dividends >S corp -does not pay tax on its income. Income 'passes through" to owners >general and limited partnerships -entity does not pay tax itself, income passes through to owners |
|
|
removal of directors
|
Shh can call a special meeting by giving notice and in the notice stating the purpose of the meeting. Notice must be given not less than 10days prior and not more than 60 days prior.
-Under VA law shhs can remove any or all of its directors with or without consent at a meeting expressly for that purpose. Unless articles say otherwise. To remove the director a majority of voting shares must vote in favor of removal. |
|
|
Cumulative Voting
|
Cumulative voting is not permitted unless the articles provide that it is.
|
|
|
Piercing the corporate veil
|
The general rule is that the corporation is an entity separate and apart from its shareholders. A corporation is liable its own obligations; its shareholders, officers and directors are not liable.
HOWEVER, VA law permits the corporate entity to be disregarded adn the shareholders held perrsonally liable under certain extraordinary circumstances. There are 3 situations in which the court may pierce the corporate veil: 1. when the shareholder treat the corporation as their alter ego by ignoring corporate formalities, using corporate funds for personal debts etc. 2. Corp is undercapitalized 3. to prevent fraud |
|
|
Shareholder consent
|
Shhs can consent to actions taken by directors, formalizing the informal actions taken earlier.
|
|
|
Liability of directors for unlawful distributions
|
Unless they comply with statutory standards of conduct directors are jointly and severally liable to the corporation and its creditors for authorizing an unlawful distribution.
Defense asserted by director is a good faith reliance on financial statements provided by officers in charge of those statements. Contribution: A director found liable for un authorized claim can seek contribution from other directors who authorized the distribution in question. |
|
|
Statute of Limitations to bring claims against Corporations
|
2 years
|
|
|
Conflict of Interest
|
General rule is transaction involving directors with a conflicting interest are void.
-A transaction is not voidable if either: the material facts of the transaction and the director's interest are disclosed to the board or the shareholders and a disinterested majority of board or shhs approve the transaction; or the transaction is fair to the corporation |
|
|
Fundamental Change Procedure
|
A sale of all or substantially all of the corporations assets outside the regular course of business is a fundamental corporate change.
>Approval of a fundamental corporate change requires approval by majority of directors and approval of more than 2/3 of shares entitled to vote. |
|
|
Director's Fiduciary Duties
|
Duty of care
Duty of loyalty In discharging their duty, directors must exercise good faith business judgement and act in the best interest of the corporation. |
|
|
Who may remove directors
|
Only shareholders may remove directors.
They may remove an officer at any time with or without cause. Not entitled to notice or warning |
|
|
When a distribution is forbidden
|
If a distribution to shareholders leaves the corp without assets that at least equal liabilities then it is forbidden by law.
|
