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198 Cards in this Set

  • Front
  • Back
What are the 3 formation requirements for a Corporation?
People, Papers, & Act
Who & What are "People"
People are called "Incorporators" and they execute the articles & the certificate of disclosures & deliver them to the ACC (Ariz. Corp. Comm)
What is the "first paper"
Articles of Incorporation (one of two papers needed in AZ)
Purpose of Articles of Incorporation
1) Contract between corporation and shareholders
2) Contract between corporation and state
What information is in Articles?
1) Names and addresses
2) Address of corp business
3) name/address ea. incorporator
4) name/address of ea. initial director
5) Name/address of statutory agent
What name(s) must be included for a new corporation?
Corporate names must include one of the following: corporation, company, incorporated, limited, association or bank
Who is a statutory agent?
A statutory agent is the corporation's official legal representative (can receive service of process on behalf of corp.)
What is a corporation possible duration?
Forever is presumed - unless some other time is specified
Statement of initial purpose
The articles must state the corporations initial purpose - but the corporation is not bound by this
What does Ultra Vires activity mean?
Ultra Vires Act = beyond the scope of purpose stated in the articles
What are the ultra vires rules?
1) ultra vires contracts are valid
2) Shareholders can seek an injunction if they don't like the corporations new direction
3) Responsible people are liable to the corporation for ultra vires lawsuits
What does "authorized stock" mean?
This is the maximum number of shares the corporation can sell.
Second Paper requirement in Arizona?
Certificate of disclosure
What is a certificate of disclosure?
Must state whether certain people (officers, directors, incorporators, those controlling over 10% of outstanding stock) have been convicted in the past 7 years of various felonies (e.g. securities, consumer fraud).
What else must be disclosed under the certificate of disclosure?
Whether certain people have served as officer, director, or controlled over 20% of outstanding stock in a corporation in bankruptcy, receivership, etc.
What "Act" is required to create a corporation?
You must execute and deliver the articles AND the certificate of disclosure to the ACC and pay the fee.
At what point is the de jure corporation formed?
When the ACC accepts the Articles for filing, at that point you are a legal corporation.
What generally happens right after the de jure corporation is created?
The Board of Directors holds an organizational meeting, where it will generally select officers and adopt bylaws and transact any other lawful business.
Disadvantage between a Corporation and a Partnership re: formality
A preson must file with the state to form the corporation and you must file periodic filings, appointing a statutory agent, etc. A partnership is formed simply by conduct - just two or more carrying on a business for profit, usually sharing profits and losses.
Which law governs?
Internal affairs of the corporation (including roles of directors, officers, and shareholders) of an Arizona corporation are governed by Arizona law. Even if you do no business there.
How is a Corporation taxed?
B/c a corporation is considered a seperate legal person (it can be sued and hold property, etc) it is taxed on its profits; inaddition, shareholders are taxed on distributions
Tax disadvantage of a corporation
"Double taxation"
The corporation is taxed on its profits and the shareholders are taxed on their distributions
What is flow-through taxation?
This is the way the partnerships are taxed. Partnerships are taxed as seperate entities; partners are taxed only on their distributions.
Who is liable under a coporation when there are tort of contract liabilities?
NOT the directors/officers or generally NOT the shareholders; the corporation is liable b/c it has entity status
What are the shareholders liable for?
Only for the price of their stock
What is a de facto corporation?
This is where the proprietors failed to form a de jure corporation - but the failure was inadvertant (e.g. the Articles of Incorporation got lost in the mail and thus the state never accepted them as a corporation).
What elements must be met in order for the de facto corporation to form?
1) there is a relevant incorporation statute (every state has one); 2) the parties made a good faith, colorable attempt to comply with it; and 3) some exercise of corporate privileges.
Is being a de facto corporation as good as being a de jure corporation?
Yes - the only difference is that under a de facto corporation a state can sue
What is corporation by estoppel?
