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67 Cards in this Set

  • Front
  • Back
ultra vires
ultra vires certificates are valid and enforceable; S/H can seek an injunction; the responsible Os and Ds are liable to the C for ultra vires losses
political contributions by corp;
no more than $5k per candidate per year;
can make a loan if approved by 2/3 of S/H eligible to vote
de facto C
if parties made a good faith, colorable attempt to comply with relevant incorporation statute and some exercise of corporate privileges

but C by estoppel is abolished in NY
C by estoppel
abolished in NY
Pre-incorporation Ks
a corp is not liable until it adopts the K by express adoption or implied adoption by knowing acceptance of a benefit of the K

promoter remains liable until novation, even after adoption
secret profit rule
promoter cannot make a *secret* profit by selling to the C, but can make a known profit

if secret property was acquired b/f becoming a promoter, profit-FMV; if after, then price - price
foreign C's doing business in NY must qualify; if they don't, then penalty when they do and can't sue
a loan / bond, payment not secured by corporate assets / collateral
a written, signed offer to buy the stock from the C

a pre-incorporation subscription is not revocable by the buyer for 3 months unless all other subscribers agree

post-inc subscription is revocable until the BoD accepts the offer
if C accepts a subscription and subscriber defaults
if < half is paid, C can cancel and keep the money

if ≥ half is paid, and new buyer pays more, S gets the difference, less costs
consideration for stock
money; tangible or intangible property; labor or services already performed for the C; a binding obligation to pay or to perform services in the future
unpaid stock, like if someone pays in improper from

watered stock is stock sold for less than par; if C issues watered stock to X, C can sue for the balance

but if X buys and transfers to TP, TP is not liable if she acted in good faith
treasury stock
was previously issued and has been reacquired by the company; C may then sell the treasury stock
preemptive rights
if NEW issuance sold for MONEY, then right to buy to maintain ownership percentage

not new if treasury stock or originally authorized and sold w/in 2 years
are there preemptive rights
if C is formed b/f 2/22/98, yes

if on or after, then only if certificate sez so
removal of directorfs
S/H can remove a director for cause at any time

BoD can remove a director for cause if certificate or bylaws permit

w/o cause, S/H only may remove, and only if certif or bylaws permit
filling vacancies
generally, BoD chooses replacement

unless S/H remove w/o cause, then they replace
BoD meeting reqs
for a valid act, need (a) unanimous written consent to act w/o mtg; or mtg; or invalid act later ratified
quorum & proxies for BoD
no proxies; no voting agreements

quorum is a majority of entire board (so need 5 of 9, even if 2 resigned)

no business after the Q is broken
reducing Qurom size
can reduce in certif. or bylaws, but must be ≥ 1/3 of directors; supermajority req's a change in certificate

passing a resolution always must be a majority or more; supermajority req's change in certif.
Duty of Care
"A director must discharge her duties in good faith and with the degree of diligence, care and skill than an ordinary prudent person would exercise under similar circumstances in like position."
Business Judgment Rule
in misfeasance case, state duty of care. next,

"But a court will not second guess a business decision if it was made in good faith, reasonably informed and had a rational basis."
Duty of Loyalty
"a director must act in good faith and with the conscientiousness, fairness, morality and honesty that the law requires of fiduciaries"

no BJR rule b/c of the conflict of interest
interested party transactions
will be set aside UNLESS director shows: a) the deal was fair and reasonable when approved; or b) the material facts and her interest were disclosed and the deal was approved by S/H or board approval, not counting interested votes or unanimous vote of disinterested voters
stock options
must be approved by S/H if not listed on xchange
corporate opportunity
director cannot usurp. Unless he tells the board and waits for the board to reject it.
corporate loans
≤ 2/22/98, by S/H vote unless certif permits BoD to loan

> 2/22/98, BoD can do so unilaterally if it will benefit the C
BoD - how to avoid liabilty
register dissent in writing in the minutes; or in writing to corp secretary; or in registered letter to C, promptly after adjournment; or if absent, in writing after learning

or, good faith reliance on officers, lawyers, or committee of which he is not a member
officers' duties
duties of care & loyalty, like BoD

they are agents, so they can bind the C
officer removal
if BoD selects, they remove, unless certif permits S/H

if S/H elects them, only S/H can remove

or, the A/G or 10% of S/Hs can sue for a judgment removing an officer for cause
indemnification of O or D
prohibited if O or D held liable to the C

of right: if she was successful in defending the case

permissive: if she acted in good faith & with purpose reasonably believed to be in the corp's best interest

certificate cannot eliminate personal liability for seriously improper D activity
"S/Hs are generally not liable for the debts or acts of a corporation. But a court may pierce the corporate veil and hold S/Hs personally liable if..."
PCV situations
alter ego; undercapitalization (S/H failed to invest enough to cover prospective liabilities); torts; wages and benefits of EEs in a close corp
S/H derivative suits
a S/H is suing to enforce the corp's claim, not her own (e.g. suing BoD for usurping)

