Corporations - Bar Exam

Front 1

Who are incorporators?

Back 1

Those that form the corporation.
There needs to be at least one incorporator.

Front 2

What is in the certificate of incorporation?

Back 2

name and address of corp.
the corporate agent
the corporate purpose
duration of the corporation
# of authorized stock
# of issued stock

Front 3

What if the contract is Ultra Vires?

Back 3

The K is still enforceable
SH seek an injunction to stop the corporation from doing the excessive act.
The responsible managers are liable to the corporation for the loss to the ultra fires act

Front 4

What if the corporation has no duration listed on the certificate?

Back 4

perpetual existence

Front 5

Corporation by Estoppel

Back 5

If the association holds itself out as a corporation and a 3P relies on it, the association is estopped from raising lack of incorporation as a defense.

Front 6

Why does it matter if the corporation is formed?

Back 6

Because then the corporation is liable for their acts.

Front 7

What are the bylaws?

Back 7

Rules that govern the internal affairs of the corporation

Front 8

Certificate v. Bylaws

Back 8

Certificate controls

Front 9

Promotor

Back 9

A person acting on behalf of a corporation not yet formed

Front 10

Is the corporation liable for pre-incorporation contracts?

Back 10

Only if the corporation adopts the contract or goes through a novation process.

Front 11

Promotor liability on a pre-incorporation contract

Back 11

Liable unless a novation or the K says otherwise

Front 12

What if the corporation is never formed (pre-incorporation liability)

Back 12

Then the promotor is liable

Front 13

What if the corporation adopts the K?

Back 13

Then the promotor and corporation are liable for joint and several liability.

Front 14

What is a Secret Profit?

Back 14

Making a profit that is not disclosed to the corporation.

Front 15

Remedy for Secret Profits

Back 15

Before Promotor status: Corp PRice - FMV

After promotor status: corp $ - promotor $

Front 16

Foreign Corporations

Back 16

Must:
1. apply to NY department of state
2. pay fees for privilege of doing business in NY
3. give proof of good standing

Front 17

Issuance of stock

Back 17

Corporation sells its own stock
- equity stock (raise capital)
-debt stock (pay off debts
- debentures - loan to the corporation.

Front 18

Subscription

Back 18

Written, signed offer to buy stock

Front 19

Revocation of subscription

Back 19

pre incorp - irrevocable for three months.
post incorp. - revocable until corporation accepts

Front 20

Subscriber in default

Back 20

LESS than 50%: If the subscriber defaults and corp has made a written demand within 30 days, the corporation may sell the stock (it becomes authorized an unissued

MORE than 50%: the corporation must try to sell the stock for someone else for cash. If no one will buy, the corporation can keep the money and the stock.
If someone will buy, they have to give any excess to the subscriber

Front 21

Permitted forms of consideration

Back 21

1. Money
2. Intangible and tangible property
3. payment for past services
4. Binding obligation to pay money for property in the future.
5. Binding obligation to perform future services for an agreed upon value.

Front 22

Prohibited forms of consideration

Back 22

anything other than the 5 permitted forms.

MUST BE FOR CONSIDERATION (otherwise, watered stock)

Front 23

Par value

Back 23

Minimum issuance price

Front 24

No par

Back 24

No minimum issuance price and can sell for any price

Front 25

Treasury stock

Back 25

stock that was bought back by the corporation. Sells as no par

Front 26

Selling stock for less than par

Back 26

Watered stock.
Creditors may sue the directors and buyers of stock

Front 27

Preemptive Rights

Back 27

Rights of an existing shareholder to maintain her percentage of ownership in the corporation by buying stock whenever there is a new issuance of common stock for money.

- If certificate is silent, no preemptive rights.
- if silent, no treasury stock as preemptive.

Front 28

Who elects the Directors?

Back 28

Incorporators

Shareholders at the meeting

Front 29

Removal for cause

Back 29

Shareholders

Board if the cert/bylaws allow

Front 30

Removal without cause

Back 30

SH/board may only remove without cause if the certificate/bylaws allow.

Front 31

Who can fill a vacancy on the board?

Back 31

The directors can vill a vacancy for cause

If without cause by SH, then only the SH can fill.

Front 32

Acts by the board members

Back 32

Board members are not agents for the corporation and cannot individually bind the corporation.

Can only bind the corporation by making a valid act as a group.

Front 33

Notice for meetings

Back 33

annual meeting: nothing if time and place are in the bylaws/cert

special meetings: must state the time and place

Front 34

Proxy for board

Back 34

no proxy for board allowed

Front 35

What happens if you do not get notice of a special meeting?

