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103 Cards in this Set
- Front
- Back
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corporations- overview 6 steps
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1) organization and strength of corporate shell- piercing 2) primary sale of shares 3) operation and management 4) secondary sale of shares - sale by shareholder 5) Dividends and repurchase of 6) change of business or structurestock
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organization
& strength of corporate shell - liability of shareholders |
1) defects in organization 2) piercing the veil
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organization
& strength of corporate shell - liability of shareholders - defects in organization - if one of three things are found then no liability |
1) de jure corp OR
2) defacto corp OR 3) estoppel corp |
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liability of shareholders - piercing the veil 3 ways
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alter ego, under capitalized, deep rock
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organization
& strength of corporate shell - liability of shareholders - defects in organization - if one of three things are found then no liability - de jure corp |
substantial compliance with incorporation requirements - must have articles of corp signed and filed w sec of state
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organization
& strength of corporate shell - liability of shareholders - defects in organization - if one of three things are found then no liability - de facto corp |
GF but flawed attempt to incorp under valid state statute and the actual exercise of state power - like issuing stock - directors must be unaware of flaw
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organization
& strength of corporate shell - liability of shareholders - defects in organization - if one of three things are found then no liability - estoppel corp |
corp by estoppel is no attempt to incorp but corp is acting as a corp and people dealing with it as a corp - enters into K 3p deals w as corp
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who is estopped in corp by estoppel and for what kind of actions
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P who tries to sue corp but only for K creditors - does not apply to tort creditors
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liability of shareholders - piercing the veil alter ego
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difficult but not impossible
shareholders not treating crop as a separate bus entity - no annual or spacial meetings , no board of dir meetings, commingling of assets all give rise to creditor claims because it is alter ego of shareholders - inequitable to treat as different entity because share hold doe not treat as separate entity |
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liability of shareholders - piercing the veil - undercapitalized
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difficult but not impossible
tied to alter ego - corp has insufficient assets to operate as corp |
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liability of shareholders - piercing the veil - deep rock
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difficult but not impossible
not a piercing theory but - shareholder is also creditor through loan - help shareholder get paid first creditors who do not own shares get paid before those creditors who do hold shares |
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organization
& strength of corporate shell - liability for promoter's K's - promoters |
P always personally liable unless K expressly precludes P from liability look for facts that indicate express statement
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organization
& strength of corporate shell - liability for promoter's K's - corps |
promoter cannot bid corp to K because occurs prior to formation unless the corp ratifies or accepts benefit of K the corp is liable
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does corp have to mention K in acceptance through conduct
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no if corp accepts benefits they are bound
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primary sale of shares - life cycle
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authorized -> subscribed -> issued -> traded -> treasury
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primary sale of shares - subscription issues 3
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theory, enforcement, defenses
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primary sale of shares - 3 areas of concern
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subscriptions, consideration, pre-emptive rights
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primary sale of shares - subscription - theory
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1) pre-incorp - standard K rules apply
if corp has accepted the deal the buyer is bound but if not accepted then buyer can revoke subscription offer anytime prior to acceptance post-incorp - subscription agreement entered into after incorp buyer is bound |
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primary sale of shares - subscription - enforcement - corp
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corp - in privity so long as there are sufficient authorized but unissued shares corp can enforce
when not enough shares corp cannot enforce agreement subject matter does not exist |
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primary sale of shares - subscription - defenses - release - nearly impossible
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release - corp can release subscriber if corp is solvent but if insolvent must get approval of all shareholders and creditor consent
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primary sale of shares - subscription - theory - pre-incorp irrevocable offer to buy shares through subscription agreement 2 ways
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1) irrevocable by statute - hypo will state that the statute is irrevocable
2) if agreement is supported by consideration - mutual promises by all subscribers provides consideration |
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primary sale of shares - subscription - enforcement - corp - creditors
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3p so no K privity between creditor and subscriber - not even 3p intended beni but
only enforce if corp is insolvent or in bankruptcy |
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primary sale of shares - subscription - defenses - fraud
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fraud vitiates all Ks
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primary sale of shares - consideration for subscription - promoters - P gets shares for P exchange
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CL fraud - promoter is fiduciary w duty of care about P given for stock - if conceals true value of consideration = CL fraud
