Corporations - Indiana Bar Exam

Front 1

Forming the Corporation:

What are the three (3) requirements to form a valid corporation?

Back 1

People

Paper

Act

Front 2

Forming the Corporation:

"PAPER"

The purpose of the Articles of Incorporation is really to create a contract between two (2) separate groups, these are?

Back 2

1. shareholders and the corporation, and

2. the State and the corporation

Front 3

Forming the Corporation:

What are the (5) items that need to be listed in the Articles of Incorporation?

Back 3

1. name

2. Inc., Ltd., Co., or Corp.

3. name / address of incorporators,

4. address of the registered office, and

5. address of the registered agent.

Front 4

Forming the Corporation:

Articles of Incorporation -

What three (3) things must the description of the "Capital Structure" include?

Back 4

1. voting rules

2. number of authorized shares, and

3. types of stock

Front 5

Forming the Corporation:

The "Act" Requirement -

With whom must the "Articles" be filed?

If accepted, what is this proof of?

Back 5

Secretary of State

- Proof of Valid Formation

Front 6

Forming the Corporation:

The "People" Requirement -

Who are the people?

What are their two (2) most basic functions?

Back 6

- the "incorporators"

- 1) sign and file the articles, and, 2) call the first shareholder meeting.

Front 7

What law governs Corporations in Indiana?

Back 7

IBCL

Indiana Business Corporations Law

Front 8

Piercing the Corporate Veil:

P.U.F.F.I.C.A.P.

Back 8

P = Public or Closed?

U = Undercapitalized?

F = Formalities of Corp. Disregarded?

F = Fraudulent Misrepresentation?

I = Identity of Officers, Directors, or Shareholders?

C = Commingling of Funds

A = Absence of Corporate Records?

P = Payment of Individual Obligations?

Front 9

Piercing the Corporate Veil:

When are the two (2) times that courts will overcome their reluctance to pierce the veil?

Back 9

1. Corporate form is completely ignored, or

2. Misuse constitutes Fraud or Promotes Injustice

Front 10

Piercing the Corporate Veil:

What is the six (6) step approach to a "Piercing" Question?

Back 10

1. start with rule of Limited Liability,

2. courts are reluctant to pierce,

3. 2 situations when courts will pierce,

4. go through PUFFICAP,

5. say that it is a Balancing Test, and

6. make a conclusion

Front 11

LLC's:

What law created the LLC option?

Back 11

Indiana Business Flexibility Act

Front 12

LLC's:

What are the two (2) major benefits of an LLC?

Back 12

1. Limited Liability (like corp.), and

2. Pass Through tax treatment (like partnership).

Front 13

LLC's:

What are the five (5) formation requirements of an LLC?

Back 13

1. Articles of Organization,

2. Registered Agent,

3. Name Contains "LLC",

4. Operating Agreement, and

5. One or More Members

Front 14

LLC's:

Who manages an LLC?

Back 14

- It is up to you.

- It must be but in the Articles of Organization.

Front 15

LLC's:

What is the Liability situation for the LLC and its Members?

Back 15

LLC = vicariously liable under agency principles, and

Members = Limited Liability for all obligations (except own torts).

Front 16

S-Corp:

How is an S-Corp taxed?

What is the benefit of this type of taxation?

Back 16

- tax is "passed through" to shareholders.

benefit of "pass through" = no double taxation (like corp).

Front 17

S-Corp:

What are the five (5) Qualifications a corporation must have to choose S-Corp status?

Back 17

1. 100 shareholders or less,

2. all must be natural persons,

3. all must be U.S. residents,

4. all must consent, and

5. can only be one (1) class of stock.

Front 18

Corporate Fiduciary Duties:

What are the three (3) ways to breach the "Duty of Loyalty"?

Back 18

1. Interested Director Transaction (director does business with the corp).

2. Competing Ventures

3. "Usurping" Corporate Opportunity.

Front 19

Corporate Fiduciary Duties:

Who has the "Burden of Proof" in an action alleging a breach in the "Duty of Loyalty"?

Back 19

The Defendant.

(usually the director)

Front 20

Corporate Fiduciary Duties:

What are the four (4) duties under the "Duty of Care"?

[aka "business judgment rule"]

Back 20

1. "REASONABLE and PRUDENT DECISIONS",

2. decisions in the corp.'s "BEST INTERESTS",

3. to act in "GOOD FAITH", and

4. to "INVESTIGATE" before acting.

Front 21

Corporate Fiduciary Duties:

When will a Director be held liable for failing in one of his "Duties of Care"?

Back 21

- When the failure amounts to...

Willful Misconduct or Recklessness.

Front 22

Corporate Fiduciary Duties:

Who has the burden of proof in proving a breach of the "Duty of Care" or the "Business Judgment Rule"?

Back 22

Burden is on the Plaintiff.

- usually the person bringing the action against the Director

Front 23

Dissenter's Rights:

When do you use "dissenter's rights"?

Back 23

- when you object to a "fundamental change" in the corporation.

Front 24

Dissenter's Rights:

What "Right" are you seeking by dissent?

What does that get you?

Back 24

- "Right of Appraisal"

- The right to force the corporation to buy back your shares at a fair value.

