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134 Cards in this Set

  • Front
  • Back

6 Main Fact Pattens

1. Organization of corporations 2. Issuance of stock 3. Directors and officers 4. Shareholders 5. Fundamental corporate changes 6. Controlling shareholders

[1] Organization

1. Formation Requirements 2. Characteristics 3. De Facto Corporation and Corporation by Estoppel 4. Bylaws 5. Pre-incoporation Ks 6. Secret Profit Rule 7. Foreign Corporations

Formation Requirements

1. People 2. Paper 3. Acts

Formation - People

[Incorporators] 1. execute the certificate 2. deliver it NY Dept. of State 3. Hold organizational meeting [Requirements] 1. 1 or more 2. "natural persons" - adult humans only

Formation - Paper

Certificate of Incorporation: 1. K b/w corp and SHs 2. K b/w corp and state

Info in certificate

1. Names and addresses 2. Duration 3. Corporate purpose 4. Capital structure

Certificate - Names and Addresses

1. [Corporate name] must have Corp. Inc. or Limited 2. [Address] only county required, don't actually have to do business 3. [Agent for Service of Process] NY Secretary of State (but can name another one too); also need address for forwarding process 4. [Incorporators] name and address of each

Certificate - Duration

Allowed to make, otherwise perpetual

Certificate - Corporate Purpose

1. Required, but can be broad 2. "Ultra Vires Acts" are BEYOND the scope of the certificate: a. ultra vires Ks are valid b. SHs can seek injunction in court c. responsible managers are liable to the corp for ultra vires losses 3. BUT, Officers CANNOT act outside the "scope of apparent authority" in the certificate

Certificate - Capital Structure

[Requirements] 1. Authorized stock 2. # of shares per class 3. info on par value, rights, preferences, and limitations on EACH class 4. info on an series ("subclass") of preferred shares" 5. One class of STOCK OR BONDS mst have UNLIMITED VOTING rights 6. One class of STOCK must have UNLIMITED DIVIDEND rights [Authorized] maximum # corp can sell [Issued] # corp actuall sells [Outstanding] # corp has sold and not reacquired

Formation - Acts

1. De jure corporation 2. Organizational Meeting

De Jure Corporation

1. Each incorporator signs certificate and acknowledges before a notary 2. Delivered to NY State Dept. ---> concluvie evidence of a valid formation of legal corporation ("de jure")

Orgnaizational Meeting

(can be by written consent) 1. Adopt bylaws 2. Elect initial directors --> then BoD takes over managmeent

Characteristics of Corporate Formation

1. [Governing Law] NY law governs internal affairs of corporation 2. [Separate Legal Person] a. broad powers to enter Ks, transfer property, sell securities, etc. b. $5,000/year/candidate or org limit on political contributions c. unlimited charitable contributions d. can guaranty loans not in furtherance of business if approved by 2/3 of shares entitled to vote 3. [Liability on Corporation itself] a. management not liable b. shareholders "limited liability" - only to pay for their stock

Improper Formation Remedies

When proprietors fail to form a de jure coproation and want to be treated as a corporation to avoid personal liability, 1. De facto corporation 2. Corporation by estoppel

De Facto Corp

[Elements] 1. Relevant incorporation statute (BCL) 2. good faith, colorable attempt to comply with it 3. business is "being run as a corporation" (allows treatment as a corporation except in an action by state) ["Thought to be abolished by BCL"] only in lmited circumstances, like delivered certificates failed to file

Corporation by Estoppel

Abolished in NY

Bylaws

1. Not necessary 2. CERTIFICATE always control 3. INTERNAL document (not filed, outsiders not boound) 4. Adopted by the incorporators @ organizational meeting 5. status as a "shareholder bylaw" 5. SHAREHOLDERS amend, repeal, and adopt new ones 6. BoD can only change if certificate or bylaw allows

Pre-Incorporation Ks

[Promoter] person acting on behalf of a corp not yet formed: 1. Promoter liable unless there is a novation by the corp(can be jointly liable) OR intent only for the corp 2. Corp only liable if they ADOPT by: a. "Express" - BoD action b. "Implied" if they knowingly accept a benefit of the K

