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28 Cards in this Set
- Front
- Back
- 3rd side (hint)
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info in certificate of formation
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(1) names and addresses
- corporate name - name & address of ea. organizer - # of initial directors - name & address of ea. initial director - name & address of corporate agent (2) the certificate MUST include a statement of purpose (3) corporation's stock - authorized stock, # of shares per class, and info on par value, voting rights, & preferences of ea. class |
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ultra vires
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trigger: specific statement of purpose
an ultra vires activity is one that is beyond the scope of the certificate (1) ultra vires Ks are VALID (2) SH can seek an injunction (3) responsible managers are liable to the corp. for ultra vires losses |
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authorized stock
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the maximum number of shares the corporation can sell
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issued stock
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consists of shares the corporation actually sells
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outstanding stock
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consists of shares that have been issued and NOT reacquired by the corporation
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treasury stock
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stock that was previously issued and has been reacquired by the corporation
corporation can resell treasury stock as no par |
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de facto corporation
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(1) there is a relevant incorporation statute
- satisfied every time (2) the parties made a GF, colorable attempt to comply w/ it; AND (3) some exercise of corporate privileges. => if applicable, treated as a corporation for all purposes except in an action by the state |
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corporation by estoppel
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one dealing w/ a business as a corporation, treating it as a corporation, may be estopped from denying the business's corporate status
also may be used to prevent company from avoiding an obligation by asserting its own lack of valid formation => usually limited to K cases |
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subscriptions
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written, signed offers to buy stock from corporation
- pre-incorporation subscriptions are irrevocable for 6 months [unless it says otherwise or unless all subscribers agree] - post-incorporation subscriptions are revocable until acceptance |
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duty of care (burden on Π)
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"A director [or officer] owes the corporation a duty of care. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances."
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business judgment rule
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director [or officer] is not liable to corporation for breaching the duty of care if the business judgment rule is satisfied
"Under BJR, a court will not second-guess a decision if it was made in good faith, was informed, and had a rational basis." - as such, director only liable if decision was irrational or grossly negligent => Note: BJR ONLY applies to duty of care (not duty of loyalty) |
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duty of loyalty (burden on Δ)
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"A director [or officer] owes the corporation a duty of loyalty. She must act in good faith and with a reasonable belief that what she does is in the corporation's best interest."
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duty of loyalty fact patterns
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(1) interested director transaction: any deal b/w the corporation and one of its directors (or another biz of the director's)
(2) competing ventures: director cannot compete w/o approval from disinterested directors - remedy is constructive trust on profits (3) corporate opportunity: director cannot USURP a corporate opportunity. that means director cannot take it until he (1) tells the board; AND (2) waits for the board to reject the opportunity - remedy is constructive trust |
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interested director transaction
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Interested director transaction will be set aside UNLESS the director shows:
(1) the deal was FAIR to the corporation when approved; OR (2) her interest and the material facts were disclosed or known and the deal was approved in good faith by either the (i) majority of disinterested directors; OR (ii) SHs |
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piercing the corporate veil
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"Generally, SHs are not liable for acts or debts of the corporation. But, a court might pierce the corporate veil and hold SHs personally liable if (1) they have abused the privilege of incorporating; AND (2) fairness requires it [to prevent fraud or to achieve equity]."
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PCV fact patterns
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(1) alter ego theory
- not available for mere failure to observe corporate formalities (2) undercapitalization theory - look for dangerous biz, where SHs failed to invest enough to cover prospective liabilities (3) related corporation situation - parent corporation forms a subsidiary to avoid obligations => TX cts generally more willing to PCV for a tort victim rather than a K claimant; can't pierce on K claim based on fraud unless SH made corp commit fraud for his own personal benefit |
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What are the requirements for bringing a SH derivative suit?
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(1) SH must have owned stock when the claim arose OR have gotten it by operation of law [divorce decree or inheritance] from someone who did.