Front 25

Dissenter's Rights:

What actions by the corporation trigger "dissenter's rights"?

[S.M.E.A.R.]

Back 25

S = Sale of all or most of corporate assets

M = Merger or consolidation

E = Exchange of shares

A = Acquisition

R = Resolution in articles or bylaws giving you that right.

Front 26

Dissenter's Rights:

What must you "have" and "do" to be a "dissenter"?

When do you never have dissenter's rights?

Back 26

- must have the right to vote

- must abstain or vote against

- when the corp. is "publicly traded"

Front 27

Dissenter's Rights:

In the Right to Appraisal, how and when is "Fair Value" determined?

Back 27

Fair Value = value of the shares immediately "before" the event occurs.

(or, highest price paid in acquisition).

Front 28

Shareholder Derivative Suits:

Who must be named as a Defendant in a Derivative suit?

Back 28

- The Corporation

Front 29

Shareholder Derivative Suits:

What is a Shareholder Derivative Suit? (4) pieces

Back 29

1. shareholders,

2. together,

3. suing,

4. to enforce a claim the corporation could have filed itself.

Front 30

Shareholder Derivative Suits:

What are the three (3) main "policy reasons" for shareholder derivative actions?

Back 30

1. to avoid numerous lawsuits,

2. to protect and compensate shareholders, and

3. to protect creditors.

Front 31

Shareholder Derivative Suits:

Four (4) Requirements for a Derivative Suit?

[A.T.V.D.]

Back 31

A = ADEQUATE REPRESENTATION(of shareholder interest)

T = TIME (owned stock at time claim arose)

V = VERIFIED COMPLAINT

D = DEMAND (first must demand that corp. sue for themselves).

Front 32

What is the "American Rule"?

Back 32

If it is a "closed corporation"...

Shareholders can file a "direct suit" against it.

Front 33

When will the "American Rule" NOT be allowed?

(3) instances

Back 33

1. expose to MULTIPLE LAWSUITS

2. materially PREJUDICE CREDITORS, or

3. cause UNFAIR DISTRIBUTION among parties.

Front 34

Corporate Opportunity Doctrine:

What is "Corporate Opportunity"

Back 34

- anything "necessary" to the corporation, or

- anything in the corporation's "line of business"

Front 35

Corporate Opportunity Doctrine:

What are the two (2) conditions that would need to be satisfied before a fiduciary of the corporation could take a business opportunity for themselves resulting in personal profit?

Back 35

1. outside the "line of business" and

2. corporation is "unable" or "unwilling" to take it.

Front 36

Corporate Opportunity Doctrine:

What is not a good defense to a breach of the corporate opportunity doctrine?

Back 36

financial inability of the corp.

Front 37

Business Judgment Rule:

What are the three (3) big parts of the Business Judgment Rule?

Back 37

1. Good Faith

2. Best Interests

3. Liability

Front 38

Business Judgment Rule:

Good Faith Requirement -

What is the "standard of care" under the good faith requirement of the Business Judgment Rule?

Back 38

Reasonably Prudent Person

(in same or similar circumstances)

Front 39

Business Judgment Rule:

Under the "Best Interests" requirement, how must the fiduciary act?

Back 39

In the corporations "best interests"!

Front 40

Business Judgment Rule:

Under the "Liability" part of the Business Judgment Rule... What are the two (2) types of acts that will expose the fiduciary to liability?

Back 40

1. Willful Misconduct, and

2. Recklessness

Front 41

Business Judgment Rule:

Under the "Best Interests" Part of the Business Judgment Rule... Whose or what interests must the fiduciary keep in mind?

Back 41

effect on...

Shareholders, Employees, Customers, Suppliers, Community around them, etc...

Front 42

Right of Shareholder to Inspect Records:

Records which MUST be delivered upon request?

[A.B.C.D.E.F.S.]

Back 42

A = ARTICLES OF INCORPORATION

B = BYLAWS

C = COMMUNICATIONS TO SHAREHOLDERS

D = DIRECTORS' NAMES AND ADDRESS

E = EVERY "MINUTE" FROM LAST 3 YEARS

F = FINANCIAL STATEMENTS FROM LAST 3 YEARS

S = SECRETARY OF STATE'S BI-ANNUAL REPORT

Front 43

Right of Shareholder to Inspect Records:

Records to be delivered if in "Good Faith" and with "Proper Purpose"?

[A.B.C.D.S]

Back 43

A = ACCOUNTING RECORDS

B = BANK SHAREHOLDER MINUTES

C = COMMITTEE RECORDS

D = DIRECTOR MINUTES

S = SHAREHOLDER LIST

Front 44

Right of Shareholder to Inspect Records:

Where Must the Records be Kept?

ABCDEFS?

ABCDS?

Back 44

ABCDEFS? = in Principal Office

ABCDS? = in a Reasonable Place

Front 45

Right of Shareholder to Inspect Records:

What is a "Proper Purpose" for Requesting ABCDS?

Back 45

Proper = evaluation for estate tax purposes,

Improper = any "competitive" purpose (like trade secrets).

Front 46

Right of Shareholder to Inspect Records:

What is the remedy for corporate failure to produce records to shareholder for inspection?

Back 46

Court order for inspection, and

Attorney's Fees!