Secret Profit Rule

Promoter cannot make a SECRET profit on dealings with corporation: 1. Sale of property acuqired before promoter status to corporation: profit=price - FMV 2. Sale after promoter status: profit= price - acquisition price

Foreign Corporations

[Qualification] Foreign corporations "doing business" (regular course of intrastate activity) must qualify by applying to Dept of State and designating Secretary as agent for service of process w/ info: 1. info from certificate 2. proof of good standing in home state [Effect of Not Qualifying] 1. Can't assert claim in NY til it pays fees, taxes, penalties, and interest 2. Can STILL be sued and defend

[2] Issuance of Stock

1. Definition of Issuance 2. Subscriptions 3. Consideration 4. Preemptive rights

Issuance of Stock -- Definition

1. When a CORPORATION sells its OWN (contrast to bond issuances and debentures (loans not secured by corporate assets)) 2. Issuance rules apply ONLY when there is an issuance

Subscriptions

1. Definitions 2. Revocations 3. Default

Subscriptions - Definitions

1. Written, signed offer to buy stock from the corp, pre- or post incorporation 2. REVOCABILITY will depend on timing 3. BUT, board must issue UNIFORMLY among subscribers w/I each class or series of stock

Subscriptions - Revocability

1. Pre-incorporation subscriptions - irrevocable for 3 months 2. Post-incorporation subscriptions - revocable until til "accepted by the corp." (i.e. when board accepts the offer)

Subscriptions - Default

1. [<1/2 purchase price paid] if fails to pay w/I 30 days of written demand: a. corp can keep $ and cancel the shares b. becomes "authorized and unissued" (company can sell) 2. [>/ 1/2 purchase price paid] if fails to pay w/I 30 days of written demand: 1. corp must try to sell the stock to someone else for cash or promise to pay cash 2. if no one pays, still "authorized and unissued" 3. if someone pays MORE, defaulting party gets excess minus expenses

Issuance - Consideration

1. Form 2. Amount

Consideration - Forms

*pretty much anything, but if none, treated as "unpaid stock" / water * 1. money (cash or check) 2. tangible or intangible property (BoD determination value is conclusive if "made w/o fraud") 3. services ALREADY performed for the corporation (e.g. forming a corporation) 3. binding obligation to pay $ or property in the future (e.g. a note) 5. a binding obligation to perform "future services" having an "agreed value" (but can't have "waste of corporate assets" like $1m for sweeping)

Consideration - Amount

1. [Par] minimum issuance price (set by Board, can be none) 2. [Treasury Stock] previously issued and reacquired by corp, treated as "no par" so can sell at any price 3. [Watered Stock] issuing par stock for LESS than par value

Consideration - Watered Stock

1. BoD liable if they "knowingly authorized issuance" 2. purchaser liable, charged w/ "notice of par" 3. Third party NOT liable unless they "knew about the water"

Pre-Emptive Rights

[Generally] The stipulated right of an existing shareholder to maintain % ownership by buying shares whenever there is a NEW ISSUANCE of COMMON STOCK for MONEY (cash or checks) [If Certifcate Silence] 1. MUST be stipulated to have right 2. Sale of treasury stock not considered issurance 3. Not new if: a. authorized w/i original certificate b. sold w/i 2 years

[3] Directors and Officers

1. Statutory requirements 2. What Board Does 3. Duty of Care 4. Duty of Loyalty 5. Other bases of Liability 6 Officers 7. Reimbursement

Statutory Requirements

1. Number 2. Elections 3. Removal 4. Vacancies 5. *Actions of the Baord

Number of Directors

Set by: 1. the bylaws 2. "shareholder act" 3. BoD if "shareholder bylaw" allows 4. 1 is default

Director Elections

1. Incorporators elect intial directors 2. Shareholder elect after that @ annual meeting 3. "Classified board" - when one class is elected each year

Removal of Directors

1. By shareholders for cause 2. By SHs w/o cause ONLY if in certificate or bylaws 3. By BoD for cause ONLY if certificate or shareholder bylaw allows

Director Vacancies

Filled by BoD for the remainder of the term, UNLESS removed by shareholders w/o cause (then shareholders fill spot)

