Corporations

Front 1

Chars of a Corporation

Back 1

1. Limited liability for owners, D's, O's
2. Centralized mgmt - B of D delegates day-to-day mgmt to officers
3. Ownership is gen freely transferable
4. Can exist perpetually
5. Tax advantages:

Front 2

Constitutional chars of a corp

Back 2

1. person - entitled to DP, EP, and atty/client priv, but not 5th am priv against self-incrim
2. citizen - of any state of inc and state of prin place of biz
3. resident - any state of inc, where it is doing biz, and where it is qual to do biz
4. domicile - of any state of inc.

Front 3

De Jure Corp

Back 3

corporation formed in accordance with the law

Incorporators must flle arts of inc. with the state. Existence begins on date of filing. Appt B of D.

Board may then create bylaws

Front 4

Articles of Incorporation must include...

Back 4

1. # of auth shares
2. purpose of corp (note general presumed; spec stmt & ultra vires rules)
3. agent
4. incorporators
5. name of corp

Front 5

De Facto Corp

Back 5

A business failing to achieve de jure corporate status nonetheless is treated as a corp, if the organizers have made a good faith, colorable attempt to comply with corporate formalities and have no knowledge of the lack of corporate status.

Front 6

Corporation by Estoppel

Back 6

CL doctrine of corp by estoppel, persons who have dealt with the entity as if it were a corp will be estopped from denying the corp's existence.

Front 7

PIERCING THE CORPORATE VIEL!!!!!

Back 7

R: a s/h is not liable for the debts of a corporation, EXCEPT when "piercing the corporate veil" is appropriate to avoid fraud or unfairness.

Front 8

3 situations where piercing the corporate veil is justified

Back 8

1) Alter ego - failure to observe sufficient corporate formalities
2) Undercapitalization - failure to maintain sufficient funds to cover foreseeable liabilities
3) Avoidance of existing obligations, fraud or evasion of statutory provisions

Front 9

Corp stock issuance - what consideration is necessary?

Back 9

Corp must receive any tangible or intangible property or benefit to the corp.

TIP: RMBCA expanded what is acceptable consid! Promissory notes and promises of future work are acceptable, as is a promise to convey property in the future.

Front 10

Treasury stock

Back 10

Stock that was previously issued and had been reqacquired by the corp. It can then be re-sold.

Front 11

Preemptive rights

Back 11

It's the right of an existing s/h to maintain her percentage ownership by buying stock whenever there is a new issuance of stock for cash before outsiders are permitted to purchase.

Front 12

Promoters - what do they do? who are they? duties to corp?

Back 12

Promoters procure capital and other commitments. Absent agmt to contrary, promoters are JVs who occupy a fid rel to each other.
- Fid duty to corp: fair disclosure and good faith. Disc must be to all who are contemplated to be part of the financing scheme.

Front 13

Relationship w/ 3rd parties - preincorporation agmts

Back 13

If promoter enters agmt with 3rd pty on behalf of the planned but unformed corp, promoter is personally liable. Liability cont after the corp is formed; promoter will be released only if there is express or implied novation. Exception: agmt expressly relieves promoter of his liability

Front 14

Shareholders meetings rules

Back 14

1) Corps must hold annual mtgs (6 mos after end of fiscal year, or 15 mos after last mtg, which ever is earlier)
2) Special mtgs may be called by B of D, holders of 10% or more of all shares entitled to be cast at a meeting, or other persons auth by art or bylaws
3) Notice - not less than 10 or more than 60 days before.

Front 15

Proxies

Back 15

1) writing, 2) signed by the record s/h, 3) directed to sec'y of corp, 4) auth another to vote the shares, 5) valid for only 11 mos.

Front 16

Rules governing proxy

Back 16

a) Full & fair disclosure of all mat facts w/ regard to any mgmt-submitted proposal

b) Material misstatements, omissions and fraud are prohibited

c) Mgmt must incl certain s/h proposals on issues other than election of Ds

Front 17

Voting of s/h - quorum, director elections

Back 17

a) Quorum - majority of outstanding shares entitled to vote. Can't be broken by s/h leaving mtg
b) Director elections - elected by a plurality of the votes. Cumulative or straight voting
c) For S/h action - approval is by majority vote

Front 18

Pooled/block voting methods

Back 18

1. voting trust
2. voting agmt

Front 19

Shareholder suits - two types

Back 19

ask, who is suffering damages, and to whom is the duty owed?

1) Direct actions - any recovery is for the benefit of the indiv s/h

2) Derivative actions - recovery goes to corp.

