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117 Cards in this Set
- Front
- Back
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Four mandatory provisions if Art of Inc.
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- name and street address
- name and address of each incorporator - name and street address of registered agent - number (max) of authorized shares |
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If more than one class of shares is authorized, what must be in filing?
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number of shares of each class and their rights
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General Purpose (GR)
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to engage in any lawful business
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Corporation by Estoppell
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equitable doctrine by which a business failing to achieve de jure status is treated as if it were a corporation so shareholders are not personally liable for debts (safety net)
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De Fact Corporation
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creates a corporation if in a good faith attempt to comply with the statue something went wrong
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Consequences of a corporation performing an ultra vires act? (2)
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- either shareholders or state can seek injunction
- officers and directors liable for losses |
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Is corporation by estoppel limited to torts or contracts?
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contracts only
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Piercing the Corporate Veil (def)
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if an officer or director so intermingles with the corporation so as to make separation difficult, he has said to have peirced the corporate veil and may be held liable as an individual
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Is mere failure to follow coroporate formaltities enough to pierce the corporate veil?
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no
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May gross undercapitilization pierce the corporate veil?
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yes
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Do bylaws address matters of internal governance?
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yes
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who adopts initial bylaws?
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directors
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who may amend bylaws (2)
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- directors
- shareholders |
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If bylaws and articles conflict, which controls?
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articles
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Definition of Promoter
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person acting for a corporation before it has been formed
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When is a corporation liable on pre-incorporation contracts?
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when it ADOPTS
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Express Adoption
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board passes a resolution
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Implied Adoption
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corporation knowingly accepts the benefit of a contract
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Is an incorporator liable for contracts if the corporation is never formed?
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yes
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By what manner may a promoter be released by liability?
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NOVATION
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Secret Profit Rule
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since a promoter is a fiduciary, he cannot make a secret profit on dealsing with corporation - look at timing
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What can the corporation recover if the promoter sold property to the corporation and made a secret profit?
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difference between what it paid and FMV
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What can the corporation recover for secret dealings with promoter AFTER the person become the promoter?
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difference between what it paid and what the promoter paid
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A foreign corporation transacting business in NC must qualify - what does "transacting business" mean?
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transacting business means engaging in INTRASTATE transactions in NC on a regular basis
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Penalties for a foreign corporation not registering
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- may not bring a lawsuit until filed
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Issuance
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when a corporation issues its own stock
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Issued Shares
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number of shares that a corporation actually sells
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Outstanding Shares
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issues shares that have not been reaquired by the corporation (in hands of shareholders)
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Subscriptions
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signed, written offers to buy stock from the corporation
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Pre-incorporation Subscription
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is irrevocable for 6 mo
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Post-incorporation subscription
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revocable until board accepts offer
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Four types of consideration which may be used to purchase stock
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- property (any tangible)
- promisory note (NC) - service performed - service to be performed (NC) |
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Par Value
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minimum issuance price
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Paying for stock with property in NC
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board determines value and in the absence of fraud, the determination is conclusive
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Watered Stock Liability
(paying less than par value) |
if you buy watered stock, you are liable for the "water" unless you a BFP
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Preemptive Rights
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lets a shareholder maintain her percentage ownership interest in the corp by buying stock when new stock is issued
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2 factors needed for pre-emptive rights
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- articles provided for them
- shares issued for CASH |
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Number of required directors
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1 individual over 18
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Removal of Directors by shareholders can be with or without cause?
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yes
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Removal of director elected by class voting
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director elected by a class of shares may be removed only by that class
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Removal or director elected by cumulative voting
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director may not be removed if the number of votes sufficient to elect him are not voted against his removal
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How may a vacancy be filled (2)
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- directors of class
- shareholders of class |
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When may action be taken without a meeting?
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all directors consent in writing to act without a meeting (may be granted before or after the action)
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When is notice to a meeting required?
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only for special notice and is waived if the director shows up
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Quorum of Directors
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majority of ALL directors on the board unless a different number required in articles of by laws (never less than 1/3)
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May a director leave an break a quorum?
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yes
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May directors vote by proxy or agreement?
