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68 Cards in this Set
- Front
- Back
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When does corporation become responsible for promoters' contract?
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Through acceptance by
1) express resolution by Board 2) Implied acceptance through a) knowledge of contract and b) acceptance of benefits |
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When is promoter liable for pre-incorporation contracts?
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Until there has been a NOVATION, which is basically a new contract b/w promoter, corporation, and contract party that corporation will now be bound
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Can a promoter and corporation both be liable? If so, when?
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Yes. When there's been acceptance but no novation.
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What duties does a promoter have to the corporation and each other?
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Duty of loyalty = 1) no self-dealing, 2) no usurping business, 3) no secret profits
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What's a subscriber?
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A person who makes a written offer to buy stock from a corporation not yet formed.
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What are the rules regarding pre-incorporation offers to buy stock of a future corporation?
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1) The offer to buy stock is IRREVOCABLE for SIX MONTHS
2) The offer must be in writing |
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Who are the incorporators?
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The people who sign and file Articles of Incorporation with State Corporation Commission of Virginia
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What must the Articles of Corporation Contain?
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A PAIN
AUTHORIZED shares (max. number of shares) PREFERENCES (if more than one share of stock, explain rights and priorities of each class) AGENT (registered) INCORPORATORS (name and address) NAME OF CORPORATION (which must contain indicia of corporate status |
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Do the Articles need to contain by-laws?
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No! But a Corporation must have by-laws.
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Generally, when will Virginia courts piece the corporate veil?
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Will make shareholders liable to prevent FRAUD or UNFAIRNESS
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What are two main examples for piercing the veil in VA?
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1)Alter ego (i.e. where owners fail to observe sufficient corporate formalities and funds are co-mingled.
2) Undercapitalization (i.e. a failure to maintain sufficient capital to cover foreseeable liabilities) |
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What must a foreign corporation do to transact business in Virginia?
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1) Acquire license to do business in Virginia
2) Have registered agent and office |
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What are the consequences of not getting a license to do business in Virginia as a foreign corporation?
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1) Can't BRING suits in Virginia (but can Defend self)
2) Possible penalties for directors |
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What does it mean to "do business" in Virginia?
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Means business in the regular course of intrastate activity.
It is not business incidental to the main goal (shipping item) |
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What must a corporation sell its stock for?
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Par value, if it has it. Otherwise no minimum.
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What is Treasury Stock? What's the minimum price it can be sold for?
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It's stock that was issued but REACQUIRED by corporation, and now is going to be RESOLD. It can be sold for ANY PRICE because it deemed no par.
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What are consequences of issuing stock below par?
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1) Directors liable personally
2) Buyers liable to pay full consideration (par value) |
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When are preemptive rights presumed?
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In a corporation formed BEFORE January 1, 2006
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What are preemptive rights?
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The right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is new issuance of stock for cash
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What are Statutory requirements for Board of Directors? (4)
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1) At least one member
2) Elected by Shareholders 3) Removal by Shareholders 4) Meetings |
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What are the requirements of meetings for the Board of Directors? (4)
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1) Need WRITTEN CONSENT to act without meeting
2) Notice of Directors' meeting can be set in bylaws 3) Proxies are NOT allowed. Neither are voting arrangmements 4) Quorum is required, which default rule is MAJORITY of all directors. |
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What are the three duties Directors have?
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1) Duty to manage
2) Duty of Care 3) Duty of Loyalty |
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What rule governs the duty to manage?
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The business judgment rule
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What is the business judgment rule?
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Presumption at directors manage in good faith and in best interests of corporation.
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What does the duty of care require?
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Require that directors act with care that a prudent person would use with her own business
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When is the only time a director can be found for violating duty of care?
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Nonfeasance -- a failure to even attempt to manage
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What does the duty of loyalty require?
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Director cannot
1) receive unfair benefit at detriment to corporation without MATERIAL DISCLOSURE and RATIFICATION by MAJORITY of independent directors |
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What are two main examples of breach of loyalty?
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1) Interested Director Transaction
2) Corporate Opportunity |
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When is indemnification of a director prohibited?
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In a suit by the CORPORATION against a director and director loses
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When is indemnification required?
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When director wins law suit against someone other than corporation itself
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When is indemnfication permissive?
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1) Liability to third-parties or settlement with corporation
2) Majority of independent directors, or panel of independent directors, majority of shares held by independent shareholders, or special legal counsel opinion give approval |
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What are prerequisites to getting permissive indemnification?
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When director acted in GOOD FAITH with REASONABLE BELIEF conduct was in corporation's best interest
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What are the requirements of a shh derivative suit?
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1) Must own share of stock WHEN CLAIM AROSE and throughout litigation
2) Must make DEMAND on Directors and directors either reject or pocket veto by not responding in 90 days |
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Where does the recovery of a shh derivative suit go?
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To the CORPORATION
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What is the cap on recovery against an individual director?
