Corporations

Front 1

When is a promoter NOT liable for contracts entered into on behalf of the corporation?

Back 1

Novation

Front 2

When is a corporation liable for contracts entered into by a promoter on its behalf?

Back 2

(1) Express board of directors resolution;

OR

(2) Ratification (knowledge + acceptance)

Front 3

What is the remedy when a promoter sales a corporation his personal property:

(1) BEFORE he became a promoter

(2) AFTER he became a promoter

Back 3

(1) BEFORE he becomes a promoter
-Disgorgement of any profits in excess of FMV

(2) AFTER he becomes a promoter
-Disgorgement of ALL profits

Front 4

Is an offer by a subscriber to purchase pre-incorporation shares revocable?

Back 4

NO, not for 6 months

Front 5

What are the three classes of people involved with incorporation?

Back 5

(1) Promoters
-Fiduciaries of the corp.

(2) Subscribers
-Purchase shares prior to incorporation

(3) Incorporators
-Sign and file Articles of Incorporation w/ state

Front 6

What must be in the Articles of Incorporation?

Back 6

"A PAIN"

(1) the maximum number of AUTHORIZED share;
(2) the PURPOSE;
(3) the name and address of the AGENT;
(4) the name and address of the INCORPORATORS; and
(5) the NAME of the corporation.

Front 7

Remedies for engaging in ultra vires activities?

Back 7

(1) the state can enjoin;

OR

(2) the corporation may sue its own directors and officers for losses caused

Front 8

Corporate Purpose

Back 8

If the articles of incorporation fail to state a purpose, a general purpose for a perpetual duration will be presumed.

Front 9

De Facto Corporation

Back 9

A business failing to achieve de jure corporate status nonetheless is treated as a corporation, if the organizers have made a good faith, colorable attempt to comply with the corporate formalities, and have no knowledge of the lack of corporate status.

Front 10

Annual and Special Shareholder Meetings

Back 10

Every corporation must have an annual meeting at which at least one director position is open for election. Notice of the time and location must be given to every shareholder. Special meetings may be called by the board, the president or the holder of 10% of voting shares. Notice of the time and location must be given to every shareholder and must also include the special purpose of the meeting. The meeting itself is valid only for the stated special purpose.

Front 11

Piercing the Corporate Veil

Back 11

To avoid fraud or unfairness a court will allow shareholders to be held personally liable if the corporation was: (1) an alter ego of the shareholders that failed to sufficiently comply with corporate formalities; or (2) undercapitalized, such that the it failed to maintain sufficient funds to cover foreseeable liabilities.

Front 12

Preemptive Right

Back 12

Preemptive right is the right of an existing shareholder to maintain his percentage of ownership by buying stock whenever there is new issuance of stock for cash. Preemptive right does not exist unless expressly granted in the Articles of Incorporation.

Front 13

Board of Director Meeting

Back 13

Before the board of directors may act, a valid meeting must be held, unless all directors consent in writing to act without a meeting. Directors must have notice of the meeting, and may not vote by proxy. A quorum of the directors must be present, and a vote in favor by a majority of the quorum is needed to act. Each director is presumed to have concurred unless his abstention or dissent is recorded in writing.

Front 14

Director Liability

Back 14

Directors have a duty to manage the corporation. They are protected from liability by the business judgment rule. However, they are fiduciaries who owe duties of care and loyalty. Directors must act with the care a prudent person would use in managing their own business, unless the articles have limited their liability for a breach of the duty of care. However, the duty of loyalty may not be altered by the articles.

Front 15

Indemnification of Directors and Officers

Back 15

A director or officer must be indemnified by the corporation for any costs incurred defending a lawsuit against any party or the corporation if the director or officer prevails. Conversely, if he loses, he is never entitled to indemnification. If a settlement is reached, a director or officer may, at the discretion of the board, committee, majority of shareholders, or a special lawyer, be indemnified if the he acted in good faith and believed his conduct was in the corporations best interest.

Front 16

Shareholder Derivative Suit

Back 16

A shareholder derivative sue occurs when a shareholder is suing to enforce the corporation's cause of action. The shareholder must: (1) have standing to sue; and (2) must make demand on the directors. A shareholder has standing to sue if he owned at least one share of stock when the claim arose, and continues to own that stock throughout the litigation. The action cannot be brought until demand has been rejected, or at least 90 days have passed since demand was made.

Front 17

Shareholder Right to Vote

Back 17

Only the record date owner votes. The record date must be set by the board of directors within a 70-day period before the vote. A shareholder who sales his share after the record date is still entitled to vote, even though he does not own shares at the time of the vote.

Front 18

Proxy Vote

Back 18

A proxy is a (1) writing, (2) signed by the shareholder. (3) directed to the secretary of corporation (4) authorizing another to vote the shares (5) that is valid for 11 months. A proxy vote is revocable, unless, it is (a) labeled irrevocable and (b) coupled with an interest in the shares.

Front 19

Annual and Special Shareholder Meetings

Back 19

Every corporation must have an annual meeting at which at least one director position is open for election. Notice of the time and location must be given to every shareholder. Special meetings may be called by the board, the president or the holder of 10% of voting shares. Notice of the time and location must be given to every shareholder and must also include the special purpose of the meeting. The meeting itself is valid only for the stated special purpose.

Front 20

Shareholder Vote

Back 20

To vote, there must be a quorum represented at the meeting. A quorum requires a majority of outstanding shares when the meeting begins, unless otherwise provided in the Articles. The vote itself requires that the votes in favor of the proposal exceed the votes cast against the proposal. Shares that abstain from the vote are not accounted for.

Front 21

Pooled or Blocked Voting Methods

Back 21

Shareholders who own relatively few voting shares may increase their influence by agreeing to vote alike. These agreements may take the form of either: (1) a voting trust; or (2) a shareholder voting agreement. While a shareholder voting agreement is a simple written agreement to vote shares as required by the agreement, a voting trust has many requirements.

Front 22

Voting Trust

Back 22

A voting trust requires: (a) a written trust agreement, (b) typically filed with the corporation, and (c) a transfer of shares to the voting trustee. The shareholders of a voting trust will receive (d) a trust certificate and will (e) retain all rights of the shares except the right to vote. The trust will generally last for (f) 10 years.

Front 23

Closely-Held Corporation

Back 23

Shareholders may protect themselves from personal liability and lower their tax liability by creating an S-corporation by eliminating corporate formalities. To do this there must be: (1) unanimous shareholder vote in writing; and (2) the imposition of some reasonable share transfer restrictions.