This is where someone is dealing with a business as if it where a corporation, treating as if it where a corporation - they will be "estopped" from denying the business's corporate statuts; this doctrine may also be used against a business to preven it from escaping liability by claiming it was not a validly formed corporation when a deal was entered (usually only in contract/tort cases)
What are bylaws?
Bylaws are not conditions precedent to forming a corporation, however, most have them. These set up internal procedures and spell out responsibilities of officers, provisions for general meetings or directors, methods of giving notice, etc.
Who can amend, modify or repeal bylaws?
Board of directors or shareholder.
Can the bylaws remove the shareholders rights to amend, modify or repeal bylaws?
No.
Can the articles remove the board of directors rights to amend, modify or repeal bylaws?
Yes.
If the bylaws conflict with the articles, which controls?
Articles. Bylaws are simply internal documents. Articles are contracts filed with the state.
Who is a promoter?
A promoter is a person who acts on behalf of a corporation not yet formed.
Who is liable on contracts entered into during the preincorporation phase?
If the promoter entered into the contract, the promoter is liable.
When does the corporation become liable?
The corporation must adopt the contract by:
Express: the board of directors "act" (explained later)
Implied: if the corporation accepts some benefit of the contract
Once the corporation adopts the contract is the promoter still liable?
Yes. There must be a "novation" where the promoter, the corporation and the other contracting party agree that the coporation will replace the promoter under the contract.
What is the "secret profit rule?"
A promoter cannot make a secret profit on her dealings with the corporation.
Hypo:
On 1/10 - P begin working as a promoter
On 4/4 - P sells corporation Green Acres for $40K
P had bought Green Acres in 1931 for $1.98
Any profit?
Maybe not. The TEST is: price paid to the corporation ($40K) minus FMV. Therefore if the FMV is $40K or above there is no profit.
Hypo:
On 1/10, P begins working as a promoter
On 2/20, P buys property for $18K
On 3/3, P sells same property to corporation for $25K
Any profit?
Yes. Property obtained AFTER P became the promoter has a different test: Price coporation paid to the Promoter minus price P paid for the property. Here that is $7K.
Is P liable to the corporation for its profits?
Only if it was secret.
What is a foreign corporation?
A corporation that is formed outside the state (not necessarily the country).
What must a foreign corporation do in order to do business in AZ?
They must qualify.
What is "qualifying"?
This is where a foreign corporation applies for authority by providing the ACC with info similar to that req'd for articles and certificates of disclosure. If accepted, it qualifies.
What are the penalties for not qualifying and doing business?
1) back fees; 2) penalty up to $1K; 3) the corporation cannot sue instate (but it can be sued and defend); 4) any contracts that are entering into ARE valid
What is issuance?
This is issuance of stock, where a corporation sells or trades ITS OWN stock. A way for a corporation to raise capital.
What are "subscriptions"?
These are written signed offers to buy stock from the corporation.
Are preincorporation subscriptions revocable?
No. preincorporation offer are irrevocable for 6 months, unless the subscribers agree otherwise.
Are post-incorporation subscriptions revocable?
Yes. Until the corporation accepts the subscription, it is revocable.
When do corporations and subscribers become obligated under a subscription agreement?
When the board of directors accepts the offer.
What must the corporation receive (consideration) when it issues stock?
A purchaser can pay for stock in an issuance w/ any tangible or intangible property or benefit to the corporation, which includes money (cash or equivalent) or services already performed for the corporation.
What would be considered prohibited forms of consideration?
Promissory notes and future services.
What amount of consideration is necessary?
The board of directors has the power to determine the amount of consideration necessary. The board's determination is conclusive - even if below par.
What does par mean?
Par means the minimum issuance price for stock.
Does AZ require par stock?
No. The board can accept any price it wants.
What is reacquired stock?
This is stock that was previously issued and had been reacquired by the corporation. The corporation can resell or treat it as no-par.
What are the consequences for issuing par stock for less than par value?