*Board Acts - Valid Acts

Directors act AS A GROUP (not invidivual agents) in two ways: 1. unanimous written consent 2. a meeting (doesn't have to be in NY) --> anything else is VOID unless "ratified by a valid act" (even if they all agree separately)

Notice Requirements

1. Not for "general meetings" if set by bylaws or board 2. Time and place required for "special meetings" 3. [Effect] any action is void unless director not given notice waives the notice defect by: a. signed writing b. attending meeting w/o objection

Director Voting

1. No proxies - fiduciary duties to corporation are nondelegable 2. No voting agreements - duty is to corporation

Quorums

1. To do business, requires majority of the "entire board" ("duly constituted board" = number of positions if no vacancies) 2. Passing resolution requires a majority of those PRESENT

Changing Requirements

1. Decreasing quorum - ok if in certificate or bylaws, but never less than 1/3 2. Increasing quorum - only in certificate 3. Decreasing majority requirement - NO 4. Requiring a supermajority - only in certificate

What Board Does

1. Generally manages business of corporation 2. Can delegate "substantial managmeent function to a "committee of one or more directors" but not ALL responsibilities 3. Committees can NOT (but can recommend): a. set BoD comp b. fill BoD vacancies c. submit a "fundamental change" to bylaws d. amend bylaws

Duty of Care

1. Standard 2. Nonfeasance 3. Misfeasance

Duty of Care - Standard

"D must discharge duties [in good faith] with that [degree of diligence, care, and skill] than an [ORDINARILY PRUDENT PERSON] would exercise [under similar circumstances] in [like position].

Duty of Care - Nonfeasance

Breach usually easy, but must show that breach CAUSED a LOSS to the corporation o prove liability (difficult)

Duty of Care - Malfeasance

1. Causation is clear, but "Director is not a guarantor of success" 2. NOT LIABLE if meets the BJR: "a court will not second guess a business decision if it was made: a. in good faith (deliberation and analysis) b. reasonably informed and c. had a rational basis

Duty of Loyalty

1. Standard 2 Interested Transactions 3. Competing Ventures 4. Corporate Opporunity

Duty of Loyalty - Standard

A director must act [in good faith] and with the [conscientiousness, fairness, morality and honesty[ that the law requires of [fiduciaries] (i.e. don't put self interest above those of the corp.)

Duty of Loyalty - Interested Director

Any deal b/w corp. and director, set adide unless either: 1. deal was fair and reasonable OR 2. [disclosure] material facts and her interest were disclosed or known and [approval] by: a. shareholder action b. BoD approval by "sufficient vote" NOT counting interested directors (interested still part of quorum) c. UNANIMOUS vote of disinterested vote if insufficient to take a board act 3. Specific examples: a. BoD can set compensation, but must be "reasonable and in good faith" to avoid waste of corporate assets b. Options - authorized by exchange policies if listed, o/w approved by shareholders

Duty of Loyalty - Competing Ventures

1. CANNOT compete DIRECTLY w/ corporation 2. Remedy: a. corp. gets "constructive trust" on her profits and she must "account for her profits" b. possible damages if competition hurt corp

Duty of Loyalty - Corporate Opportunity

[NO USURPING!] 1. "Corporate opportunity" is something the corp. "needs," "has an interest or tangible expectancy in," OR that is "logically related to its business" 2. Cannot take unless directors: a. tells BoD about it and b. waits for them to reject it 3. Remedy: "constructive trust" and "account for profits", maybe damages if it harmed the company

Other Bases of Liability

1. Improper loans 2. Improper distributions 3. Which directors are liable

Liability - Improper Loans

1. Guaranty of D's personal obligation ok if: a. BoD finds that it benefits corp. OR b. 2/3 SH approval 2. Loans to DIRECTORS need approval of MAJORITY of shares, not counting shares owned by borrower

Liability - Which Director Liable

1. Assumed to concur w/ board action unless "dissent is noted in writing" in corporate records 2. How: a. in the minutes b. in writing, to the secretary @ the meeting c. registered letter to the secretary "promptly after adjournment" 3. Can't disent if you voted for the resultuion at the meeting 4. If ABSENT: need to "register written dissent" w/i "reasonable time of learning of the action" --> send to secretary

