Corporations

Front 1

Promoters -liability

Back 1

The corporations becomes liable on a promoter's preincoporation contract when the corporation adopts contract by:
1) express board of directors resolution or
2) implied adoption through knowledge of contract and acceptance of benefits

Promoters are liable on contract until novation

Front 2

Promoters - fiduciary duties

Back 2

Promoters are fiduciaries of each other and the corporation so no secret profits.

Corporation can recover profits for property acquired before becoming promoter sold to the corporation for above FMV

If acquired after becoming promoter corporation can recover all profits.

Front 3

Subscribers

Back 3

Persons or entities who make written offers to buy stock from a corporation not yet formed.

Offers from subscribers are irrevocable for six months

Front 4

Articles of incorporation

Back 4

Must include: A PAIN

1) Authorized shares
2) Purpose
3)Agent: corps official legal rep
4) Incorporator
5) Name gives indicia of corp status

Front 5

Purpose

Back 5

general purpose and perpetual duration presumed

If specfic statement of purpose and ultra vires activity occurs

The state can enjoin and
the corp can sue its own directors and officers of losses caused by UV activity

Front 6

De facto corporation doctrine

Back 6

A business failing to achieve de jure corporate status nonetheless treated as a corporation, if the organizers made a good faith, colroable attempt to comply with corporate formalities and didn't know they weren't a corporation.

Front 7

Legal significance of formation of corp

Back 7

Generally, shareholders are not personally liable for the debts for corporation

Front 8

Piercing the corporate veil

Back 8

Court will pierce the corporate veil to avoid fraud or unfairness.

1. Failure to observe signficiant corporate formalities

2. Failure to maintain sufficient funds to cover foreseeable liabilities.

Front 9

par value

Back 9

minimum issuance price

Front 10

no par

Back 10

Any valid consideration may be received if deemed adequate by the board.

Front 11

treasury stock

Back 11

Stock issued by the corp and then reacquired. Deemed no park stock if resold, it must receive at least any valid consideration deemed adequate by the board.

Front 12

Consequences of issuing stock below part value

Back 12

Directors are liable (corp can sue).

Buyers of stock are liable.

Corp makes election.

Front 13

Preemptive rights

Back 13

The right of an existing shareholder to maintain her percentage of ownership by buying stock whether there is a new issuance of stock for cash.

Do not exist unless they are expressly granted in the articles

Front 14

Director requirements

Back 14

1. Board of directors must have at least 1 member
2. Shareholder elect
3. can remove for no cause

Front 15

Valid board meeting

Back 15

1. meeting required to act (unless consent in writing to act w/o meeting)
2. Notice can be set by by-laws
3. Quorum - majority of all directors (bylaws can be different)
4. vote - majority vote of those present

Front 16

Liability of directors to corp and shareholders

Back 16

Duty to manage. They are protected from liability by the business judgement rule. But they are fiduciaries who owe duties of loyalty and care.

Front 17

business judgement rule

Back 17

Presumption that directores manage the corporation in good faith and in the best interest of the corporation and shareholders. Therefore no liable for mistakes of business judgement.

Front 18

duty of loyalty

Back 18

A director may not receive an unfair benefit to the detriment of the corporation or its shareholders unless there has been material disclosure and independent ratification

Front 19

duty of care

Back 19

Must act with the care that a prudent person would use with regard to her own business, unless the articles have limited for a breach of the duty of care.

Front 20

Indemnification for director or officer who incurred costs, attys fees, fines, a judgment or settlement in the course of corporate business.

Back 20

Never : held liable to corproation itself

Always: if they win a lawsuit

May indemnify if:
1) liability to third-parties or settlement with the corporation
2) show acted in good faith and believed conduct was in best interest of corp

Decision is left to:
1) majority of independent directors
2) majority of committee of independent directors
3) majority of shares held by independent shareholders
4) special lawyers' option recommends

Front 21

Shareholder derivative suit: makes the corp sue

Back 21

Requirements:
1. contemporaneous stock ownership
2. must generally make demeand on directors
a. demand must be made and rejected or 90 days with no response

Front 22

Shareholder vote

Back 22

Owner of stock on the record date. (can be no more than 70 days before the meeting)

Front 23

Proxy voting

Back 23

1. writing
2. signed by record shareholder
3. directed to secretary
4. authorizing another to vote the shares
5. only valid for 11 months

Only recovable if labled revocable and coupled with an interest

Front 24

specially noticed special meeting

Back 24

meeting is restricted to special purpose in notice.

Front 25

Shareholder vote and quorum

Back 25

majority of of outstanding SHARES when voting beings

Votes cast in favor exceed votes cast against

Front 26

Pooled to block voting methods

Back 26

Voting trust: formal written agreement delegating voting power to a trustee which is valid for no more than 10 years unless extended by the agreement.

shareholder voting agreements: an agreement in writing to vote shares as required by the agreement itself. For these agreements there is no time limit and no formalities except for the writing itself.

Front 27

cumulative voting

Back 27

multiply the number of shares times of the number of directors to be elected

No right to engage in cumulative voiting unless granted in articles

Front 28

Examine books and records

Back 28

Any shallholder shall have access to the books and records and corproation upon notice and at proper times.

Front 29

Dividends

Back 29

To be declared in Board's discretion unless corporation is insolvent or rendered insolvent by the dividend.

Board members are PERSONALLY liable for unlawful distributions, but have a defense of good faith reliance on financial officers's representation regarding solvency.

Front 30

shareholder agreement to eliminate corporate formalities (closely-held corporations)

Back 30

Requirements:
1) unanimous shareholder election in the articles, the bylaws, or a filed agreement
2) usually a reasonable share transfer restrictions

Consequences:
1) no piercing even if you fail to observe formalities
2) possible S-Corp status

Front 31

Professional Corp

Back 31

1. file articles with name designated as PC or professional corp
2. shareholder must be licensed professionals
3. May only practice one designated profession

Consequences:
1. professional personally liable for their own malpractice
2. not liable for the malpractice of other or the obligations of corp.

Front 32

Shareholder liabilities.

Back 32

Not liable for corporate obligations except:
1. piercing
2. controlling shareholder owes fidbuciary duty to minority
3. controlling liable for selling corp to party who loots corp unless reasonable measures were taken to investigate reputation and plans

Front 33

Steps for fundamental corporate charnge

Back 33

1. resolution by board at a valid meeting
2. notice of special meeting
3. approval by majority of all shres entitled to vote and by a majority of each voting group that is adversly affected by change

Front 34

Short form merger

Back 34

No shareholder approval required for short-for merger where a parent corporation that owns 90% or more of the stock in its subsidiary merges with the subsidiary

Front 35

dissenting shareholder right of appraisal

Back 35

Shareholder who does not vote in favor of fundamental change has the right to force the corp to buy shares at FMV

Actions to perfect right:
1. efore voite, filed written notice of objectioon and intnet to demand payment
2. do not vote for change
3. make prompt written demand to be bought out

If FMV cannot be agreed on court can apporirt expert appraiser

Front 36

Section 10(b)

Back 36

1. Scienter
2. deception
3. actual purchase or sale

Front 37

Sectiuion 16(b)

Back 37

Under SEC rule 16(b) any profit realized by a director, officer, or shareholder owning 10% or more of outstanding shares of a corporation from the purchase and sale or sale and purchase, within a period of less than 6 months must returned to the corporation.

Front 38

Sarbanes oxley

Back 38

No knowingly false filings and no benefits during falsehoods or black out periods