This is called "watered stock" - the board can sell for whatever price it deems adequate, the only problem would arise if the board sold for inadequate consideration
Who is liable if the board sold stock at a reduced par without proper consideration?
1) the directors who knowingly authorized the issuance would be liable
2) the purchaser would be liable
3) if the purchaser transfered to a third party - they would not be liable if they acted in good faith
What is a preemptive right?
This is the right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a "new issuance" of stock.
Does "new issuance" include the sale of reacquired stock?
Yes.
What does "maintain her percentage of ownership" mean?
Basically this means that if a shareholder owned 20% of a company - she is allowed to maintain that 20% by buying any stock (reaquired or previously issued) to maintain that percentage.
What if the articles are silent as to preemption?
Then these rights do not exist.
What are the statutory requirements for the number of Directors?
One or more adult natural persons. The amount is usually fixed in the bylaws or articles.
What are the statutory requirements for electing directors?
Initial directors are named in the articles and hold office until shareholders elect successors.
After the initial selection, how are directors named?
Shareholders elect them at the annual meeting.
How long is a directors term?
Generally 1 year - however, the articles could "stagger" the board into groups of AT LEAST 3 directors; so a board of 9 directors might be staggered into 3 groups of 3 directors - with 3 elected ea. year and serving 3 year terms.
What is the advantage of forming a corporation over a partnership re: management?
In a corporation there is a separation of ownership from management. The shareholders (owners) are not burdened w/ management duties. In a partnership, the partners are presumed to have equal rights in management.
Can a shareholder remove a director before their term expires?
Yes. With or without cause.
What happens if less than the entire board is removed?
A single director cannot be removed if the votes AGAINST her removal would be sufficient to elect her under cumulative voting (e.g. if you own 9,000 shares, you get 9,000 votes).
How is a vacancy filled on the board?
Either the board of directors or the shareholders elect someone.
How does the board of directos take an act?
1) at a meeting (satisfying quorum and voting rules); or
2) by unanimous consent in writing (signed by ea. to act w/out a mtg)
If neither of these are met, the act is void (unless later ratified by a valid act)
Do mtgs of the board of directors have to be here in AZ?
No - they can be held anywhere.
Is a telephone call a meeting?
Yes - so long as all participants can hear eachother simultaneously.
What are the notice requirements for directors mtgs?
These are ususally set in the bylaws. There is no notice requirement for regular mtgs, but there is a notice requirement for "special" mtgs.
What is the notice requirement for special meetings?
You need 2 days notice unless the bylaws or articles state otherwise.
How is notice given?
It could be email or a phone call (as well as other formal types of notice); this is generally set in the bylaws or articles. No statute mandate.
What happens if proper notice is not given?
than any action taken at the meeting is void, UNLESS, the directors not given notice waive the notice defect in writing or attend the mtg without objection.
Can directors give proxies or enter voting agreements for how they will vote as directors?
No - this is void against public policy.
What is a Quorum?
A quorum is the "majority" of directors and this is the requirement for doing business.
How many director votes do you need to pass a resolution?
A majority.
How is a quorum broken?
A quorum MUST be present when the vote is taken. If there are 9 directors and 5 show up and 1 leaves, the quorum is broken and no business can be transacted. (different for shareholders)
What are the board of directors duties?
They manage the business of the corporation; set corporate policy; supervise and monitor officers; declare distributions; recommend fundamental corporate changes.
Can the board delegate some of its responsibilities?
Yes. The board can delegate substantial mgmt functions to a committee of one or more directors. This committee cannot amend bylaws, fill board vacancies, authorize a distribution, or recommend a fundamental corporate change.
What is the "duty of care" standard for directors?
A director must act in good faith, with the reasonable belief that her actions are in the corporation's best interest, and with the care that a prudent person in like position would use.
What is the "duty of loyalty" section of this standard?
A director must act in good faith, with the reasonable belief that her actions are in the corporation's best interest.