Liability - Good Faith Reliance

Defense for information, opinions, reports, or statements by: 1. officers or employees director / officer believes are competent and reliable 2. lawyers and accountants belived to be acting w/I their competence 3. a committee of which the person relying is not a matter, to matter w/i their authority

Officers

1. Duties owed 2. Agency 3. Appointments / removal 4. Judicial action 5. Compensation

Officer - Duty Owed

SAME: 1. Duty of care 2. Duty of loyalty

Officers - Agency

1. Agents of corporation 2. Can BIND the corporation for act they have AUTHORITY to

Officers - Appointment

1. BoD can select President, VPs, secretary, treasurer, and any others the board may determine or for which bylaws provide 2. BoD selects and removes unless certificate allows SHs [General Hierarchy] SHs hire and fire BoD, BoD hire and fire officers, unless certificate

Officers - Judicial Action

1. Attorney general or holders of 10% of all shares may sue for a judgment removing an officer for cause 2. Court can bar reappoinment of person so removed

Officers - Compensation

Set by BoD

Reimbursement

1. Situations and types 2. Court order 3. Advance expenses 4. Other Acts 5. General Framework

Reimbursement - Situations and Types

1. [Prohibited] person held liable to the corporation 2. [of right] MUST reimburse if D or O WON a judgment (on merits or o/w) (but, if you sue to get this right, you can't recover attorney's fees) 3. [Permissive] anything else, e.g. settlement, must show: a. acted in good faith b. for a purpose "reasonably believed in company's best interest" ---> [Permissive eligibility] determined by: a. BoD if quorum is non-parties b. if none, then SHs or a quorum of disinterested direcotrs OR b. BoD pursuant to report from independent legal counsel 4. [Court Order] court can order reimbursement if finds person is "reasonably entitled to it"

Reimbursement - Advance Expenses

Ok, but MUST be repaid if it turns out no entitled to reimbursement

Other Reimbursement Issues

1. D+O liability insurance OK 2. Certificate or bylaws can provdie for indeminifcation by resolution of board or SHs by agreement unless D or O acted in bad faith!

Reimbursement - General Framework

Certificate can eliminate director liability to the copr or shareholders for breach of duty EXCEPT: 1. bad faith 2. intentional misconduct 3. received improper financial benefit 4. approved unlawful distribution or loan

[4] Shareholders

1. Management 2. SH Liability 3. Derivative Suits 4. Voting 5. Transfer of Stock 6. Right to Insect 7. Distributions

Management

1. Close Corporations 2. Requirements 3. Fiduciary Duties 4. Professional Service Corporations

Management

1. Generally ,BoD manages 2. SHs CAN managae business directly in a "close corporation" where there are: few SHs and NOT publicly traded

Management - Requirements

In addition to provision in the certificate restricting or transferring board power: 1. ALL incorporators or SHs approve it 2. conspicuously noted on front and back of all share 3. all subsequent SHs have notice 4. shares not listed or OTC

SH Management - Fiduciary Duties

1. Duty of Care and Loyalty 2. Duty of "utmost good faith" in dealings w/ each other

SH Management - Duty of Utmost Good Faith

Remedy for behavior that "defeats reasonabe expectations for investing": 1. employment 2. ROI 3. voice in management [GOAL] avoid control persons from using power for: 1. personal gain at expense of minority SHs or 2. oppressing minority SHs or the corporation (freezeouts!)

SH Management - Professional Service Corporations

Licensed professionals can form a PC w/ additional requirements to general rules: 1. Shareholders, officers, and directors must ALL be licensed professionals (if license lost, shares must be bought) 2. Professionals liable for their OWN malpractice 3. ENTITY liable for Ks entered into by PC

Shareholder Liability

1. PCV 2. Wages

SH Liability - PCV

Occurs when SH may be personally liable for what corporation does (more readily availible in tort than K): 1. abused the privilege of incorporating and 2. fairness requires holding them liable 3. For both elements: if SH exercises "complete domination and control over the corp." to "perpetuate fraud or injustice" 4. 2 types: a. alter ego (when assets commingled - SH can be another ENTITY) b. undercapitalization (fail to invest enough to cover liability)

SH Liability - Wages

In a close corporation, 10 largest shareholders are personally liable for the wages and benefits to the corporations employees (by statute).