Front 20

derivative actions

Back 20

1) P must have stdg - ownership at the time of wrong 2) s/h must make a written demand on the corp
3) 90 day wtg pd before action; unless 1) s/h notified that the corp rejected the demand, or 2) irreparable inj to the corp would result by wtg
4) Will be dismissed if found not in corp's best interests after reas inquiry by maj of B of D. S/h must prove that the decision was not made in GF after reas inquiry. If maj of Ds had personal int, the corp bears burden.

Front 21

D's liability for
unlawful
distributions

Back 21

D who votes for dist that violates the rules is personally liable to the corp for the amt of the dist that exceeds what could have been properly dist.

D NOT liable for dist approved in GF 1) based on fin stmts prepped according to RAP, or 2) relying on info from officers, ees, legal counsel, accts, etc.

Front 22

Removal of Director

Back 22

Ds may be removed by s/h for cause or without cause, but D elected by cumulative voting can not be removed if the votes cast against removal would be enough to elect the D if cumulatively voted.

Front 23

Directors' meetings

Back 23

Reg mtgs can be held w/out notice. Special mtgs req 2 day's written notice.

Front 24

D's duties & liabilities

Back 24

1. duty of care (note BJR)
2. duty of loyalty (consid. conflicting interest transactions, corp opp doctrine)

Front 25

BJR - business judgment rule

Back 25

D's who meet this std will not be liable for corp decisions that in hindsight turn out to be poor or erroneous

A court will refuse to review the actions of a corp's B of D's in managing the corp unless there is some allegation of conduct that (1) violates (a) the D's duty of care, loyalty, or good faith; or (2) that the decisions of the D's lacks a rational basis.

Front 26

Ratification (of conflicting interest transactions)

Back 26

Conf int trans will not be enjoined or give rise to an award of dmgs due to the D's interest in the trans (defense of D) if
1) Trans was approved by majority of independent D's after all mat facts have been disclosed to B of D,
2) or maj vote of a cmte of at least 2 independent D's 3) Or a maj of the votes entitled to be cast by independent s/h after all mat facts have been disclosed to s/h

Front 27

Corporate opportunity doctrine

Back 27

D's fid duties prohibit them from diverting a biz opp from their corp to themselves w/out first giving their corp an opp to act.

Front 28

Remedy for violation of corp opp doctrine

Back 28

If D does not give corp an opp to act and usurps the opp, the corp can recover the profits that the D made from the trans, or force the D to convey the opp to the corp under a constructive trust theory.

Front 29

D indemnification

Back 29

Mandatory - D or O who prevailed in defending a proceeding against the O or D for reas expenses, incld atty's fees.

Discretionary - corp may indemnify a D in unsuccessfully defending a suit brought against the D on acct of the D's position if 1) D acted in good faith, and 2) believed that her conduct was in the best interests of the corp

Front 30

Types of fundamental changes in the corp structure

Back 30

1. merger
2. consolidation
3. conversion

Front 31

Procedural steps in changing the corp structure

Back 31

1. Resolution by B of D at valid mtg
2. Notice of special mtg to s/h
3. Approval by maj of all shares entitled to vote (not just maj of shares present),
4. Changes in the form of arts filed with state.

Front 32

Dissenting s/h rt of appraisal

Back 32

s/h wo does not vote in favor of a fund chg has the rt to force the corp to buy her shares at fair value

Front 33

Procedure for
dissenting s/h rt of appraisal

Back 33

a) Corp gives s/h notice of fund change
b) s/h must give notice of intent to demand payment before s/h vote
c) s/h does not vote in favor of the proposed chg
d) corp sends out dissenter's notice to all who filed an intent
e) s/h make prompt demand to be bought out
f) Corp pays the amt the corp deems FMV of the shares, plus interest

Front 34

Anti-fraud section, 10(b)-5 of Sec Exch Act of 1934

Back 34

- makes it illegal for any person to defraud, make an untrue stmt of mat fact (or omit mat fact) or engage in any practice that op as fraud in connection w/ the purch or sale of any security. PF case:
1) Fraudulent conduct (Scienter - intent to decieve, & Deception - mat misrep or misapprop of mat nonpublic info)
2) In connection w/ purchase or sale of security by P
3) In interstate commerce
4) Reliance
5) Dmgs

Front 35

16(b)

Back 35

Reqs surrender to the corp of short-swing profits by any D/O owning >10% of a class of the corp's stock w/in a 6 mos period.

Front 36

Sarbanes-Oxley Act of 2002

Back 36

CEO and CFO must cert that based on the O's knowledge, reports filed with the SEC 1) Do not retain mat misreps or omissions, and 2) Fairly present the fin. position of the co
- Willfully cert a false report could bring $5m fine and 20 yrs
- if rstmt nec, the corp (dir or deriv) may recover O's profits made from trading the co's stock w/in 12 mos after the false rpts were filed
- may also recover any profits made by O's from co's stock during "black out" prds