In duty cases, who has the burden of proof?
The plaintiff has the burden of showing that the standard was not met.
What does "nonfeasance" have to do with duty of care?
When a director fails to perform a function of their duties they may be held liable if their breach caused a loss to the corporation. Breach + Loss
Example of nonfeasance:
A director does not attend any of the board meetings or stay on top of any of the company business. This could be a breach of duty b/c a reasonably prudent person in like position would generally attend the meetings and stay apprised of the business.
What does "misfeasance" have to do with duty of care?
This is when a director takes some act that ends up hurting the corporation. (causation is clear)
What is the state standard for director misfeasance?
Again we would focus on the duty of care portion of a prudent person. Did the director's action cause a loss? If yes, they still may NOT be liable if they meet the business judgment rule.
What is the "business judgment rule?"
The standard is a prudence and prudent people do their homework. Did the director deliberate and analyze? If they did, they are not liable.
Court response to misfeasance of a director.
A court will not second guess a business decision if it was made in good faith, was informed, and had a rational basis. Directors are not guarantors of success - they just have to meet the duty of care standard (good faith, reasonable belief, best interest, prudent person).
What standard is used for Duty of Loyalty?
Same as duty of care. Discuss this issue any time you see a transaction involving a business deal between the corporation and 1) one of its directors; 2) a director's relative; 3) another business of the director's.
What is the AZ standard for transactions with directors?
An interested director transaction is upheld if:
1) the deal was fair to the corporation when entered; or
2) the material facts and interest are disclosed and the deal is approved by either a majority of all disinterested directors (at least 2) or a majority of disinterested shares.
Who has burden on whether the std was met involving director transactions?
The plaintiff.
What is the remedy for a violation of the std for director transactions?
The corporation can set aside the transaction and recover damages from the director.
Can directors set their own compensation?
YES - but it must be reasonable and set in good faith. If it is excessive it is a waste of corporate assets and violates the Duty of Loyalty.
Can a director be on the board for two different corporations?
Yes - if there is no direct competition between the two corporations.
Can a director take advantage of an opportunity that could be an opportunity for the corporation he works for?
AZ std: a director cannot USURP a corporate opportunity; she cannot take it until she:
1) tells the board about it
2) waits for the board to reject it
Is the corporation's inability to pay for the opportunity a defense?
Probably not.
Remedy for a usurption of a corporate opportunity?
A constructive trust. If the director still owns it (whatever it is) he must sell it to the corporation at cost. If he has sold it, the corporation gets any profit made.
Which directors are liable for board actions?
A director presumed to have concurred with the board action. To overcome a presumption, the director must dissent or abstain IN WRITING in the corporate records.
How must the dissent be put in writing?
1) in the minutes or 2) in writing to the corporate secretary at the meeting, or 3) in writing delivered to the corporate secretary by 5:00 pm the day following the meeting. An ORAL dissent is no good.
What are the exceptions to directors liabilty for board actions?
1) Asent directors are not liable or 2) a good faith reliance on corporate officers or employees, professionals (e.g. lawyers, accountants), committee of which the director is not a member, including financial statements prepared according to reasonable accounting practices. MUST reasonably believe the people giving the information to be competent.
Who are officers of a corporation?
Officers are agents of the corporation. They can bind the corporation by acts taken within their authority. Such authority may be actual or apparant.
What duty of care must an officer adhere to?
The same standard as directors. (good faith, reasonable belief, best interest, and prudent person).
What does actual authority mean?
Express: in the articles, bylaws, or resolution which states that the officer can bind the corporation
Inherent: by virtue of the office held (e.g. the President can bind the corporation to contracts in the ordinary course of business & the V.P. is to act when the President is unavailable).
What is apparant authority?
Corporation holds officer out as having authority so third parties reasonably believe it exists. Basically estoppel. The corporation causes a third party to believe that this officer can bind the corporation.