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primary sale of shares - consideration for subscription - promoters - P gets shares for P exchange P makes full disclosure w P not worth shares - future shareholders bigelow - majority
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MAJORITY full disclosing P and disinterstested board and anticipation of future shareholders - under bigelow future shareholders can prevail
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primary sale of shares - consideration for subscription - promoters - P gets shares for P exchange P makes full disclosure w P not worth shares
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no liability on promoters behalf if approved by disinterested board but P not liable to current shareholders and board
but P will be liable to future shareholders under bigelow rule and lewisohn |
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primary sale of shares - consideration for subscription - promoters - P gets shares for P exchange P makes full disclosure w P not worth shares - future shareholders lewisohn minority
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once full disclosure is made then P will not have future liability
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P exchange P makes full disclosure w P not worth shares - future shareholders bigelow - split - majority -fair and min unfair under CL fraud
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fair - P liable for unfair profit value of stock - cost
unfair P gives up fair and unfair profit and is left with what she paid orig for stock |
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primary sale of shares - consideration for subscription - promoters - CL majority bigelow/ minoritylewisohn
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B full disclosure anticipated new shareholders disgorgement- fair difference btn what they got and what they gave and min disgorge everything except what you orig invested
Lewisohn no liability |
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primary sale of shares - consideration for subscription - type or quality future services, unsecured loans, past services
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none of these is adequate consideration
no future services, no unsecured loans and no past services |
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primary sale of shares - consideration for issue- amount of consideration par value or stated value
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amount of consideration is issue if stock is being sold or transfered for less than par value - par value at $20 trading at $50 issue at $30 = adequate consideration because at or
above par value |
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consideration - amount of consideration par exceptions
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bonus, discount or watered is not permitted except GF that it cannot be sold or transferred at par OR treasury reissue does not apply can sell < par
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primary sale of shares - consideration for issue - amount of consideration par value or stated value - sold for less tahn par
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bonus = no consideration
discount = cash < par watered = issued for P or services exceptions directors think in GF P or services => par not considered watered bonus, discount or watered is not permitted except GF cannot be sold or transferred at par OR treasury reissue does not apply can sell < par |
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primary sale of shares - consideration for issue - amount of consideration par value or stated value - sold for less than par creditors
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no privity so must sue corp - if unsatisfied judgment then force buyer to pay more
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primary sale of shares - consideration for issue - amount of consideration par value or stated value - sold for less than par - corp remedy
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rescission
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consideration for issue - amount of consideration par value or stated value - sold for less than par creditors - after suing company and getting unsatisfied judgment 3 theories to sue buyer of shares
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minority trust fund=can sue regardless of when creditor became creditor
obligation=same as trust fund MAJORITY Misrepresentation = only those creditors who relied on inflated value and must become creditor after issue of shares |
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primary sale of shares - pre-emptive rights - statutory - first shareholder right to purchase on subsequent issue to maintain % position
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CL yes
look for statute that changes CL presumption - no clear MAJ |
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primary sale of shares - pre-emptive rights - exceptions
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1) non-cash sale = no right
2) treasury shares = no right 3) orig authorized issued shares so long as no substantial amount of time - close in time |
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primary sale of shares - pre-emptive rights - quasi rights
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court created pre-emptive rights due to inequitable conduct
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operation & mgmt - directors 3 areas - heavily tested
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process, duties, rights
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operation & mgmt - directors process
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selection, removal authority
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operation & mgmt - directors process selection
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anyone can be D
articles or bylaws designate BoD after that shareholders select |
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operation & mgmt - directors process - removal
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only shareholders can remove Ds - look for facts that tries to remove D - IN NO SITUATION CAN A DIRECTOR BE OUSTED OTHER THAN BY SHAREHOLDERS
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operation & mgmt - directors process - authority - delegation
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D may not delegate authority
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operation & mgmt - directors process - authority - where exercised and types
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mtgs
1) regular mtg requires no special notice because articles provides notice 2) special mtg require notice - all Ds where whne and agenda MAJ no notice then actions are ultra vires except D may waive notice before or after meeting |
