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92 Cards in this Set

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What are the characteristics of a C Corporation?
Taxed as an entity distinct from owners. Lower tax rate, good for deferred income. But, double taxation.
What are the characteristics of an S corporation?
Flow through taxation.
No more than 75 persons.
Shareholders must be individuals.
Only one class of stock.
What are the characteristics of an LLC?
Flow through advantages.
Limited liability.
Flexible.
Is a corporation a "person", under the Constitution?
Yes, and is thus entitled to due process, equal protection and attorney-client privilege. It's not entitled to 5th Amendment, though.
Is a corporation a "citizen"?
No, for purposes of Art. IV Privileges and Immunities.
Where is a corporation a resident?
Its state of incorporation, where it is doing business, and where it is qualified to do business.
Where is a corporation's domicile?
Any state where it is incorporated.
What happens if a corporation goofs on following corporate laws?
It may be a de facto corporation or may be recognized through estoppel.
What are ultra vires acts?
If a corporation includes a narrow business purpose in its articles, it may not undertake activities unrelated to achieving the stated business purpose.
How are ultra vires acts treated under common law? Under the RMBCA?
Common law: acts were void and unenforceable.
RMBCA: generally are enforceable, and can be raised in only 3 situations: 1. shareholder sues to stop it; corporation may sue officers for approving them; 3. state may bring action to dissolve corporation.
Can corporations get out of contracts if they are ultra vires?
No.
What can be in bylaws?
Anything that is not inconsistent with the articles of incorporation or the law.
Can personal liability shield protect de facto corporations and corporations by estoppel?
Yes.
What are the characteristics of a de facto corporation?
1. Colorable, good faith compliance with incorporation statute.
2. Conduct of business in the corporate name.
What is the exception to protection under de facto corporation?
If persons know that there is no incorporation, they are liable.
What is corporation by estoppel?
People who have dealt with the entity as if it were a corporation will be estopped from denying the corporation's existence.
What is the purpose of corporation by estoppel?
To prevent the 'corporate' entity and people dealing with from backing out of their contracts.
What is the exception to corporation by estoppel?
It does not apply to tort victims (on the rationale that a tort victim does not allow himself to be injured in reliance on a business's status as a corporation).
How is a de facto corporation treated differently from de jure corporations?
The state may seek dissolution in a quo warranto proceeding.
What elements justify piercing the corporate veil?
1. Alter ego: ignoring formalities. (sloppy administration not enough)
2. Inadequate capitalization at formation.
3. Necessary to prevent fraud.
What's easier to pierce the veil -- tort or contract?
Tort. Contracting parties had a chance to see if the corporation was legit.
Can creditors pierce the corporate veil? Shareholders?
Creditors: yes.
Shareholders: almost never.
What do you call a secured debt?
A bond.
What do you call an unsecured debt?
A debenture.
What do you call shares authorized in the corporation's articles of incorporation?
Authorized shares.
What do you call shares that have been sold?
Issued and outstanding.
What do you call shares that have been reaquired by the corporation through repurchase or redemption?
Authorized but unissued shares.
What do you need if you want classes of shares?
Has to be prescribed in the Articles of Incorporation.
What is a stock subscription?
Promise by subscribers to buy stock in the corporation when it's formed.

Irrevocable for six months.
What if a subscriber does not pay?
He can lose his subscription as well as the amount he's already paid.
What can be consideration for a share under the RMBCA?
Anything, including promises of future work or promissory notes.
What is par value?
Minimum amount for which shares may be issued. Dead under RMBCA.
What is a promoter?
Someone who tries to get commitments for money before the corporation is formed.
Are promoters fiduciaries to each other?
Yes. They can't secretly pursue personal gain at the expense of other promoters.
Are promoters fiduciaries to the corporation?
Yes.
What kind of state blue sky laws are NOT preempted?
1. Penny stocks (less than $5);
2. Intrastate filings;
3. Actions against brokers for fraud.
What if a promoter makes an agreement on behalf of an as-yet unformed corporation?
He's liable. EVEN IF THE CORPORATION LATER IS FORMED AND RATIFIES IT. Unless the agreement expressly relieves him. (then it's not a contract -- it's an offer to the unformed corporation)
If a promoter is held personally liable on a contract for the corporation, can he get reimbursed?
Yes, to the extent the corporation benefitted.
How do shareholders exercise power?
Usually, just by voting power, election of directors, adoption of bylaws, and approval of fundamental changes.
How often must shareholders meet?
Annually. If 15 months go by, court can order a meeting.