AZ standard on which position can be held and how many positions can be held at one time?
An AZ corporation can have any officers permitted by bylaws or which the bylaws allow the board to select. There is no limit on the number of offices that can be held simultaneously.
Who selects the officers?
The board of directors select the officers and they also set their compensation.
What if an officer is fired?
A director can fire an officer but the corporation may be liable for breach of contract (damages). The officer cannot get their job back, but they may be awarded damages for the breach.
What is the corporate hierarchy?
1) shareholders hire and fire directors
2) directors hire and fire the officers
3)shareholders generally do NOT hire and fire the officers
What are the three categories of possibilities when a director is sued in her capacity as director and asks for reimbursement for her costs and judgment?
1) no indemnification
2) mandatory indemnification
3) discretionary indemnification
What does "no indeminifcation" mean?
When a corporation is prohibited from indemnifying. Generally this is where the director is held liable - there MUST be a court holding.
What does "mandatory indemnification" mean?
When a corporation is required to indemnify. Generally when the director was the prevailing party on the merits or otherwise.
What does "discretionary indemnifcation" mean?
When a corporation is permitted to indemnify (applies to both directors and officers).
In what situtation will "discretionary indemnification" be allowed?
Anything not satisfying no or mandatory indemnification (e.g. settlement). If the suit is by or on behalf of the corporation reimbursement is limited to costs and attny's fees & does not include the judgment or, apparantly, any amount paid to settle the case (AZ statute).
Can a court order reimbursement?
Yes. If it feels it is justified in view of all the circumstances (unless the articles provide otherwise). If the director is found guilty - the order is limited to attny's fees and expenses.
Can the articles eliminate director liabilty?
Yes - for damages to the corporation or shareholders, but not for improper financial benefit, intentionally inflicted harm to the corporation or shareholders, unlawful distributions, or crimes.
Can shareholders manage the corporation?
Generally no - the board generally manages the day-to-day operations
Can the shareholders take over management?
Yes (under certain circumstances) - they can take over management of a "close" corporation.
What is a "close" corporation?
This is a corporation with:
1) few shareholders (>75?)
2) the stock is not publically traded
If we want shareholder management in a close corporation what must be done?
We need a shareholder agreement:
1) restricting the power of the board, and
2) vesting it in shareholders or others.
The agreement doing this must be:
1)in the articles of bylaws and approved by ALL shareholders at the time of the agreement OR 2) in writing signed by ALL shareholders and filed with the corporation.
If shareholders take over management, who owed the duty of care to the corporation?
The managing shareholders.
Does this agreement create individual liabilty for all shareholders?
No - and therefore this agreement is generally NOT enough to "peirce the corporate veil".
How can this agreement be amended?
Only by unanimous agreement in writing.
What does oppression mean?
Shareholders in a close corporation owe each other fiduciary duties. A controlling shareholder therefore owes a duty NOT to oppress minority shareholder, e.g. by freezing them out of all perquisites of ownership
Can the controlling shareholder sell her shares at a "premium"?
Yes - b/c these shares carry the power to control the corporation by electing managers.
What if the sale is just a disguised sale of a corporate asset?
Then all shareholders should share in the premium.
Is the shareholder liable for selling her controlling interest to someone they do not reasonably investigate?
Yes - this buyer could come in an loot the company
Are shareholders liable for the acts or debts of the corporation?
No - the corporation is an entity & liable for what it does.
When will a court "pierce the corporate viel" and find the shareholders personally liable?
1) a shareholder has abused the privilege of incorporating and
2) if fairness demands that the shareholders be held personally liable
AZ stand on PCV?
Arizona courts may PCV to avoid fraud or unfairness, but this is never automatic.
When is the court more likely to PCV?
In tort cases rahter than contracts.
What is a shareholder derivative suit?
this is when a shareholder is suing to enforce the corporation's claim, not her personal claim.
How to determine if it is actually a derivative suit?
