Corporations

Front 1

Methods of corporate formation

Back 1

1) De jure
2) De facto
3) By estoppel

Front 2

Forming a corporation de jure

Back 2

1) Valid business purpose
2) Articles of incorporation
3) Bylaws

Front 3

Forming a de facto corporation

Back 3

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

Front 4

Corporation by estoppel

Back 4

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)

Front 5

Piercing the corporate veil

Back 5

1) Ignores corporate formalities ("alter ego") and basic injustice results
2) Inadequate capitalization at formation
3) Necessary to avoid fraud

Front 6

Promoters' duty to each other

Back 6

Fiduciary duty to each other as joint venturers

Front 7

Promoter's duty to corporation

Back 7

General: Fiduciary duty to the corporation is one of fair disclosure and good faith
1) Sales to corporation for profit
2) Fraud

Front 8

Promoter's liability to third parties

Back 8

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

Front 9

Annual shareholder meetings

Back 9

Earlier of 6 months after year end financials or 15 months after last meeting

Front 10

Notice of shareholder meetings

Back 10

1) 10-60 days, not more not less
2) Must state place, date, and hour
3) Must state purpose for special meetings

Front 11

Proxy duration

Back 11

1) 11 months unless provided otherwise
2) Revocable unless coupled with an interest or given as security

Front 12

Restrictions on proxy solicitation

Back 12

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

Front 13

Quorum

Back 13

Majority of outstanding shares unless or greater if in bylaws

Front 14

Shareholders may act without meeting

Back 14

Unanimous written consent of all shareholders entitled to vote

Front 15

Shareholder agreements

Back 15

1) Voting trust
2) Voting agreement
3) Shareholder management agreements
4) Restrictions on transfer of stock

Front 16

Voting trust

Back 16

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

Front 17

Voting agreement

Back 17

1) Any proper purpose
2) Can be perpetual
3) Shareholder retain both legal and beneficial ownership
4) Signed writing

Front 18

Shareholder management agreements

Back 18

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

Front 19

Restrictions on transfer of stock

Back 19

1) Must be reasonable
2) Purchaser bound if restriction is conspicuously noted on certificate or purchaser has knowledge

Front 20

Shareholder's qualified right of inspection

Back 20

1) 5 days written notice
2) Proper purpose
3) Books, papers, accounting records, shareholder records, etc.

Front 21

Shareholder's unqualified right of inspection

Back 21

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

Front 22

Preemptive rights

Back 22

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

Front 23

Derivative action

Back 23

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

Front 24

Liability for good faith distributions

Back 24

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

Front 25

Standards for upholding conflict of interest transactions

Back 25

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

Front 26

Corporate opportunity doctrine

Back 26

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

Front 27

Mandatory indemnification

Back 27

Unless the articles say otherwise, a corporation must indemnify a director or officer who prevails

Front 28

Discretionary indemnification

Back 28

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

Front 29

General procedure for fundamental changes in corporate structure

Back 29

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

Front 30

Shareholders' approval of merger

Back 30

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

Front 31

Share exchange

Back 31

1) Only need approval of corporation whose shares will be acquired
2) Not fundamental corporate change

Front 32

Conversion

Back 32

Same procedure as non-survivor in merger

Front 33

Disposition of property outside the usual and regular course of business

Back 33

If more than 75% of corporation's assets, it is a fundamental change for the disposing corporation

Front 34

Dissenters' rights

Back 34

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

Front 35

Tender offers: regulation of bidder

Back 35

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

Front 36

Tender offers: regulation of offer

Back 36

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

Front 37

Tender offers: regulation of target

Back 37

1) Management must give shareholders recommendation with statement of reasons; or
2) Explain why it cannot make recommendation

Front 38

Type of dissolution

Back 38

1) Voluntary
2) Administrative
3) Judicial

Front 39

Judicial dissolution

Back 39

1) Action by attorney general
2) Action by shareholders
3) Action by creditors
4) Court supervision of voluntary dissolution

Front 40

Judicial solution: action by shareholders

Back 40

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

Front 41

Articles of LLC requirements

Back 41

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

Front 42

Professional corporations

Back 42

1) Corporate form
2) Comprised of only professionals
3) Personal liability for own malpractice

Front 43

International corporations

Back 43

May not transact business in state without certificate of authority from secretary of state

Front 44

10b-5 cause of action

Back 44

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

Front 45

Insider trading 10b-5 liability: insiders

Back 45

Anyone who breaches a duty not to use inside information for personal benefit can be liable

Front 46

Insider trading 10b-5 liability: tippers

Back 46

Liable if:
1) Tip made for improper purpose
2) Tippee trades upon insider information

Front 47

Insider trading 10b-5 liability: tippees

Back 47

Liable if:
1) Tipper breached a duty
2) Tippe knew of breach

Front 48

Insider trading 10b-5 liability: misappropriators

Back 48

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

Front 49

16(b): elements of cause of action

Back 49

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

Front 50

16(b): who does it apply to?

Back 50

1) Publicly held, $10M in assets; 500 or more shareholders; or
2) Traded on national exchange

Front 51

Sarbanes-Oxley requirements

Back 51

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

Front 52

Corporate and criminal fraud under Sarbanes-Oxley

Back 52

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

Front 53

Director's duties

Back 53

1) Duty of care
2) Duty to disclose
3) Duty of loyalty

Front 54

Limited liability of directors

Back 54

Personal liability may be limited by the articles, except for:
1) Improper benefits
2) Intentionally inflicting harm
3) Unlawful distributions
4) Intentionally committing crime

Front 55

Director's duty of care

Back 55

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

Front 56

Business judgment rule

Back 56

Directors who meet the duty of care standard will not be liable for decisions that in hindsight were poor or erroneous

Front 57

Conflicting interest transaction

Back 57

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