Special meetings can be called by board of directors or holders of 10% of the company.
What is the time requirement for notice of shareholder meeting?
Not less than 10 or more than 60 days before the meeting. Notice must state place, day, hour and, for special meetings, the purpose.
Who can vote at shareholder meetings?
Shareholders of record on the record date (fixed by board of directors, but not more than 70 days before meeting). If not set by board, it's the day the notice of meeting is sent to shareholders.
How long are proxies good?
11 months, unless they provide otherwise.
Can proxies be irrevocable?
If they state they are and they are coupled with interest or given as security.
What is a quorum for shareholder votes?
A majority of outstanding shares, unless the articles or bylaws require more.
May shareholders take action without meeting?
Yes, if there is UNANIMOUS consent.
Is a voting trust valid?
Yes, if it's signed by everyone, given to the corporation and is only for 10 years.
When may shareholders inspect the corporation's books?
With 5 days' written notice stating a proper purpose, under the RMBCA. For public materials, no particular purpose needed.
When can direct shareholder suits be brought?
For breach of fiduciary duty owed to the shareholder by an officer or director.

Distinguish b/w injury to shareholder and injury to corp: 1. who suffers the most directly; 2. to whom did the defendant's duty run?
What is a derivative action?
Shareholder is asserting the corporation's rights, not her own. Recovery goes to the corporation.
Who is named as a defendant in a derivative action?
The corporation.
What is needed for standing in a derivative action?
Shareholder must have been a shareholder at teh time of the act or omission complained of, or become a shareholder through transfer by operation of law from one who was a shareholder at the time.
What is needed before a derivative action can commence?
Shareholder must make a written demand on the corporation to take suitable action, then wait 90 days unless corporation says it's not going to do anything, or irreparable harm can result.
How can a derivative action be dismissed?
If a majority of directors (but at least two) who have no personal interest find in good faith after inquiry that the suit is not in the corporation's best interests. Then, Plaintiff has to argue that dismissal not in corporation's best interests.
Is court approval needed for settlement?
Yes.
Is there ever a right to distribution?
Yes, upon dissolution. Otherwise, it's discretionary.
When can directors NOT make a distribution?
1. If it would screw creditors.
2. If it would make the corporation's assets less than its liabilities.
3. If the articles restrict it.
What type of stock gets first crack at dividends?
Preferred over common shares.
How many directors do there need to be?
One, but the articles or bylaws may require a lot more.
How can directors be removed?
By cause or without cause. However, a director elected by cumulative voting cannot be removed if the votes cast against removal would be sufficient to elect her if cumulatively voted at an election of directors.
What is a quorum for directors? What percentage vote is needed?
Quorum is majority unless articles or bylaws state otherwise.

If a quorum is present, majority is enough.
Can directors take action without a meeting?
Yes, if it's unanimous.
Does a director have power to bind the corporation?
No, unless there is actual authority to act, from 1. proper hearing and majority vote or 2. unanimous vote.
What liability of a director can a corporation NOT limit?
1. Improper financial benefits.
2. Intentionally inflicted harm on corporation or shareholders
3. unlawful corporate distributions.
4. intentional violation of criminal law.
What is the business judgment rule?
Directors who act reasonably and in good faith will not be held personally liable.
When is a conflict not a conflict?
If it was approved by a majority of directors without a conflict, or approved by a majority of the shareholders without a conflicting interest. And, it was fair to the corporation.
What is a director's duties if faced with a conflict?
Disclose.

But remember, unless the articles or bylaws say otherwise, directors can set own compensation.
Is a corporation's lack of financial ability a defense to usurpation of corporate opportunity?
No.