ALWAYS ask, could the corporation have brought this suit? If yes, it is probably a derivative suit.
General rule for shareholder voting?
Record shareholder as of record date has the right to vote.
Who is a record shareholder?
This is the person shown as the owner in the corporate records.
What is the record date?
This is the date of voter eligibility cut-off. This may not be more than 70 days before the meeting.
Exception to the general rule that record owner or record date votes?
If the corporation reaquires stock before the record date, so it is the record owner, it is not allowed to vote reaquired stock.
Exception to the general rule that record owner or record date votes?
Death of shareholder. The heirs of the shareholder who dies is allowed to vote the shares.
Exception to the general rule that record owner or record date votes?
Proxies.
What is a shareholder proxy?
1) writing (fax or email also ok)
2) signed by record shareholder (email ok b/c can determine who sent it)
3) directed to secretary of corporation
4) authorizing another to vote the shares
How long does the proxy last?
12 months maximum
Can the proxy be revoked?
A shareholder can revoke her proxy even if the proxy says that it is irrevocable.
What is the ONLY way a proxy can be revoked?
Proxy coupled w/ interest:
1) it says conspicuously that it is irrevocable and
2) the proxyholder has some interest in the shares other than voting
What is a "voting trust"?
An agreement where shareholder agree to use their share (usually small amounts) to vote alike and increase their influence.
What is required for a voting trust?
1) written and signed trust agreement controlling how the share will be voted
2) Transfer legal title of shares to voting trustee
3) Original shareholders receive trust certificates and retain all shareholder rights except for voting
What is a "voting pooling agreement"?
This is where 2+ shareholders "pool" their shares to have more influence. The agreement must be signed and in writing. They are enforceable by statute.
Where to shareholders vote?
1) at a meeting (satisfying quorum & voting rules) or
2) by unanimous written consent of the holders of all voting shares
How many types of shareholder meetings are there?
2: annual and special
What is an annual meeting?
A meeting that is required to be held annually in order to elect directors. If 15 months go by without a meeting the shareholder can petition the court to order one
What is a special meeting?
A meeting that can be called by the Board of anyone so authorized in articles or bylaws.
A shareholder calls a special meeting to remove an officer - is this ok?
No - shareholders do not remove officers. The special meeting must be for a proper purpose.
Who can call a special meeting to address corporate takeover of a publicaly held corporation?
1) 2 or more directors
2) the president
3) the holders of at least 10% of the voting shares
4) secretary
5) others specified in articles or bylaws.
Notice requirement for ANY meeting
Must give written notice unless oral notice is practicable to EVERY shareholder entitled to vote for every meeting.
When must notice be given?
10 to 60 days before the meeting
What are the contents of notice?
Shareholders ALWAYS must be told:
1) when and
2) where and
3) what the purpose is
Why must you state the purpose?
B/c you can't do anything else but what the stated purpose is. Any other business will be invalid.
What are the consequences for failing to give proper notice?
Action taken at the meeting is void, unless those not notified waive the notice defect.
How does waiver occur?
1) Express - in writing and signed anytime; or
2) Implied - if she attends the meeting without objection
How do shareholders vote?
There must be a quorum represented at the meeting. Determination of a quorum focuses on the number of SHARES and not the number of shareholders. A quorum requires a majority of the shares entitled to vote.
Can the articles change the quorum requirement?
Yes - but never fewer than the majority
Can a shareholder quorum be lost if people leave the meeting (like the directors quorum)?
No - once a quorum is determined, it is always a quorum
Is corporate ownership transferable?
Yes - another one of the advantages of the corporate form of doing business; a shareholder can simply sell their shares if she wants out
Is "close" corporate ownership transferable?
Yes - but it is more difficult to sell since there is no public market (stock is not publically traded).
Do shareholders have a right to inspect the books and records of the corporation?
Yes - with some restrictions
Who can demand access to these documents?