Back 35

Then any act taken at the meeting is invalid if the director waives his right. Can do so by:

-written consent
-showing up at the meeting

Front 36

Voting at the meeting

Back 36

A quorum must show up

Majority of the quorum votes

Front 37

Can you decrease a quorum?

Back 37

Yes if in the certificate or bylaws.

NEVER LESS THAN 1/3

Front 38

Can a corporation increase quorum?

Back 38

yes but only in certificate

Front 39

What does the board do?

Back 39

-sets policy
-monitors and supervises officers
-declares dividends
-decides when the corporation will issue stock.

Front 40

Duty of Care

Back 40

The director must act in good faith and with reasonable diligence, and skill, that a reasonable person would in a similar situation.

Front 41

Business judgment rule

Back 41

Rational basis
Good faith
Reasonably informed

Front 42

Duty of Loyalty

Back 42

Must act in good faith and with
- conscientiousness
- fairness
- morality
- honesty

Front 43

Interested director transactions

Back 43

Void unless
- deal was fair and reasonable to the corporation
- you disclose the interested transaction and the disinterested directors vote to pass the transaction.

Front 44

Competing ventures

Back 44

Director cannot compete with the corporation

- if she does, constructive trust.

Front 45

Corporate pportunity

Back 45

Director cannot usurp a corporate opportunity.

Must tell the board and allow them to take it first. If they have financing troubles, to help the corporation get finance.

Otherwise --> Constructive trust

Front 46

Improper lain of corporate funds

Back 46

Corporation can only loan funds if it is approved by the SH or if the board finds that it will benefit the corporation.

Front 47

dissenting directors

Back 47

Director is liable unless he dissents
-in the minutes
-in writing to the secretary.

If he misses a meeting he is not automatically liable but he must mail in dissent to the secretary of the corporation

Front 48

Officers

Back 48

agents of the corporation. Can bind the corporation to acts they took on the corporation's behalf.

SEE AGENCY LAW

Front 49

Who elects the officers?

Back 49

directors. SH can if allowed by the certificate or bylaws.

Front 50

Who may remove officers?

Back 50

directors, unless the certificate allows the shareholders.

If SH can elect them, only the SH can fire them

Front 51

Reimbursement of Directors

Back 51

Prohibited if liable to the corporation

Of right if win against the corporation

Permissive if the director/officer shows that she acted in good faith and reasonably believed that her actions were in the corporation's best interest.

Front 52

Does the D/O get attorney's fees?

Back 52

yes for the original action if she wins. No fees on fees

Front 53

Can the SH manage the corporation?

Back 53

Generally no.

Can manage in closely held corporation.

Front 54

Managing SH duties.

Back 54

Duty of utmost good faith.
Duty of care
Duty of loyalty

Front 55

SH Liability

Back 55

Generally only liable up to their capital contribution

Front 56

Piercing the corporate veil

Back 56

A SH is personally liable if:

1. Abuse of privileges
2. complete domination
3. to perpetrate a fraud or injustice.

Front 57

Wages

Back 57

In a close corporation, the TEN largest SH are liable personally for wages and benefits to corporate employees

Front 58

Derivative suit

Back 58

SH suiting to enforce the corporation's claim.

- Duties of Care and Loyalty & waste of corporate assets are ALWAYS derivative

Front 59

What if SH wins the derivative suit

Back 59

SH gets reimbursed for her costs and litigation expenses but the CORP gets the money.

Front 60

SH Loses derivative suit

Back 60

SH cannot recover costs

SH may be liable to ∆ for their costs

Front 61

Requirements of a derivative suits

Back 61

SH owned stock at the time of the action AND throughout the trial

SH must adequately represent the interests of the corporation

SH must post a bond for defendant's costs

SH must make a demand on directors unless futile

Front 62

Dismissing the derivative suit.

Back 62

corporation may move to dismiss the derivative suit by showing that it was not in corporation's best interest.

Front 63

Who votes at SH meeting?

Back 63

The record owner as of the record date

Front 64

Death of a shareholder

Back 64

Estate may vote

Front 65

Proxies

Back 65

Writing

Signed by the record shareholder or authorized agent

Authorizing another to vote the shares.

Good for 11 months

Front 66

Revoking a proxy

Back 66

in writing

showing up to vote at the meeting

Front 67

Voting trusts and agreements

Back 67

allowed for SH voting

Front 68

Requirements for voting agreements

Back 68

Must be in writing and signed

Can only agree to do valid obligations.

Front 69

SH annual meeting

Back 69

elects directors

Must state time and place

Front 70

SH special meeting

Back 70

Time, Place, Purpose

Front 71

How do SH vote?