Shareholder Derivative Suits

1. Structure 2. SH Victory 3. SH Loss 4. Requirements for Bringing Suit

SH Derivative Suits - Structure

1. SH "suing in right of the corporation" (i.e. corporation could have brought suit) 2. Always includes breach of duties (like waste of assets), maybe dividends if based on mismanagement

SH Derivative Suits - SH Victory

1. Corp. gets recovery 2. SH gets costs and attorney's fees, MAY get damages if recovery by corp. would return $$ to the bad guys (e.g. close corp with 3 directors suit against 1, 2 may recover directly)

SH Derivative Suits - SH Loses

1. SH does not get costs and expenses, and has to pay corp's usually 2. Other SHs cannot later sue once claim has been asserted

SH Derivative Suits - Requirements

1. Stock ownership when claim arose or by "operation of law"(inheritance or divorce), brought, and through entry of judgment 2. P must "adequately represent interests of corp. and SHs 3. Bond for D's costs unless owns >5% of stock or >$50,000 worth 4. *Demand* requirement that corporation itself sue 5. "Plead with particularity": efforts to get BoD to sue OR why demand was futile 6. Corp. must be joined as a D (makes no sense) 7. Corp. can move to dismiss

SH Derivative Suits - Demand Requirement

Must make demand on BoD to sue corp, unless FUTILE: 1. majority of BoD is interested or under control of interested directors (most likely) 2. board did not inform itself of the transaction to extent reasonable under circumstances OR 3. transaction so egregious on its face that it could not be the result of sound business judgment

SH Derivative Suits - Corp. MTD

1. Can MTD based on finding by independent directors (or "SLC") that suit is NOT in corporation's best interests 2. Court will look at: a. independence of those makign the investigation b. sufficiency of the investigation 3. Examples: low chance of recovery or costs of suit will exceed recovery

SH Derivative Suits - Settlement

ONLY w/ court approval, and may require notice to SHs to get their feedback

SH Derivative Suits - Director Options

1. D or O can sue another to "compel her to account for violation of dutuies or misappropriation of assets" 2. Don't need derivative suit requirements - sues in own name, but recovery by corporation

Shareholder Voting

1. Who Votes? 2. Where? 3. How?

SH Voting - Who Votes?

1. "Record owner" as of "record date" (voter eligibility cut-off) 2. Exceptions: a. Treasury stock not voted b. exectuor can vote on behalf of dead SH c. Proxies OK

SH Voting - Proxies

[Proxy] is a: 1. writing 2 signed by record SH or authorized agent 3. directed to secretary 4. authorizing another to vote shares [Characteristics] 1. good for 11 months unless o/w stated 2. revocable in writing or by attending meeting 3. death revokes only when written notice of death received 4. "Irrevocable Proxies" must have BOTH: 1. statement that it is irrevocable 2. proxy is "coupled" with an interest (e.g. has an option in it)

SH Voting - Voting Trusts

Cumbersome, but more likely to be upheld, require: 1. written trust agreement controlling how shares will be voted 2. copy to corporation 3. transfer legal title of voting shares to voting trustee 4. original SHs receive voting trust certificates and retain all rights EXCEPT for voting 5. 10 year MAXIMUM

SH Voting - Voting / Pooling Agreement

UNCLEAR if specifically enforceable: 1. in writing 2. signed 3. proxies given subject to voting agreement don't have an interest requirement

SH Voting - Where?

1. Meeting Requirements 2. Notice Requirements

SH Voting - Meeting Requirements

[SH Act requires] 1. written consent from holders of all voting shares 2. meeting [Types of Meetings - don't need to be held in NY] 1. Annual 2. Special

SH Voting - Annual Meeting

1. Elect directors by plurality 2. If not held, court can order

SH Voting - Special Meeting

Can be called by: 1. board or 2. anyone provided for in the certificate or bylaws 3. only for a "proper shareholder purpose" (e.g. not removing an officer) and can ONLY be for this purpose

SH Voting - Notice Requirement

Must give written notice (email ok) to every SH entitled to vote, for every meeting, between 10-60 days before meeting with: 1. time 2. place 3. anything re: appraisal rights (tell why these would be implicated and include statute) [Special Meetings only] 4. who called it 5. purpose [IF NONE] any action is void unless waiver

SH Voting - How do SHs vote?