1) one who has owned stock (any amount) for six months; or 2) one who owns at least 5 percent of the outstanding shares
What are routine documents?
aritcles, bylaws, minutes of shareholder meetings, written communications to shareholders within past three years, names and business addresses of officer and directors, annual reports
How does an eligible shareholder get routine records?
She must request in writing at least 5 days in advance.
What are sensitive documents?
excerpts of minutes from board meetings, accounting records, most recent financial statements or list of shareholders.
How does an eligible shareholder get sensitive documents?
Must make a 5 day written demand in good faith, describing the particular documents sought, stating that they are directly connected to her purpose and that it is a proper purpose (a proper purpose is on related to your rold as a shareholder).
What are the consequences if the corporation does not allow inspection?
The court can order AND the requesting party recovers costs and attorney's fees (unless refusal was in good faith)
How are distributions (payments) made to shareholders?
1) dividends
2) repurchase of shares or
3) redemption of shares (forced sale to corporation at price set in articles)
Who declares distributions?
Distributions are to be declared in the Board's discretion, in its busines judgment. Shareholders have not "right" to distribution until it is declared.
Can the shareholders sue to force the directors to declare dividends?
Yes they can but will only succeed on a VERY, VERY strong showing of aduse of discretion.
Which shareholders get dividends?
Preferred, participating, cumulative, common (in this order)
What does insolvent mean?
1) the corporation is unable to pay its debts as the come due; or
2) total assets are less than total liabilities
Who is liable for unlawful distributions?
Directors are personally liable & shareholders who knew the distribution was unlawful when they received it
What are the limitations on distributions?
The traditional rule is that distributions had to be paid out of "surplus" accounts - there are two kinds
What are "earned" surplus accounts?
These are generated by business activities (all earnings minus all losses minus distributions previously paid
What are "capital" surplus accounts?
The amount received by the corporation for issuance of stock - the amount of excess of par value plus amounts allocated on a no-par issuance
What notice is required for a "fundamental" corporate change?
This is an unusual occurance so it requires board of director approval AND notice to all the shareholders (even those not entitled to vote) of the meeting.
What approval is necessary for a "fundamental" corporate change?
Approval by a majority of the shares ENTITLED TO VOTE
Can a shareholder dissent?
Yes, certainly, however they can also ask to be bought out and require that the corporation buy her shares at fmv (right to be bought out)
What are the actions by the corporation that could trigger the right to be bought out by the shareholder?
1) some amendment to the article
2) merger
3) disposition of substantially all assets other than in the regular course of business; or
4) disposition of shares in a share exchange
What are the actions taken by shareholder that would perfect the right to be bought out?
1) before shareholder vote, file with the corporation a WRITTEN notice of objection and of your intent to demand payment
2) abstain or vote against the proposed change AND
3) after the vote, make written demand to the corporation to be bought out
What if the corporation and the shareholder do not agree on fmv?
The corporation sues and the court decides what is fair value of the shares.
What is needed to amend the articles?
The board of directors and shareholder approval.
What is needed for the amendment to pass?
a majority of shares entitled to vote (not the majority of who attend the meeting)
What needs to be done after approval to make them official?
The changes must be filed with the ACC.
What is required for a corporate merger?
Board of director approval of both corporations and shareholder approval (generally of both corporations)
How many votes are needed to approve the merger?
a majority of shares entitled to vote (not the majority of who attend the meeting)
What happens to the rights and liabilities of the corporation that does not survive the merger?
The surviving corporation assumes the rights and liabilities of the other corporation (successor liability).
What is a disposition?
This is the sale, lease or exchange (not just mortgage) of all or substantially all, of the assets OTHER than the regular course of business or share exchange.
What is needed if there is buying of one company that does not fundamentally change the buying company?
That the company that is being bought must approve by the majority of shares entitled to vote: both the board of directors and shareholders
Is there successor liability when the corporation buys another's assets?
No - unless the buying of the assets was a merger in disguise