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46 Cards in this Set

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Forming the Corporation:

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

Paper

Act
Forming the Corporation:

"PAPER"

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

2. the State and the corporation
Forming the Corporation:

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

Articles of Incorporation -

What three (3) things must the description of the "Capital Structure" include?
1. voting rules

2. number of authorized shares, and

3. types of stock
Forming the Corporation:

The "Act" Requirement -

With whom must the "Articles" be filed?

If accepted, what is this proof of?
Secretary of State

- Proof of Valid Formation
Forming the Corporation:

The "People" Requirement -

Who are the people?

What are their two (2) most basic functions?
- the "incorporators"

- 1) sign and file the articles, and, 2) call the first shareholder meeting.
What law governs Corporations in Indiana?
IBCL

Indiana Business Corporations Law
Piercing the Corporate Veil:

P.U.F.F.I.C.A.P.
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?
Piercing the Corporate Veil:

When are the two (2) times that courts will overcome their reluctance to pierce the veil?
1. Corporate form is completely ignored, or

2. Misuse constitutes Fraud or Promotes Injustice
Piercing the Corporate Veil:

What is the six (6) step approach to a "Piercing" Question?
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
LLC's:

What law created the LLC option?
Indiana Business Flexibility Act
LLC's:

What are the two (2) major benefits of an LLC?
1. Limited Liability (like corp.), and

2. Pass Through tax treatment (like partnership).
LLC's:

What are the five (5) formation requirements of an LLC?
1. Articles of Organization,

2. Registered Agent,

3. Name Contains "LLC",

4. Operating Agreement, and

5. One or More Members
LLC's:

Who manages an LLC?
- It is up to you.

- It must be but in the Articles of Organization.
LLC's:

What is the Liability situation for the LLC and its Members?
LLC = vicariously liable under agency principles, and

Members = Limited Liability for all obligations (except own torts).
S-Corp:

How is an S-Corp taxed?

What is the benefit of this type of taxation?
- tax is "passed through" to shareholders.

benefit of "pass through" = no double taxation (like corp).
S-Corp:

What are the five (5) Qualifications a corporation must have to choose S-Corp status?
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.
Corporate Fiduciary Duties:

What are the three (3) ways to breach the "Duty of Loyalty"?
1. Interested Director Transaction (director does business with the corp).

2. Competing Ventures

3. "Usurping" Corporate Opportunity.
Corporate Fiduciary Duties:

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

(usually the director)
Corporate Fiduciary Duties:

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

[aka "business judgment rule"]
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.
Corporate Fiduciary Duties:

When will a Director be held liable for failing in one of his "Duties of Care"?
- When the failure amounts to...

Willful Misconduct or Recklessness.
Corporate Fiduciary Duties:

Who has the burden of proof in proving a breach of the "Duty of Care" or the "Business Judgment Rule"?
Burden is on the Plaintiff.

- usually the person bringing the action against the Director
Dissenter's Rights:

When do you use "dissenter's rights"?
- when you object to a "fundamental change" in the corporation.
Dissenter's Rights:

What "Right" are you seeking by dissent?

What does that get you?
- "Right of Appraisal"

- The right to force the corporation to buy back your shares at a fair value.
Dissenter's Rights:

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

[S.M.E.A.R.]
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.
Dissenter's Rights:

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

When do you never have dissenter's rights?
- must have the right to vote

- must abstain or vote against

- when the corp. is "publicly traded"
Dissenter's Rights:

In the Right to Appraisal, how and when is "Fair Value" determined?
Fair Value = value of the shares immediately "before" the event occurs.

(or, highest price paid in acquisition).
Shareholder Derivative Suits:

Who must be named as a Defendant in a Derivative suit?
- The Corporation
Shareholder Derivative Suits:

What is a Shareholder Derivative Suit? (4) pieces
1. shareholders,

2. together,

3. suing,

4. to enforce a claim the corporation could have filed itself.
Shareholder Derivative Suits:

What are the three (3) main "policy reasons" for shareholder derivative actions?
1. to avoid numerous lawsuits,

2. to protect and compensate shareholders, and

3. to protect creditors.
Shareholder Derivative Suits:

Four (4) Requirements for a Derivative Suit?

[A.T.V.D.]
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).
What is the "American Rule"?
If it is a "closed corporation"...

Shareholders can file a "direct suit" against it.
When will the "American Rule" NOT be allowed?

(3) instances
1. expose to MULTIPLE LAWSUITS

2. materially PREJUDICE CREDITORS, or

3. cause UNFAIR DISTRIBUTION among parties.
Corporate Opportunity Doctrine:

What is "Corporate Opportunity"
- anything "necessary" to the corporation, or

- anything in the corporation's "line of business"
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?
1. outside the "line of business" and

2. corporation is "unable" or "unwilling" to take it.
Corporate Opportunity Doctrine:

What is not a good defense to a breach of the corporate opportunity doctrine?
financial inability of the corp.
Business Judgment Rule:

What are the three (3) big parts of the Business Judgment Rule?
1. Good Faith

2. Best Interests

3. Liability
Business Judgment Rule:

Good Faith Requirement -

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

(in same or similar circumstances)
Business Judgment Rule:

Under the "Best Interests" requirement, how must the fiduciary act?
In the corporations "best interests"!
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?
1. Willful Misconduct, and

2. Recklessness
Business Judgment Rule:

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

Shareholders, Employees, Customers, Suppliers, Community around them, etc...
Right of Shareholder to Inspect Records:

Records which MUST be delivered upon request?

[A.B.C.D.E.F.S.]
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
Right of Shareholder to Inspect Records:

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

[A.B.C.D.S]
A = ACCOUNTING RECORDS

B = BANK SHAREHOLDER MINUTES

C = COMMITTEE RECORDS

D = DIRECTOR MINUTES

S = SHAREHOLDER LIST
Right of Shareholder to Inspect Records:

Where Must the Records be Kept?

ABCDEFS?

ABCDS?
ABCDEFS? = in Principal Office

ABCDS? = in a Reasonable Place
Right of Shareholder to Inspect Records:

What is a "Proper Purpose" for Requesting ABCDS?
Proper = evaluation for estate tax purposes,

Improper = any "competitive" purpose (like trade secrets).
Right of Shareholder to Inspect Records:

What is the remedy for corporate failure to produce records to shareholder for inspection?
Court order for inspection, and

Attorney's Fees!