(2) SH must also fairly and adequately represent the corporation's interests (3) SH must also make a written demand on directors that the corporation bring suit. - cannot file derivative suit until 90 days after demand UNLESS demand is rejected before that or waiting 90 days would cause irreparable harm to the corp (4) Corp must be joined as a party (Δ) in the case. => corp may move to dismiss based upon a determination by independent and disinterested directors that suit is not in corp's best interest; ct MUST dismiss if move to dismiss made in GF |
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requirements for voting trust
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(1) written trust agreement controlling how the shares will be voted
(2) copy to corporation (3) transfer legal title of shares to trustee (4) original SHs receive trust certificates and retain all SH rights other than voting (5) must be for a proper SH purpose |
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requirements for voting ("pooling") agreement
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(1) writing
(2) copy to the corporation (3) must be for a proper SH purpose |
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dividend terminology
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- preferred means pay FIRST.
- participating means pay AGAIN. [participating shares get to join in w/ the common shares] - cumulative means ADD THEM UP |
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surplus
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SURPLUS = assets - liabilities - stated capital
- surplus can be used for distributions [dividend, repurchase, redemption] |
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stated capital
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Stated capital is the par value of the issuance; any excess over par is surplus.
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fundamental corporate change procedure
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(1) Board takes an action adopting a resolution of a fundamental corporate change.
(2) Board must submit the proposal to the SHs w/ written notice at least 21 days before the SH meeting. (3) Fundamental change must be approved by SHs by 2/3 of the shares ENTITLED TO VOTE. (4) Usu., a document is delivered to SOS for filing |
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dissenting SH right of appraisal
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This is the rt of a SH to force the corp. to buy her shares at fair value. It's the exclusive remedy unless there is fraud.
Actions by corp that trigger the rt: - merger - * sale of shares in a share exchange - transfer of substantially all of the assets; - * conversion Actions by SH to perfect rt (1) before SH vote, file w/ corp written notice of objection and of intent to demand payment; (2) abstain or vote against the proposed change; AND (3) after vote, w/n 20 days of notification by corp, make written demand to be bought out |
dissenting SH appraisal rt only exists for close corporations
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types of fundamental corporate changes
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(1) amendment of certificate
(2) merger (3) conversion - corp can convert to another biz org (4) transfer of all or substantially all of the assets not in the ordinary course of business OR share exchange [one co. acquires all stock of another] - FCC for transferring corp. only => so need 2/3 vote of SH from transferring corp and only transferring corp's SH have rt of appraisal (5) termination |
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voluntary termination
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(1) written consent of ALL SHs OR board of director action & approval by 2/3 of shares ENTITLED TO VOTE.
(2) send notice of intent to wind up to CRs (3) liquidation: (i) gather all assets; (ii) convert to cash; (iii) pay CRs; & (iv) distribute remainder to SHs, pro-rata by share UNLESS there is a liquidation preference (pay 1st) (4) ct can revoke termination if corp was terminated as a result of fraud. corp may revoke its voluntary termination any time before its corporate existence ceases |
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involuntary (ct ordered) termination
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(1) TX Atty Gen. can institute a proceeding for involuntary winding up for: (i) fraudulent procurement of certificates of formation; (ii) UV activities; (iii) misrepresentation in required reports; or (iv) public interest requires it
(2) CRs can seek immediate termination based on irreparable harm to unsecured CRs. (3) CRs can seek appt of a receiver b/c corp is insolvent & CR either has an unsatisfied judgment or the corp admits in writing that the amt is due (4) SH can seek appt of a receiver for insolvency; waste of assets; director deadlock causing irreparable harm to the co; SH deadlocked and have failed at 2 annual mtgs to fill vacant board posistion; or illegal, oppressive, or fraudulent acts by directors |
receivers serve for 12 mos; if things not fixed by then, ct can order termination
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administrative termination
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The TX SOS may issue a certificate of termination for corp's failure to pay franchise tax or failure to maintain registered agent or to file required reports.
- corp must be given at least 90 days' notice. |
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