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operation & mgmt - directors process - authority - who must attend
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quorum is majority - 7 members at least 4 must be present, and must have majority vote 3 of 4 members must all agree for resolution
except articles may specify what plurality is |
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operation & mgmt - directors process - authority - ultra vires actions
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void = outside scope or purpose of corp
at CL used with executory Ks |
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operation & mgmt - directors process - authority - ultra vires K victim
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CL allows executory ultra vires K could be voided by either party
Modern only applies to intracorporate disputes |
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operation & mgmt - directors - duties 2
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care & loyalty
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operation & mgmt - directors - duties - care
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Biz judgment rule requires D act reasonably
act as reasonable D would in like circumstances and in GF |
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operation & mgmt - directors -biz judgment rule -is D meeting duty
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is D meeting duty - yes basing conduct on expert advice, GF, OR shareholder approval = no breach
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operation & mgmt - directors - duties - loyalty 2 prongs
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conflict or interest and corp opportunity
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operation & mgmt - directors - duties - loyalty - conflict of interest requires
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full disclosure and approval by disint maj of disint. quorum or SH approval AND K must be faie to corp
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operation & mgmt - directors - duties - loyalty - conflict of interest breach remedies
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rescind and obtain damages
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operation & mgmt - directors - duties - loyalty - corp opportunity doctrine
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D takes advantages of opportunity he learns of as D - not permitted - almost always is treasurer who says I know the Corp does not have the $ to do this
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operation & mgmt - directors - duties - loyalty - corp opportunity doctrine exceptions
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corp does not want to or cant take oppty, disclosure and approval
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operation & mgmt - directors - rights
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fair compensation, indemnification, inspect corp books records and P -
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operation & mgmt - directors - rights -inspect corp books records and P limitation
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no limit unless D is hostile using this right in hotility
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operation & mgmt - directors - rights - indemnification
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if D wins corp may Indem or will have to if Court orders Indem
If D loses and Corp is P no indem but if 3p sues corp may only indem if D acted in GF |
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operation & mgmt - officers - process, duties, rights - when is corp bound
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authority
1) express -given by articles will bind OR 2) inherent - normally part of officer's job will bind OR 3) apparent - lead 3ps to think officer has authority bind based on officers acts |
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operation & mgmt - officers - process, duties, rights -- if officer has no authority who is bound
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officer unless corp ratifies
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operation & mgmt - officers - process, duties, rights -
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same as Ds
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operation & mgmt - SHs-
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process, duties, rights -
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operation & mgmt - SHs- process - voting
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meeting
proxy mechanics |
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operation & mgmt - SHs- process - voting meetings
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annual
special - requires notice quorum - simple MAJ |
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operation & mgmt - SHs- voting - proxy
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all SH's not present - Sh gives to another Sh the right to vote his shares
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operation & mgmt - SHs- voting - mechanics - is tested
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straight - 1 sh 1 vote
cumulative - min sh elect same number of Ds in like % of ownership A has 20% s B has B 5 Ds straight B elects all 5 cumulative A can cast all 20% of his votes on one D's seat = gets one seat |
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operation & mgmt - SHs- voting - authority
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no one other than SHs can vote out D - single biggest duty and right of SHs
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operation & mgmt - SHs- voting - duties - general rule
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Cl no duty
modern for controlling SHs are deemed to be fiduciaries of corp = legally precluded from selling their sale to someone who will injury COrp |
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operation & mgmt - SHs- voting - duties - EQ opportunity doctrine
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Controlling SH cannot sell to gain personal benefit unless
1) full disclosure AND 2) GF AND 3) K selling shares is overall fair to Corp remedy = right to participate (where EQ opportunity name derives) |
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operation & mgmt - SHs- voting - duties - sale of control - remedy
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rescission of sale
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operation & mgmt - SHs- voting - duties - sale of control
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controlling SH as fiduciary legally precluded from selling to someone they have reason to know will harm Corp
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operation & mgmt - SHs- rights
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inspection, derivative suits