Back 71

quorum represented at the meeting - the majority of outstanding shares

Front 72

Reducing SH quorum

Back 72

if in certificate or bylaws.

never less than 1/3

Front 73

Reducing majority SH approval

Back 73

CAN NEVER DO THIS

Front 74

Supermajority

Back 74

Can make this but must be in certificate

Front 75

Cumulative voting

Back 75

Only available when the SH are voting to elect directors.

100/(X+1)

Exists only if the certificate says so

Front 76

Transfer of stock by SH

Back 76

SH can sell stock below par.

Front 77

Transfer restrictions on stock for SH

Back 77

May make a right of first refusal so long as:

The prices reasonable

not a restraint on alienation

Front 78

Right to inspect the books

Back 78

5 days written demand -- minutes/record shareholders

2 days written demand -- list of D or O

written demand -- annual balance sheet, profit/loss statement

Front 79

Distributions - Three types

Back 79

Dividend
Payment to repurchase shares
To redeem shares (forced sale)

Front 80

SH right to distribution

Back 80

SH have a right to collect dividends. Board's discretion

Front 81

Preferred SH

Back 81

Gets paid first

Front 82

Preferred and participating

Back 82

SH gets paid first and then again with common stock

Front 83

Preferred that is Cumulative

Back 83

Gets paid for all years in which no dividend was paid

Front 84

Common stock

Back 84

gets paid last but no ceiling

Front 85

Funds used for distribution

Back 85

Surplus. No stated capital

Formula = assets - liabilities - stated capital

Front 86

When can corporations make distributions?

Back 86

At any time so long as they are not insolvent nor does it render them insolvent.

Directors are liable of they do so.

SH are liable if they knew they were getting unlawful distributions.

Front 87

Stated capital formula

Back 87

Par value * # of outstanding shares

Front 88

Fundamental corporate changes

Back 88

requires both board approval and shareholder approval

Front 89

Shareholder right of appraisal

Back 89

the dissenting SH have the right to force the corporation to buy the dissenting SH at fair value

Front 90

Actions that trigger the right of appraisal

Back 90

Consolidation
Amendment to certificate
Merger
Share exchange

Front 91

How does the SH obtain the right of appraisal?

Back 91

SH must

File a written objection and intent to demand payment.

Abstain or vote against the change

Make a written demand to be bought after voting takes place.

Front 92

Amendment to the certificate of incorporation

Back 92

minor change: can be made by the board alone

all other changes: must be approved by directors

Majority of the Shares outstanding must vote

Front 93

Mergers

Back 93

Merger - each company's board adopts a plan of merger and the MAJORITY from each corporation must approve.

Right of appraisal: Disappearing corporation Sh have right of appraisal.

Front 94

Shore form merger

Back 94

No SH approval is required if the parent corporation owns 90% of the subsidiary.

Right of appraisal: SH of subsidiary have right of appraisal.

Front 95

Consolidation

Back 95

A corp + B corp = C corp

SH for disappearing companies have right of appraisal.

Front 96

Transfer

Liability of company acquiring assets from a merger or consolidation

Back 96

Transfer: one company acquires all outstanding share of one or more classes of another corporation.
The company acquiring assets WILL NOT BE LIABLE for torts of the company it acquired UNLESS:

-deal provides otherwise
-purchasing company is a mere continuation of the seller
-deal was entered fraudulently to escape such obligation.

Front 97

Voluntary Dissolution

Back 97

Voluntary: no board vote necessary

Front 98

Involuntary dissolution

Back 98

Someone is petitioning the court for dissolution

- 1/2 or more of shares may petition if:

--directors are too divided to manage
--SH are too divided to elect directors; or
-- Magnitude of internal dissension makes dissolution beneficial to SH.

Any SH entitled to vote may petition if SH are unable to elect directors for two annual meetings.

Front 99

Involuntary dissolution in a close corporation

Back 99

20% or more of voting shares in corporation whose shares are not traded on securities market may petition if:

1. managements illegal oppressive or fraudulent acts toward the complaining SH

2. Management's wasting, diverting or looting assets

Front 100

How can non-complaining SH avoid dissolution?

Back 100

within 90 days of the petition, buy the petitioners' stock at FMV on terms approved by the court.

Front 101

COntrolling SH

Back 101

Controlling SH in a close corporation who also occupies a control position or has control over the corporation owes a duty to minority SH.

- if takes advantage, the court will disgorge profits

Front 102

freeze outs

Back 102

all mergers must have a legitimate corporate purpose.

Front 103

Insider trading on inside information

Back 103

corp can sue to recover profit

Front 104

non-disclosure of "special facts"

Back 104

Corporation can recover the difference between the price paid and value of stock a reasonable time after public disclosure