1. Need quorum of shares represented (certificate and bylaws can reduce, but never fewer than 1/3, and only certificated can increase to supermajority) 2. Majority required for approval (supermajority can be increased by certificate only) 3. Cumulative voting - ONLY for election of directors, and must be stipulated in certificate

Transfer of Stock

1. Consideration 2. Transfer Restrictions

Transfer of Stock - Consideration

Can be anything - par is an issuance rule!

Transfer of Stock - Restrictions

1. Set by: a. certificate b. bylaws c. agreement 2. VALID if not an "undue restraint on alientation" (e.g. RoFR good as long as price offered is reasonable, buybacks selling stock back when leaving company is ok) 3. Restriction cannot be invoked against transferee unless it is: a. conspicuously noted b. transfree had KNOWLEDGE of the of the restriction

Inspection Rights

1. [Minutes of SH proceedings and Record of SHs] ANY SH w/I 5 days written demand (corp can requrie affidavit that purpose is not other than interest in corp. and not tried to sell list w/I 5 years) 2. [List of Ds and Os] any SH w/I 2 days written demand 3. [B/S, P+L and interim statements distributed to SHs or public] any SH w/ written request 4. [Common Law] right to to inspect recrods at a "reaonable time" and "proper place" for a "proper shareholder purpose" - breadth unclear

Distributions

1. Definition 2. Which SHs get dividends 3. Which funds can be used 4. Insolvency limits 5. Director liability 6. Redemptions

Distributions - Defintion

1. Payments by corporation to shareholders - dividends, payment to repurchase shares, or payment to redeeme shares (forced sale to corporation at set price) 2. Ony have a right "when the board declares it" - court will only interfere only on a showing of "bad faith or dishonest purpose"

Distributions - Who gets dividends

Common stock, preferred stock, preferred partipating

Distributions - Funds Used

1. [Surplus OK] = Assets - Liabilities - Stated Capital 2. [Stated Capital - NOT ok] = "par value of issuance": a. any "consideration received in excess of par" goes to capital surplus b. for no-par issuances, board can allocate ANY part (but not all) w/i 60 days of issuance

Distributions - Insolvency Limits

Can NOT make distributions if corp. "unable to pay debts as they come due in the OCB"

Distributions - Director Liability

PERSONALLY liable for unlawful distributions (unless good faith reliance!) along with SH who KNEW the distribution was unlawful when they received it - corporate claim, so can be derivative.

Redemptions and Repurchases

1. [Redemptions] MUST be done proportionately w/I each class 2. [Repurchases] are individually negotiated, but might have to give equal opportunity in a close corp.

[5] Fundamental Corporate Changes

1. Characteristics 2. Amending Certificate 3. Mergers or Consolidations 4. Transfer of Assets not in OCB / Share Exchange 5. Dissolution

Fundamental Corp Changes - Characteristics

1. Defintion 2. Rights of Appraisal

Fundamental Corp Change - Defintion

Change "so fundamental" that most of them require both BoD and SH approval. Also must notify dept of State. (NOTE: Board can mortgage / put a security asset on any asset it wants without SH approval!)

Right of Apprasial

1. Definition 2. Perfecting the Right 3. Disagreement on Fair Value

Right of Appraisal - Definition

Right to force corporation to "buy stock at fair value" (non-public only!), triggered by: 1. some amendments to certificate 2. consolidation 3. merger 4. corporation transfers substantially all of its assets 5. your corporation's shares are acquired in a share exchange

Right of Appraisal - Perfecting the Right

1. Befor SH vote, file: written objection +intent to demand payment 2. abstain or vote against the change 3. after vote, make a written demand to be bought out

Right of Appraisal - Disagreement on Fair Value

If can't agree, corporation sues and the court determines the value - no minority discount allowed!