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no
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Duty of Care
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director must do what an ordinarily prudent person would do in a like position, under similar circumstances
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Misfeasance and Business Judgment Rule
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director make a reasonable decision based on bad information - excused
Good Faith & Adequately Informed |
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Duty of Loyalty
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director must act in good faith and with a reasonable belief that what he does in in the corporation's best interest
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Safe Harbor for Self-Dealings (3)
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- fair to corp
- approved by majority of all disinterested directors on the board after full disclosure OR - approved by the majority of all disinterested SHARES after full disclosure |
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Usurping a Corporate Opportunity
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taking action in an opportunity which is functionally related to a corporation's business or in which the corporation has an interest or expectancy
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Remedy for usurping corporate opportunity
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disgorgement
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Are loans to directors permitted if they are approved by a majority of all outstanding shares or if the board determines the loans benefit the corporation?
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yes
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When distributions are unlawfully paid, are the directors personally liable for the sums unlawfully distributed?
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yes
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Is a dissenting director liable for breach of duty?
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no
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Is an absent director liable for breach of duty?
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no
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Raincoat Statute
- not retroactive - does not shield loyalty |
the articles may shield directors from person liability for breach of the duty of care if they acted in the best interest of the corporation and received no personal benefit from the transaction
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Who must certify financial records under Sarbanes-Oxley (2)
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- CEO
- CFO |
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Indemnification Barred
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if a director was held liable to the corporation or held to have received an improper personal benefit, imdemnification is barred
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Mandatory Indemnification
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if a a director is whilly successful on the merits or otherwise (procedural ok)
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Permissive Indemnification (3)
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- flexible
- director shows good faith - determined by disinterestred directors/shareholders or independent counsel |
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Shareholder Management
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articles of a NON-public corporation can provide that the shareholders will manage the corproation
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Controlling Shareholders have a fiduciary duty to whom?
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minority shareholders
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Shareholder Derivative Suit
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shareholder is enforcing the rights of the corporation. If the corp could have brought the suit, the suit is a valid shareholder derivative suit
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Recovery from Shareholder Derivative Suit
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paid to corp with Plaintiff receiving attorney fees + costs
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Requirements for a Shareholder Derivative Suit (5)
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- contemporaneous ownership (P holds stock during period of cliam or acquired them by operation of law - not gift - frome someone who did)
- demand (90 days) - joinder (joing Corp as Def) - dismissal (corp may decide to dismiss) - public corporation special rules |
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Derivative Suit - Public Corp Special Rule (3)
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- stake (owned stock 1 year)
- timeliness (brought suit within 2 years) - bond (P may have to post bond as security) |
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Rules for Dismissal or Settlement of Derivate suits
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must be done with court approval
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Record Owner
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owner listed in the corporate records on record date that has the right to vote
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Record Owner date restriction
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no more than 70 days
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Proxy
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record owner may appoint proxy to vote shares
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Voting Trust (3)
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- written agreement
- transfer of title of stock to trust - trust issues certificates which retain all rights except voting |
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Voting Agreement (4)
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- written contract
- specific performance? at ct's discretion - enforceable v. transferee if the existence of the agreement was conspicuously noted on the share or transferee knew - duration (10 years, renewable) |
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May shareholders act without a meeting under unanimous consent?
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yes
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If the articles permit, shareholders of a non-public corp may act without a meeting with consent of ...
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minimum number of shares necessary to act at a meeting at which all shares entitled to vote are present
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Annual Meeting
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must be held within 15 months
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Special Meeting may be called by (2)
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- anyone authorized in articles or bylaws
- in a non-public corp, by 10% of all votes entied to be cast on any issue at the meeting |
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Contents of Notice (3)
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- when
- where - purpose |
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Timing of meeting notice
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more than 10 days, less than 60
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Quorum (shareholders)
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a majority of votes entitled to be cast must be at the meeting, either in person or by proxy
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May a sharholder break quorum?
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no
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Three ways to elect directors
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- plurality
- straight voting - cumulative voting |
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Cumulative Voting
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multiple number of shares by number of seats elected - can vote all for one person!
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If articles are silent, may shareholders conduct cumulative voting?
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No, not after 7-1-1990
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Inspection rights for Qualified shareholders (6)
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- must have owned shares for at least 6m or own 5% of any class
- absolute right to inspect articles, bylaws, minutes, list of directors and shareholders - limited right to inspect other records (proper purpose) - in non-public corp no right to look at acct records if it would adversely effect corp - upon refusal shareholder can seek court order - no strings |
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Distributions (3)
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- divident
- repurchase - redemption |
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Are dividends within the board's discretion?