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operation & mgmt - SHs- rights - derivative suits
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1) by SH on behalf of corp for injury to corp
2) contemp ownership - SH P must have owned stock at filing and at time challenged conduct was engaged in except if shares transferred by operation of law like will 3) must make pre-suit demand on board unless futile=exhaust admin remedies 4) post security bond |
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operation & mgmt - SHs- rights - inspection
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during normal bus hours may get access - more narrow that D
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operation & mgmt - SH secondary sale authority to sell share
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no limit except limitation printed on face and restriction is reasonable
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what area comprises 80% of Corp essays
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operation and mgmt
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale CL who can be P |
any buyer or seller in privity - sale through broker - cannot bring claim at CL
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operation & mgmt - SH secondary sale of shares -
authority: restrictions on sale 10b5-who can be P |
any acquirer or disposer, but stock exchange unclear SEC may - no privity requirement- not include someone who choses not to - deferred party
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale CL gravamen |
trad - caveat emptor
modern - special facts any important info that must be disclosed that affect decision to sell - broad disclosure min- all material information = not as broad |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale16b-who can be P |
short swing - strict liability
Corp or Sh for corp traded on natl stock exchange or 12g Corp = 500 SHs or 10M in assets |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 10b5 gravamen |
P' reliance on material misstatement or omission to state connected w/ICC
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale CL who can be D |
insider -Ds Os Controlling SH, seller,
or buyer |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 10b5 who can be D |
any insider affecting purch or sale by P
affirmative = misrep can be D omission = always insiders including corp itself can be D in omission outsider cannot unless they wrongfully obtain info |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 10b5 who can be D tippers and tippees |
tippers - can be D can include family member
inures to tippers liability tippees - D if 1) tipper owed duty to disclose 2) did tippee have reason to know info was material and non-public |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 16b who can be D |
statutory officer, insider at the time > 10% SH
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 16b gravamen chart |
LP-------------SALE-------------LP
<----6 mo. X 6 mos ---> HS PURCHASE HS |
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P must show against D in 10b5
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1) P must show materiality
2) misrep reliance to detriment or omission reliance is presumed 3) scienter intentionally or reckless disregard for truth 4) use of interstate commerce |
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operation & mgmt - SH secondary sale of shares
authority: restrictions on sale 16b elements - look for corp insider realizing short swing profit = strict liability ? |
no intent required
sale completed within 6 mos realizing profit then liability |
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Dividends and Repurchase of Shares - dividends - right to
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SH have no absolute right to D unless can establish abuse of discretion of D OR unless corp articles mandate dividend
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Dividends and Repurchase of Shares - dividends - proper source chart - 5 cap accts
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1) STD CAP=total par of outstsnding SHs = no dividends
2) ReductnSurplus= reducing par of SH - most JDN dividends 3)PD IN SURPLUS=sale of SH > par=some JDN especially preferred SH 4)EARNED SURPLUS=retained earnings=all JDN allow dividends 5) REVALUE SURPLUS=forced to revalue assets to reflect FMV=few JDN dividends |
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Dividends and Repurchase of Shares - repurchse - proper source chart - 5 cap accts
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1) STD CAP=total par of outstsnding SHs = only to redeem
2) ReductnSurplus= reducing par of SH - many JDN repur 3)PD IN SURPLUS=sale of SH > par=most JDN 4)EARNED SURPLUS=retained earnings=all JDN allow repur 5) REVALUE SURPLUS=forced to revalue assets to reflect FMV=few JDN repur |
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SH redemption vs repurchase
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redemption=absolute right
repurchase=voluntary agreement to purchase SH |
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change of bus or structure
acquisitions & dispositions merger - SH approval |
requires SH approval in bot corps
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change of bus or structure
acquisitions & dispositions share sale - SH approval |
no SH approval required
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change of bus or structure
acquisitions & dispositions assets sale - SH approval |
SH approval by selling corp - look for min SH who is unhappy=appraisal rights
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change of bus or structure
acquisitions & dispositions appraisal rights - unhappy min SH |
MAJ only applies at merger - no rights of Sh sale or asset sale
min - some states view share sale of asset sale as de facto merger thus extending appraisal rights |
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change of bus or structure
amendments - shareholder approval - articles |
SH approval required
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change of bus or structure
amendments - shareholder approval - by laws |
no Sh approval required but SH can rescind
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change of bus or structure
dissolutions & liquidations - shareholder approval - voluntary |
requires SH approval
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change of bus or structure
dissolutions & liquidations - shareholder approval - involuntary |
by state - due to ultra vires acts or regulations vios = creditors paid first and Sh's second
by court order at SH request due to fraud etc creditors first then SHs |
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change of bus or structure
dissolutions & liquidations - shareholder approval - creditors |
paid first at dissolution
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change of bus or structure
dissolutions & liquidations - shareholder approval - SH's |
paid after creditors at dissolution
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