generally, the C gets the recovery; S/H can get damages only if C would return the money to the bad guys

if unsuccessful, S/H will be liable to the D for costs but not attys fees
reqs to bring derivative suit
stock ownership when claim arose and throughout the axn; must adequately represent the interest of the C and the S/H's;

s/H must first make DEMAND that BoD bring suit unless futile

P must plead with particularity
dismissal of derivative suit
if independent directors find that the suit is not in C's best interests, and they are truly independent and investigation is sufficient, then dismissal
joinder in derivative suits
C must be joined as a D, even tho S/H is suing on its behalf
settlement of derivative suits
only w/ct approval
not for BoD, only S/H

in writing, signed by record S/H, good for 11 mos unless it sez otherwise; always revocable, even if it sez irrevocable
voting trust
written & signed trust agreement; copy to the corp (not secret); transfer legal title of shares to voting trustee; 10 year max
appraisal remedy
statutory right of corporate S/H who oppose extraordinary corporate axn to have their shares appraised and demand the corp buy back their shares at the appraised value
S/H meeting quoum
majority of outstanding shares

certif or bylaws can decrease, as long as ≥ 1/3

increase to supermajority only in certif

resolutions pass by majority actually voting

quorum cannot be lost (unlike BoD quorum)
restraint on stock transfer by S/H
restraints on transfer will be upheld "if reasonable under the circumstances and not an undue restraint on alienation"

must be conspicuously noted on stock certificate or actual knowledge
statutory right to inspect
any S/H on 5 days written demand can inspect minutes & record of S/Hs if purpose not other than in the interest of the C and has not tried to sell any list w/in past 5 years

also can inspect balance sheet, P/L statement, interim statements, list of Ds & Os
c/L right to inspect
to inspect records at a reasonable time and proper place for proper place

may be broader than statutory right
preferred means pay first; preferred that is participating means pay again; preferred that is cumulative means add them up (for years in which no dividend is paid)
funds that may be distributed
surplus = assets - liabilities - stated capital

stated capital = issued stock * par value
unlawful distributions
C cannot make distributions that would render it insolvent

Ds are personally liable, so are S/Hs who knew it was unlawful;

C can sue or S/H as a derivative suit; but good faith reliance
fundamental corporate changes
require BoD approval, then S/H approval

must notify dept of state
to get right of appraisal
(not if not listed on exchange)

b/f vote, S/H must file written objection and intent to demand payment and after vote, make written demand to be bought out

if no agreement on fair value, C sues to determine value
amendment to certificate
major changes must be approved by BoD and majority of shares ENTITLED to vote (normally just actually voting)

if amendment will strike a supermajority or quorum req for S/H voting, need BoD and 2/3 of S/H ENTITLED to vote
mergers v. consolidation
merger: A into B

consolidation: A & B form C
rights of appraisal in merger
yes for the S/H of the Corp that disappears

but in merger, not for the surviving corp
short form merger
parent corp owns ≥ 90% of sub and sub is merged into parent;

no S/H req'd

but rights of appraisal, even tho they didn't vote
successor liability
after merger, the surviving corp succeeds to all the rights and liabilities of the constituents
transfer of all assets
need BoD & S/H approval

rights of appraisal for SELLING company

company buying will not be liable for the torts of the company acquired (unless fraudulently escaping)
voluntary - no BoD vote, just S/H vote

involuntary - (judicial) - need BoD resolution or S/H majority of ENTITLED resolution, stating C has insufficient assets or dissolution would be beenficial
S/H petition for involuntary dissolution
usually takes 1/2 entitled,

but 20% of voting shares may petition if real bad shit
to avoid dissolution
w/in 90 days of petition, the C or non-complaining s/H may buy the petitioner's shares at FMV; must be approved by ct
controlling S/H
generally, outside of close corp, S/Hs do not owe fiduciary duties to each other or to the corp

but a controlling S/H does
stock sales by controlling S/H
can sell at a premium b/c of control;

but liability if sold to looters, for selling a corporate asset, or selling a position on the board
freeze out merger
cashes out minority S/Hs unfairly
insider trading
breaches an affirmative duty to the corp
stupid dates for preemptive rights
rights if corp formed BEFORE 2/22/98; not if on or after
stupid dates for loans to directors
if certificate is silent, need S/H vote on or before 2/22/98; BoD after
2/3, 1/3 and stupid dates
on or before 2/22/98, need 2/3 S/H entitled;
after need 1/2 of S/H entitled to vote

to amend certificate to strike supermajority quorum or voting req for director voting;

for merger, consolidation or transfer of assts;

for voluntary dissolution