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yes, but court won't compel a divident withough a strong showing of abuse of discretion
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Forced Dividends
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corporation with less than 25 shareholders may be compelled to declare a divident of 1/3 of the net profits on the demand of the holders of at least 20% of any class of shares
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Solvency Test
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a corporation must be able t6o pay its debts after dividend
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Balance Sheet Test
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after giving effect to the dividend distribution, the corp's assets must exceed liabilities
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Are directors personally liable for unlawful distributions if the did not exercise due care in authorizing the distribution?
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yes
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When may a director seek reimbursement?
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a director who is liable, may seek reimbursement from a shareholder for amount the shareholder accepted, knowing the distribution was unnlawful
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Fundamental Corporate Changes requiring BOARD and SHAREHOLDER approval (4)
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- amd of articles
- merger - share exchange - sale of substantial assets outside usual couse of business |
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Does merger require approval of BOTH boards and an ABSOLUTE MAJORITY of shares of BOTH Corp?
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yes
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Does only the TARGET corporation vote on a share exchange?
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yes
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For sale of substantial assets, must BOTH boards agree and ABSOLUTE MAJORITY of the SELLING Corp Shares only?
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yes
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Dissenter Rights
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appraisal rights give a dissenting shareholder a right to compel a corporation to buy back his shares for fair value
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Dissenter Rights are Triggered by: (4)
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- merger (only for sub in short-form merger)
- share exchange (target corp) - ameding articles (adv. effected) - transfer of substantially all assets outside usual course of business (selling corp, and only if the proceeds not $) |
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Procedure for Preserve Dissenter's Rights (3)
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- before the vote (give written notice of intent)
- during the vote (abstain or vote against) - after the vote (make a written demand for remedy) |
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Balance Sheet Test
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after giving effect to the dividend distribution, the corp's assets must exceed liabilities
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Are directors personally liable for unlawful distributions if the did not exercise due care in authorizing the distribution?
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yes
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When may a director seek reimbursement?
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a director who is liable, may seek reimbursement from a shareholder for amount the shareholder accepted, knowing the distribution was unnlawful
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Fundamental Corporate Changes requiring BOARD and SHAREHOLDER approval (4)
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- amd of articles
- merger - share exchange - sale of substantial assets outside usual couse of business |
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Does merger require approval of BOTH boards and an ABSOLUTE MAJORITY of shares of BOTH Corp?
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yes
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Does only the TARGET corporation vote on a share exchange?
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yes
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For sale of substantial assets, must BOTH boards agree and ABSOLUTE MAJORITY of the SELLING Corp Shares only?
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yes
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Dissenter Rights
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appraisal rights give a dissenting shareholder a right to compel a corporation to buy back his shares for fair value
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Dissenter Rights are Triggered by: (4)
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- merger (only for sub in short-form merger)
- share exchange (target corp) - ameding articles (adv. effected) - transfer of substantially all assets outside usual course of business (selling corp, and only if the proceeds not $) |
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Procedure for Preserve Dissenter's Rights (3)
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- before the vote (give written notice of intent)
- during the vote (abstain or vote against) - after the vote (make a written demand for remedy) |
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Dispute of Appraisal
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for non-public can call in appraiser
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Dissolution (3) types
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- voluntary
- involuntary - suspension (taxes) |
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Voluntary Dissolution (4)
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- approval of board and an absolute maj or shareholders
- file articles of dissolution - wind up - revocation (120 days) |
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Involuntary Dissolution (3)
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- petition of attorney general
- petition of unsatisfied judgment creditor - petition of deadlock |
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Shareholder Cause for Involuntary Dissolution (4)
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- director deadlock
- shareholder deadlock (unable to elect dir for 2 years) - waste of corporate assets - reasonably necessary to protect rights |
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SEC Rule 10b-5
Transactions (3) |
- misrepresentation
- non-disclosure (broader than fraud) - tipping |
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SEC Rule 10b-5
Elements of a Civil Action (6) |
- P (buyer or seller) on reliance
- D (any person) - Materiality (info a reasonable shareholder would hld impt) - Interstate Commerce (mail, phone, etc.) - SoL (1 year after discovery, 3 years total) - scienter (D must have intended to defraud - negligence not enough) |
