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57 Cards in this Set

  • Front
  • Back
Methods of corporate formation
1) De jure
2) De facto
3) By estoppel
Forming a corporation de jure
1) Valid business purpose
2) Articles of incorporation
3) Bylaws
Forming a de facto corporation
1) Statute under which could have been incorporated
2) Colorful compliance
3) Conduct of business as corporation
4) Person claiming de facto defense had no knowledge there was no corporation
Corporation by estoppel
Persons who have dealt with the entity as if it were a corporation will be estopped from denying the existence of a corporation (applies to contracts)
Piercing the corporate veil
1) Ignores corporate formalities ("alter ego") and basic injustice results
2) Inadequate capitalization at formation
3) Necessary to avoid fraud
Promoters' duty to each other
Fiduciary duty to each other as joint venturers
Promoter's duty to corporation
General: Fiduciary duty to the corporation is one of fair disclosure and good faith
1) Sales to corporation for profit
2) Fraud
Promoter's liability to third parties
1) Promoter personally liable
2) Continues after corporate formation
3) Unless expressly agreed upon (treat as offer to corporation)
4) Right to reimbursement to extent of corporation's benefits
Annual shareholder meetings
Earlier of 6 months after year end financials or 15 months after last meeting
Notice of shareholder meetings
1) 10-60 days, not more not less
2) Must state place, date, and hour
3) Must state purpose for special meetings
Proxy duration
1) 11 months unless provided otherwise
2) Revocable unless coupled with an interest or given as security
Restrictions on proxy solicitation
1) Full and fair disclosure of all material facts relating to management-submitted proposals to be voted upon
2) No material misstatements, omissions, or fraud
3) Must include certain shareholder proposals and allow proponents to explain their positions
Majority of outstanding shares unless or greater if in bylaws
Shareholders may act without meeting
Unanimous written consent of all shareholders entitled to vote
Shareholder agreements
1) Voting trust
2) Voting agreement
3) Shareholder management agreements
4) Restrictions on transfer of stock
Voting trust
1) Any proper purpose
2) 10 year maximum but renewable
3) Legal ownership transfered to trustee; shareholders retain beneficial ownership
4) Written agreement
5) Names and addresses of beneficial owners given to corporation
Voting agreement
1) Any proper purpose
2) Can be perpetual
3) Shareholder retain both legal and beneficial ownership
4) Signed writing
Shareholder management agreements
1) Almost any aspect of the exercise of corporate power
2) Must be set forth in articles, bylaws, or written agreement by all shareholders
3) 10 years unless otherwise provided
4) Terminates if listed on national exchange or nationally traded
Restrictions on transfer of stock
1) Must be reasonable
2) Purchaser bound if restriction is conspicuously noted on certificate or purchaser has knowledge
Shareholder's qualified right of inspection
1) 5 days written notice
2) Proper purpose
3) Books, papers, accounting records, shareholder records, etc.
Shareholder's unqualified right of inspection
1) Articles and bylaws
2) Board resolutions regarding classification of shares
3) Minutes of shareholders' meeting from past 3 years
4) Communications from corporation to shareholders in last 3 years
5) Names & business addresses of current officers and directors
6) Corporation's most recent annual report
Preemptive rights
1) No right unless in articles
2) No preemptive rights in shares issued: for non-cash consideration, within 6 months of incorporation, or without voting rights buy having distribution preference
Derivative action
1) Standing: ownership at time of wrong
2) Demand: 90 days after written demand unless corporation rejects demand earlier or irreparable injury to corporation
3) Dismissal if not in corporations best interest: good faith after director's reasonable inquiry
4) Discontinuance or settlement: court approval
5) Court may order payment of expenses
Liability for good faith distributions
1) Liable for amount exceeding proper distribution
2) Exception for good faith reliance
3) Can seek contribution from other directors who voted for distribution and from shareholders who knew it was improper
Standards for upholding conflict of interest transactions
1) After full disclosure, majority of disinterested directors approve
2) After full disclosure, majority of disinterested shareholders approve
3) Transaction is fair to the corporation
Corporate opportunity doctrine
When a director learns of a business opportunity, she must determine whether the corporation would interested. If so:
1) Present opportunity to corporation
2) Disclose all material facts
3) Only take opportunity after corporation declines
Mandatory indemnification
Unless the articles say otherwise, a corporation must indemnify a director or officer who prevails
Discretionary indemnification
May indemnify unsuccessful defendant if:
1) Acted in good faith
2) Believed conduct was in best interest, not opposed to best interests, or not unlawful
*Exceptions: found liable in derivative or received improper benefit
General procedure for fundamental changes in corporate structure
1) Board adopts resolution
2) Written notice to shareholders