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greater of 12 month cash compensation or $100,000
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Which shareholders can vote?
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A record shareholder as of RECORD date?
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Can someone who sells stock AFTER record date still vote?
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YES!
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What are the requirements for a proxy vote?
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1) In writing (including electroically)
2) Authorized by record shareholder 3) Directed to SECRETARY of corp. 4) Authorizing another to vote the shares |
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Are proxies revocable? How long do they last?
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Generally yes unless
1) says irrevocable 2) proxy is coupled with an interest Proxy is valid for 11 MONTHS |
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What is a proxy coupled with an interest? What is it effect?
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It's when a proxy is included in an interest in stock.
Example: S sells stock to B AFTER record date and includes proxy vote. Proxy is irrevocable |
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How many shareholder meetings MUST a corporation have? What MUST happen at each meeting?
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Must have AN ANNUAL shh meeting where at least ONE BOARD MEMBER is up for election
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What are notice requirements for a shareholder meeting?
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1) Must give written notice with time and place and special purpose, if applicable, to every shh entitled to vote
2) 10-60 days notice for annual meeting 3) 25-60 days if it's a meeting for a fundamental corporate change |
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What is the effect of improper notice for a shh meeting?
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VOIDS actions done at meeting unless
1) waived in writing 2) shh show up anyway |
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What is quorum in Virginia?
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Majority of SHARES (not shh) must be represented
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What is required for a resolution to pass at a shh meeting?
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A PLURALITY of votes casted
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Are voting trusts and voting agreements allowed in shh meetings?
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Yes
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How do you calculate cumulative voting rights?
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Multiply number of shares by the number of slots for directors
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What are requirements for shh to examine books/records of corp.?
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1) Standing (Record holder of 6 months or 5% or court approval)
2) Good faith written demand stating a proper purpose |
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What's the priority of distribution for DIVIDENDS?
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1) Preferred first
2) Then Common |
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What does "regular preferred" rights mean
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Means preferred get first dividends
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What does preferred participating mean?
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They get PREFERRED dividend + dividends to COMMON SHARE (counted twice)
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What does CUMULATIVE preferred dividend status mean?
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Preferred gets paid for UNPAID YEAR AND the Current Year
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When can Corporation NOT issue dividends/distribution?
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If corporation is INSOLVENT or distribution would make corp. INSOLVENT.
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What are the two definitions for insolvency?
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1) Unable to pay debts when due
2) Corporations assets are less than its liabilities |
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What liability do directors face for improper dividends?
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PERSONALLY liable, but can raise defense of GOOD FAITH RELIANCE on financial officer's representations
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What are requirements for a corporation to waive formal shh requirements? (4)
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1) 300 or fewer shareholders
2) Agreement in Articles/Bylaws 3) UNANIMOUS consent of shh 4) Valid for 10 years |
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What requirements does a Limited Liability Company have?
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1) Liability rules of corproation + 2/3 of following
a) Limited Life -- articles specify event of dissolution b) Limited Liquidity (unanimous consent to liquidize) c) Members (shh in LLC) retain MANAGEMENT POWER (but this power can be delegated) |
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What are requirements of forming Virginia Business Trust?
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File Articles of Trust creating MANAGING TRUSTEE
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What are examples of Fundamental Corporate Change?
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1) Merger
2) Consolidation 3) Share exchange 4) Dissolution 5) Amendment of Articles 6) Sale of Substantially all of the Assets |
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What is the process and requirements of enacting fundamental corporate change?
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1) Resolution of Board approving
2) Notice of special meeting (25-60 days) 3) Approval by 2/3 of ALL SHARES ENTITLED TO VOTE (unless Articles say otherwise, but not less than majority) 4) Deal with rights of appraisal 5) Notice to Virginia State Corporation Commission |
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What is the right of appraisal?
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It is a right of shh to force corporation to buy back shares at fair value if they dissent to Fundamental Corporate Change.
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What triggers right of appraisal?
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1) Merger, Consolidation, or Share Exchange
2) Sale of all or substantially all assets |
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What actions must shh take to perfect right of appraisal?
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1) Before vote, file WRITTEN NOTICE OF OBJECTION and INTENT TO DEMAND payment
2) Abstain or vote against proposed change 3) After vote, timely demand to be bought out. |
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Who determines the fair value of a share?
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Court can appoint expert appraiser if there is no agreement. Decision is binding.
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What does a fundamental change of Articles require?
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More than 2/3 majority of all shares entitled to vote not just present at the meeting
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What is the process for a right to appraisal for an amendment to Articles?
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THERE IS NONE!
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What are the rights of stock that is adversely affected by amendment to Articles?
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Majority of the minority rights!
Therefore, 2/3 of all those adversely affected have to vote for action IN ADDITION to 2/3 of all shares |
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Who needs to approve the sale of all of the assets to another corporation?
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Only a SELLING CORPORATION, which provides a right of appraisal.
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