If a director didn't disclose an opportunity, may be forced to turn over opportunity and disgorge profits.
Can corporations remove officers at any time without cause?
Yes, EVEN DESPITE CONTRACTUAL TERMS TO THE CONTRARY.
When does a corporation have to indemnify an officer?
If they prevailed in defending a proceeding.
When CAN a corporation indemnify a director/officer?
If:
1. Director acted in good faith; and
2. believed that his condcut was in the best interests of the corporation and was not unlawful.
When can corporation NOT indemnify a director?
If director was unsuccessful in defending 1. an action in which director is liable to the corporation or 2. an action charging the director with an improper benefit.
When may courts order indemnification
When they feel it is appropriate.
What is the general procedure for fundamental changes?
1. Board adopts a resolution.
2. Written notice is given to shareholders.
3. Shareholders approve changes by a majority.
4. Changes in the articles are filed with the state.
What is the difference in majority b/w a meeting vote and a fundamental change vote?
For the former, the standard is a majority of those voting if there is a quorum; for the latter, must be a majority of all those entitled to vote.
When is shareholder approval of a surviving merger company not required?
1. The articles won't change.
2. Shareholders of teh survivor won't lose shares.
3. The number of shares won't go up by more than 20%.
When is neither shareholder nor director approval needed in a "short form merger"?
When the parent corporation owning at least 90% of the subsidiary corporation merges the subsidiary into itself.
What can a dissenting shareholder do if a fundamental change goes through?
May have the right to have the corporation buy his shares.

This applies to short form merger subsidiaries; shareholders who voted against a merger.
What is it called when a dissenting shareholder has the right to get his shares bought?
"Right of appraisal" or "dissenting rights."
How does the process work?
1. Corporation must give shareholders notice.
2. BEFORE THE VOTE IS TAKEN, shareholder must deliver written notice of intent to demand payment if action is taken. Cannot vote in favor!
3. Corp. must notify dissenters if action passed.
4. Shareholders must demand payment.
5. Corp. must pay.
6. If dissenters think they're not getting enough, must dissent within 30 days.
What does the Williams Act deal with?
Tender offers.
What does the Williams Act say?
If bidder is going for more than 5% of the target company, have to file a disclosure revealing who he is.
Under the Williams Act, what does the offer require?
1. Offer must be open 20 days.
2. Shareholders can change their mind while the offer is open.
3. If the offer is oversubscribed, bidder must purchase on a pro rata basis from among shares deposited during the first 10 days of the offer.
4. If offer price goes up, has to go up for all tendering shareholders.
What are the obligations of management?
Give a recommendation re. the offer or explain why it cannot.
What if the bidder makes fraudulent statements?
Shareholders can sue, so can SEC.
How can companies voluntarily dissolve?
1. By majority of incorporators or directors, if stock not yet issued and business not yet started.
2. Corporate Act
What if a claim arises against a dissolved corporation?
They can go after the assets of the shareholders, if they've been distributed.

BUT, corporation can cut short the time for bringing known claims by notifying claimants of dissolution and giving them 120 days to file claim. Time for filing unknown claims is 5 years, if dissolution published in paper.
When can shareholders seek dissolution?
1. Directors are deadlocked, shareholders can't break it, and irreparable injury to corporation.
2. Directors have acted or will act in an illegal, fraudulent manner.
3. Shareholders stuck and can't elect directors for at least 2 annual meetings.
4. Corporate assets are being wasted or misused.
When can creditors seek dissolution?
1. Creditor has judgment but corporation is insolvent, or
2. corporation has admitted in writing the debt but it is insolvent.
What does Rule 10b-5 do?
Makes illegal securities fraud.
What does 16(b) require?
Surrender to the corporation of any profit realized by a director, officer or 10% owner from the purchase and sale of any equity security within a 6-month period. Applies to publicly held corporations with more than $10 million in assets and 500 or more shareholders, or company on public exchange.
What is the measure for 16(b)
Highest sales price against lowest purchase price for the 6-month period.