Corporations

Front 1

Major Characteristics of a Corporation

Back 1

1) freely transferable shares;

2) continuous (perpetual) existence;

3) limited liability;

4) centralized management.

Front 2

Articles of Incorporation

Back 2

Must include:

1) the incorporators' names and addresses;

2) name of the corporation;

3) name and address of the initial registered agent;

4) number of shares the corporation is authorized to issue;

5) preemptive rights.

Front 3

Bylaws

Back 3

Internal rules and regulations.

Front 4

De Jure Corporation

Back 4

A corporation organized in compliance with the statute.

Front 5

De Facto Corporation

Back 5

Insufficient statutory compliance, but:

1) a good-faith, colorable attempt was made to comply with the incorporation statute; and

2) corporate principals, in good faith, acted as if they were a corporation.

Insulates directors and shareholders from liability, except from state.

Front 6

Corporation by Estoppel

Back 6

Held out as a corporation

Front 7

Ultra Vires

Back 7

A corporation cannot be obliged to undertake a contract or activity that is beyond the scope of its powers.

Front 8

Piercing the Corporate Veil

Back 8

Courts analyze:

1) Alter ego (no separate existence, pervasive common ownership);
2) inadequate capitalization; and
3) failure to comply with corporate formalities.

If pierced, liability is imposed upon shareholders active in management.

Front 9

Promoter

Back 9

One who causes a corporation to be formed, organized, and financed.

Liable for preincorporation contracts, unless:

1) valid novation (complete discharge), or
2) agreement to release liability.

But can indemnify the corporation if: good faith + corporation benefited.

Front 10

Adoption

Back 10

Promoter may remain liable, but entitled to indemnify.

Express: contract is explicitly approved or adopted by the board of directors

Implied: benefits of the contract are accepted or acknowledged in some way

Front 11

Debt Securities

Back 11

money loaned to the corporation

Holders have priority over equity security holders upon liquidation.

Three major kinds:
1) debentures (unsecured obligations),
2) bonds (mortgage, secured obligations),
3) notes (short-term).

Front 12

Stock Subscription Agreement

Back 12

Agreement to purchase shares.

Irrevocable for 6 months if before incorporation (unless agreement the contrary by all subscribers).

Front 13

Equity Securities

Back 13

Represent capital of the corporation.

Right to residual upon liquidation.

Front 14

Shareholders

Back 14

Have:
1) dividend rights (if declared for CS)
2) liquidation rights
3) voting rights

Front 15

Share Certificates

Back 15

State the number of shares,
the class and series,
signed by President or VP,
any restriction on transferability must be noted conspicuously or it is ineffective.

Front 16

Preemptive Rights

Back 16

Rights of existing shareholders to acquire unissued or treasury shares in the corporation in proportion to their holdings of original shares so as not to reduce their ownership percentage.

Front 17

Directors may not declare a dividend...

Back 17

If:

1) the corporation would not be able to pa its debts as they become due in the ordinary course of business; or

2) the corporation's total assets would be less than the sum of its total liabilities plus the amount the corporation would need to satisfy preferential rights upon dissolution.

Front 18

Record Date

Back 18

Determines which shareholders are entitled to receive dividends.

It can't be any more than 70 days prior to the action being taken.

If it's not fixed it is close of the business on the day a dividend is declared.

Front 19

Shareholders' Rights

Back 19

1) elect and remove directors;
2) approve any amendments to the articles;
3) amend the bylaws;
4) approve fundamental changes (merger, sale, dissolution).

Front 20

Notice of Shareholders' Meetings

Back 20

Not less than 10 days and not more than 60 days prior to the meeting.

A majority of the shares entitled to vote is a quorum.

Front 21

Proxy Voting

Back 21

Grant of authority by a shareholder to another person to vote the shareholder's stock.

Must be in writing (most states);
valid for 11 months (unless states otherwise);
freely revocable (unless coupled with an interest).

Front 22

Voting Trust

Back 22

A transfer of legal title to the shares to a trustee who votes them-- limited to 10 years.

Front 23

Straight Voting

Back 23

One vote for each director.

Front 24

Cumulative Voting

Back 24

Each share has as many votes as there are directors to be elected.

Shares voting/(Directors to be elected +1) + 1

Front 25

Shareholders' Right to Information

Back 25

May inspect and copy if:

1) the demand is made in good faith and for a proper purpose;
2) he describes with particularity the purpose and records; and
3) the records are connect with the purpose

Front 26

Directors' Meetings

Back 26

Special meetings can be held with at least 2 days notice.

Number of directs that must be present for the board to be legally competent to transact business is a quorum.

Front 27

Duty of Care

Back 27

Directors must perform their duties:

1) in good faith;
2) in the best interests of the corporation; and
3) like a person in a like position.

Front 28

Business Judgment Rule

Back 28

Creates a rebuttable presumption that director s are honest, well-meaning, and acting through informed and rationally undertaken decisions in good faith.

Plantiff has burden of rebutting the BJR.

Front 29

Duty of Loyalty

Back 29

Arises when an individual:

1) has business dealing with the corporation;
2) takes advantage of a corporate opportunity; or
3) enters into competition with the corporation.

Defendant has burden of disproving breach of loyalty.

Front 30

Rule 10b-5

Back 30

Prohibits false or misleading statements in connection with the purchase and sale of any security.

Elements:
1) misrepresentation or omission of material fact;
2) knowledge or reckless disregard of the truth;
3) scienter (intent to deceive);
4) reliance;
5) damages.

Insider trading & misappropriation of inside information fall under 10b-5.

Front 31

Voluntary Dissolution

Back 31

By:
1) written consent of all shareholders; or
2) filing articles of dissolution

Front 32

Tender Offer

Back 32

A public solicitation by a bidder of publicly held shares of the corporation to be acquired.

Defenses:

White knight: finding a more acceptable bidder.

Poison Pill: creating a class of stock that increases in rights if any person acquires more than a specified percentage of shares.

Front 33

Direct Suits

Back 33

Shareholder sues on his own behalf to redress an injury to his interest as a shareholder.

Causes of action:
1) compel payment of dividends;
2) enforce the right to inspect records;
3) protect preemptive rights;
4) enforce the right to vote;
5) recover for breach of agreement

Front 34

Derivative Suits

Back 34

Shareholder sues on behalf of the corporation to redress a wrong to the corporation.