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46 Cards in this Set

  • Front
  • Back
Liabilty on pre-incorp. K's
- Corporation
Not until corp adopts (either express or implied)
Liabilty on pre-incorp. K's
- Promoter
Liable until there has been a novation
Issuance - permitted forms of consideration
1. Money
2. Tangible/Intangible property
3. Services already performed for corp

(NOT permitted: future services and promissory notes)
minimum issue price
Watered Stock - who is liable?
Selling stock for under par
- Directors - liable if knowingly authorized issue
- Purchaser - liable (but not transferee)
Pre-emptive Rights
right to prevent dilution by buying stock in new issuance to maintain % ownership
Who removes directors?
Who fills vacancies on board?
shareholders OR board
Requirements needed for Board action (w/ and w/o a meeting)
Two ways:
- W/o meeting - unanimous written consent
- w/ meeting - quorum present and majority of those present
Role directors:
- What do they do?
- Committees?
- Board manages the corp

- Board can delegate everything but amending bylaws, declare dividends, or recommend fundamental changes
Directors - duty of care standard
"A director owes the corporation a duty of care. She must act in GOOD FAITH and do what a PRUDENT person would do w/ regard to her own business."
Directors - duty of care (defense)
BJR - a court will not second guess a business decision if it was INFORMED, RATIONAL, and made in GOOD FAITH.
Directors - duty of loyalty standard
"A director owes the corporation a duty of loyalty. She must act in GOOD FAITH with a REASONABLE belief that what she does is in the corporation's BEST INTEREST."
Duty of Loyalty - 3 situations
1. Transactions (self-dealing)
2. Competing Ventures
3. Corporate opportunity
Transaction - self-dealing. What must director show to uphold deal between corp and the director?
1. The deal was FAIR to the corporation, or
2. Her interest and relevant facts were disclosed (or known) and approved by:
a. Majority of directors, or
b. Majority of disinterested shareholders
Competing ventures - duty of director
Director can't compete directly with the corporation.
Corporate Oppotunity. Rule, and what must director show to be able to take the opportunity?
Rule - Director cannot USURP a corporate oppotunity. He can't take unless:
1. He tells board, and
2. Waits for the board to accept or reject the opportunity
Who selects and removes officers?
the DIRECTORS (not shareholders)
Other basis of liability for directors
1. Ultra vires acts
2. Improper loans
3. Improper distributions
4. Securities liabilities
Indemnification of directors and officers
1. No indem - when held liable to the corp or held to have received an improper benefit
2. Man indem -
Shareholder as D - Piercing the Corporate Veil (fact situations)
1. Alter Ego - treating the corp as his alter ego by using corp and personal funds as interchangeable

2. Undercapitalizaiton - when formed
- Tort victims - more likely to recover than K victims
Shareholder as Manager - duties?
Gen - comes up in close corporations (few shareholders; not publicly traded)

Fiduciary duty - owed to other shareholders
Shareholder as P - Derivative Suits
A shareholder is suing to ENFORCE the corporation's claim, not her own personal claim.
Derivative suits - who gets the recovery?
Goes back to the corporation
- Exception - shareholder might recover directly if it otherwise would go back to the bad guys
Derivative suits - requirements to bring suit
1. Stock ownership when claim arose
2. Adequately represents the interest of the corporation
3. Make a WRITTEN demand on the directors (unless futile)
Shareholder voting - standing requirements
Record shareholder as of the record date
Shareholder voting - proxy requirements
1. Writing
2. Signed by the record shareholder
3. Directed to secretary of corporation
4. Authorizing another to vote the shares
Shareholder voting - voting trusts/agreements requirements
1. Written trust agreement
2. Give a copy to the corp
3. Transfer legal title to shares
4. Original shareholders receive trust certificates

Pooling agreements - in writing and signed
Shareholder voting - location of vote
Must be valid corporate act (unanimous written consent and a meeting that satisfies quorum and voting rules)

- Annual meeting
- Special meeting
- Notice
Shareholder voting - mechanics of voting
Quorum - majority of OUTSTANDING shares

- Majority to bind:
Trad rule - majority of shares PRESENT
Mod trend - majority of shares actually voted
Right of shareholders to inspect
- Demanding access
Trad view - owned stock > 6 months
Mod view - any shareholder can

Procedure - written demand stating proper purpose
Dividends - 4 types
1. Preferred - first
2. Participating - share in overal distribution
3. Cumulative - add up years
4. Common - normal
Distributions - sources of
1. Earned surplus - comes from biz activity
2. Stated capital - from issuing stock. can NOT be used.
3. Capital Surplus - extra above par. can be used.
Fundamental corporate changes - requirements
1. Majority of shareholders, AND
2. Board action
Fundamental corporate changes - Dissenting shareholder rights
Right of Appraisal - right of shareholder to force the corporation to buy her shares at fair value.
Right of Appraisal - triggers of right
1. Merger or consolidation
2. Transfer of substantially all of assets
3. Transfer of shares
Right of Appraisal - procedure
1. Files w/ corporation written notice of objection and intent to demand payment
2. Abstain or vote against proposed changes
3. Make written demand to be bought out
Right of appraisal - when NO right
1. company on national exchange, or
2. Large # of shares
Fundamental corporate changes - types
1. Amendment of articles
2. Mergers/consolidation
3. Sale of substantially all assets
4. Dissolution
Securities - state law actions (2 types)
1. Sale of controlling shareholder's interest
2. Controller shareholder subjecting minority shareholders to detriment
State law - when Sale of Controllling share interest not OK
1. Sale to looters (must make reasonable investigation into who you are selling)
2. Disguished sale of corporate asset
3. Sale of board position - ok, if no massive resignations follow
State law - nondisclosure of special facts
Like insider trading

Standing - sh w/whom the insider deals.
Damages - diff between price paid and value of stock a reaonable time after public disclosure
10b-5 - elements
1. Instrumentality of interstate commerce (like phone call)
2. Bad act
- misrep of material info
- nondis of material info
- tipping
3. Materiality
4. Scienter - intent to deceive, manipulate, defruad
5. Reliance
16B - rule
"This federal law provides for the recovery by the corporation of 'profits' gained by certain insiders from buying and selling the company's stock."
10b-5 - rule
"This federal rule, promulgated by the SEC, makes it illegal to use any fraudulant scheme in connection with the purchase or sale of any security."
16B - requirements
1. Reporting corporation (BIG corp)
2. Type of D:
- Director
- Officer
- Sh > 10%
3. Short swing trading (w/n 6 months
4. Damages - profits