3) Majority of all shareholders entitled to vote (not just present at meeting) approve
4) Changes filed with state
Shareholders' approval of merger
Not required by surviving company if:
1) No changes to articles
2) Shareholders before merger will still have same number shares, preferences, and rights
3) Shares issued as result of merger will not be more than 20% of voting power of shares before merger
Share exchange
1) Only need approval of corporation whose shares will be acquired
2) Not fundamental corporate change
Same procedure as non-survivor in merger
Disposition of property outside the usual and regular course of business
If more than 75% of corporation's assets, it is a fundamental change for the disposing corporation
Dissenters' rights
1) Corporation must give shareholders notice
2) Shareholder must give written notice of intent to demand payment before vote is taken
3) Corporation must give dissenters notice within 10 days after approval
4) Shareholders demand payment
5) Corporation must pay FMV
6) Shareholder can appeal valuation within 30 days
Tender offers: regulation of bidder
If tender offer will result in more than 5% ownership of a class of securities, bidder must file 14D stating:
1) Identity, source of funds, past dealings, and plans with target
2) Bidder's financial statements
3) Arrangements with persons in important positions at target
Tender offers: regulation of offer
1) Must be held open at least 20 days and open to all members of a class
2) Shareholders permitted to withdraw while offer is open
3) If offer is oversubscribed, must purchase pro rate among shares deposited in first 10 days
4) If offer increased, higher price paid to all tendering
Tender offers: regulation of target
1) Management must give shareholders recommendation with statement of reasons; or
2) Explain why it cannot make recommendation
Type of dissolution
1) Voluntary
2) Administrative
3) Judicial
Judicial dissolution
1) Action by attorney general
2) Action by shareholders
3) Action by creditors
4) Court supervision of voluntary dissolution
Judicial solution: action by shareholders
1) Directors are deadlocked, shareholders unable to break deadlock, irreparable injury
2) Directors' actions illegal oppressive, or fraudulent
3) Shareholders failed to elect one or more directors at two consecutive annual meetings
4) Corporate assets wasted, misapplied, or diverted for noncorporate purposes
Articles of LLC requirements
1) Statement that entity is LLC
2) Name including LLC
3) Address of registered office and name of registered agent
4) Names of all members
Professional corporations
1) Corporate form
2) Comprised of only professionals
3) Personal liability for own malpractice
International corporations
May not transact business in state without certificate of authority from secretary of state
10b-5 cause of action
1) Fraudulent conduct
2) Materiality
3) Scienter
4) In connection with the purchase or sale of a security by P
5) In interstate commerce
6) Reliance
7) Damages
Insider trading 10b-5 liability: insiders
Anyone who breaches a duty not to use inside information for personal benefit can be liable
Insider trading 10b-5 liability: tippers
Liable if:
1) Tip made for improper purpose
2) Tippee trades upon insider information
Insider trading 10b-5 liability: tippees
Liable if:
1) Tipper breached a duty
2) Tippe knew of breach
Insider trading 10b-5 liability: misappropriators
1) Government can prosecute
2) Breach of duty of trust and confidence owed to source of information
3) Duty need not be to issuer or shareholders of issuer
16(b): elements of cause of action
1) Purchase and sale or sale and purchase within 6 months (in which abuse of inside information likely to occur)
2) Equity security
3) Officer, director, more than 10% shareholder
4) Profit realized: highest sales price against lowest purchase price
16(b): who does it apply to?
1) Publicly held, $10M in assets; 500 or more shareholders; or
2) Traded on national exchange
Sarbanes-Oxley requirements
1) Public company audit committees
2) Corporate responsibility for financial reports (certification by officer)
3) Forfeiture of bonuses for misconduct in reporting
4) Prohibition against insider trades during pension blackout periods
5) Prohibition against personal loans to executives
Corporate and criminal fraud under Sarbanes-Oxley
1) Criminal penalties for destruction, alteration, etc.
2) Criminal penalty for destruction of corporate audit records
3) Statute of limitations for fraud: later of 2 years from discovery or 5 years after action
4) Whistleblower protection
5) Criminal penalties for defrauding shareholders and the public
Director's duties
1) Duty of care
2) Duty to disclose
3) Duty of loyalty
Limited liability of directors
Personal liability may be limited by the articles, except for:
1) Improper benefits
2) Intentionally inflicting harm
3) Unlawful distributions
4) Intentionally committing crime
Director's duty of care
1) Manage to the best of their ability
2) Good faith
3) Ordinary prudent person in like position standard
4) Reasonably believes in best interest of corporation
Business judgment rule
Directors who meet the duty of care standard will not be liable for decisions that in hindsight were poor or erroneous
Conflicting interest transaction
Director or relative is:
1) Party to transaction
2) Has financial interest
3) Director, officer, agent, or employee of another entity corporation is transacting business with