Amending Certificate of Incorporation

1. Minor Changes 2. Major Changes 3. Special Situations

Amending Certificate - Minor Changes

Minor changes like moving office location can be made by BoD alone

Amending Certificate - Major Changes

Must be approved by 1. director action and majority of shares ENTITLED to vote (different from other voting!) 2. if it will change a supermajority quorum or voting requirement for amending certificate, need 2/3 SH vote 3. [Rights of appraisal] if it alters or abolishes a preference, changes redemption rights, alters or abolishes a preemptive right or limits voting rights

Mergers or Consolidation

1. Each company's BoD adopts plan of merger 2. SH approval from each corp UNLESS "short-form merger" where parent corporatio owns 90% or more of each class of stock of a subsidiary merging into it 3. Deliver to State Department 3. [Appraisal Rights for SHs of the corp. that disappeared (even if short form) 4. Surviving corp succeeds to all rights an liabilities of the disappearing corporation (successor liability)

Transfer of Assets not in OCB or Share Exchange

1. Fundamental ONLY for the SELLING corporation 2. Occurs when: a. both BoD authorize the deal b. Approval by majority SELLING corp.'s SHs 3. [Appraisal Rights] ONLY for SHs of selling company 4. Generally, no laibility for torts of company it acquired unless: a. deal provides otherwise b. purchasing company is a "mere continuation" c. deal entered into "fraudulently to escape obligations"

Dissolution

1. Voluntary 2. Involuntary 3. Effect / Winding Up

Dissolution - Voluntary

1. No BoD vote necessary 2. Majority of shares entitled to vote

Dissolution - Involuntary

1. Board resolution or resultion of majority of shares neitled to vote, stating that the corp. has insufficent assets to discharge liabilties OR that dissolution would be beneficial to SHs 2. 1/2 or more of shares entitled to vote may petition if directors too devided to manage or shareholders too dived to elect directors or magnitude of intenral dissention makes dissolution beneficial 3. Any SH may petition if SHs unable to elect directors for 2 annual meetings 4. ****20% of more of voting shares in close corp may petition if: a. management's illegal, oppressive, or fradulent acts towards complaining Sh b.management is wasting, diverting, or looting assets c. court MAY order a buy out of this SHs shares - any SH w/i 90 days of filing can prevent this by buying shares at FMV as approved by court!

Dissolution - Effect

Does NOT end corporate existence, must then wind up / liquidate by : 1. gather assets 2. convert to cash 3. pay creditors 4. distributed remained to SHs

[6] Controlling Shareholders

1. Traditional Rule 2. Controlling Shareholder 3. Freeze Outs 4. Insider Trading

Controlling SHs - Traditional Rule

Outside the close corporation, SHs generally do NOT owe fiduciary duties to each other or the corporation - can act in own self-interest.

Controlling SHs

1. Duty 2. Sale of Interest

Controlling SHs - Duty

1. SHs who occupy a "control position" or whose ownership is such that she has "working control" owed a fiduciary duty to minority shareholders and sometimes to others (including corp. 2. CANNOT use dominant position for individual advantage at expense of minority shareholders or the corporation

Controlling SHs - Sale of Interest

Generally, getting a "control premium" okay, unless something else: 1. sold to looters w/o making a reasonable investigation (remedy is "disgorging the seller's profit" and probably liable for damages) 2. de facto sells a corporate asset (remedy: ALL SHs share in control premium 3. sells a seat on the board (remedy: disgorge the profit)

Controlling SHs - Freeze Outs

All mergers must have a "legitimate corporate purpose" - watch for merger aimed solely at cashing out minority shareholders unfairly (i.e. one they own). Courts will look at "transaction as a whole": w/r/t: 1. fair price 2. fair dealing [Factors] 1. deal tainted by self-dealing or fraud 2. whether minority SHs dealt with fairly 3. whether there is a legitimate business reason for the merger

Insider Trading

1. Market trading on inside info 2. Nondisclosure of "special facts"

Insider Trading - Market Trading on Inside Info

breach of duty to corporation so can sue to recover insider's profit (derivative also)

Insider Trading - Nondisclosure of "Special Facts"

1. Must disclose those facts if a "reasonable investor" would consider important in making an investment decision 2. SH w/ whom the director deals can sue between price paid and value of stock a reasonable time after public disclosure 3. E.g., if you know that stock will go up to $50 following announcement, can't buy from SH for $20 before announcement (liable for $30)