Corporations - Indiana Bar Exam

Front 1

Forming the Corporation:

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

Back 1

1. Incoporators

2. Articles of Incoporations (Name, address, purpose & duration, capital structure - registered office and agent in Indiana)

3. File Articles w Secretary of State

Front 2

Forming the Corporation:

De Facto Corporation: "almost"

Back 2

1. Good faith effort to comply with formation statutes, but some flaw keeps from beinga actual corp.

2. Some exercise of corp power.

3.. Treated as a full corp for all purposes except state action.

Front 3

MEMORIZE!!!!!! essay

STANDARD OF Board of Directors:

"Business Judgement Rule (BJR)"

Back 3

1. Directors must discharge their duties in good faith, with the care of a RPP under similar facts, and in a manner the director reasonably believes to be in the corp's best interest.

2. Insulates directors from liablity UNLESS he failed to perform to the BJR standard AND it constitutes willful misconduct or recklessness.

Front 4

STANDARD OF Board of Directors:

"Business Judgement Rule (BJR)"

DIRECTOR DUTIES: (2)

Back 4

1. Duty of care: Burden on P to prove Director failed to meet the BJR standard.

2. Duty of Loyalty: Burden shifts to D if P establishes:

--a. interested director transaction (remedy transac void at corp option)

--b. competing venture (remedy constructive trust on profits)

--c. usurping corporate opportunity

Front 5

STANDARD OF Board of Directors:

"Business Judgement Rule (BJR)"

DIRECTOR DUTIES: Duty of loyalty: Interested Director Transaction

Back 5

Director must show:

1. deal was fair to the corporation at the time it was entered. OR

2. Director's interest and all relevant facts were fully disclosed and the deal was still approved by the BoD or shareholders.

Front 6

SHAREHOLDER PROTECTION:

"Piercing the Corporate Veil"- PUFFICAP

Back 6

Courts are reluctant to pierce the corporate veil but will do so if the corporate form is ignored, controled, or manipulated so that it is the mere instrumentality of another, and that misuse constitutes fraud or promotes injustice.

1. Public or closed corp?

2. Undercapitalized?

3. Formalities ignored?

4. Fradulent misrepresentation made?

5. Identity of officers/directors/SH?

6. Commingling of funds?

7. Absence of corporate records?

8. Payment of individual obligations?

Front 7

Piercing the Corporate Veil:

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

Back 7

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 8

SHAREHOLDER PROTECTION:

requirments for bringing a DERIVATIVE SUIT (4)

"A.T.V.D."

Back 8

1. Adequate representation

2. Timing: must own shares all time

3. Verified complaint filed

4. Demand made to BoD to bring suit unless futile.

Front 9

SHAREHOLDER PROTECTION:

requirments for bringing a DERIVATIVE SUIT

"American Rule": Direct suit

Back 9

A direct suit, rather than a derivitive, may be brought in close corporations so long as the policy reasons behind derivative suits are met.

(Creditors and shareholders protected, multiple lawsuits avoided)

Front 10

SHAREHOLDER RIGHTS/ BoD Rights

"Distributions" (4)

Back 10

1. BoD may approve if the corporation is financially sound.

2. Must be paid from surplus, not from capital.

3. Within BoD's discretion; they MAY but don't HAVE to make dirstributions just because there;s a surplus.

4. May only be compelled when there is an abuse of discretion AND bad faith or illegal or oppresive conduct (tough std).

Front 11

SHAREHOLDER RIGHTS/ DISSENTER RIGHTS

"Fundamental Corporate Changes that Trigger Dissenter Rights" (6)

Back 11

1. Sale of substantially all assets

2. Merger or consolidation

3. Exchange of shares IF dissenter's shares that are being acquired by another company.

4. Acquisition if the aquirer is accorded voting rights and owns a majority of shares.

5. Rigths otherwise authorized in the Articles, Bylaws, or BoD resolutions.

6. Fundamental changes typically required BoD resolution be passed and apporvall by a majority of shareholders entitled to vote.

Front 12

SHAREHOLDER RIGHTS/ DISSENTER RIGHTS

"Fundamental Corporate Changes that Trigger Dissenter Rights"

SPECIAL NOTES: "Remember"

Back 12

1. Dissenters rights are not available for a publicly-traded company.

2. Remedy is "fair value" immediatly before the funamental change occurred. if no agreement then pettitioning for judicial approval within 60 days of SH demand.

Front 13

DISSOLUTION:

"Who gets the money?"

Back 13

1. Secured creditors

2. unsecured creditors

3. Prefered shareholders

4. Common shareholders

Front 14

LLC's:

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

Back 14

LLC = vicariously liable under agency principles, and

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

Front 15

S-Corp:

How is an S-Corp taxed?

What is the benefit of this type of taxation?

Back 15

- tax is "passed through" to shareholders.

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

Front 16

S-Corp:

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

Back 16

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 17

Corporate Fiduciary Duties:

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

Back 17

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

2. Competing Ventures

3. "Usurping" Corporate Opportunity.

Front 18

Corporate Fiduciary Duties:

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

Back 18

The Defendant.

(usually the director)

Front 19

Corporate Fiduciary Duties:

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

[aka "business judgment rule"]

Back 19

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 20

Dissenter's Rights:

What "Right" are you seeking by dissent?

What does that get you?

Back 20

- "Right of Appraisal"

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

Front 21

Dissenter's Rights:

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

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

Back 21

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 22

Dissenter's Rights:

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

When do you never have dissenter's rights?

Back 22

- must have the right to vote

- must abstain or vote against

- when the corp. is "publicly traded"

Front 23

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 23

1. outside the "line of business" and

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

Front 24

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 24

1. Willful Misconduct, and

2. Recklessness

Front 25

Right of Shareholder to Inspect Records:

Records which MUST be delivered upon request?

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

Back 25

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 26

Right of Shareholder to Inspect Records:

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

[A.B.C.D.S]

Back 26

A = ACCOUNTING RECORDS

B = BANK SHAREHOLDER MINUTES

C = COMMITTEE RECORDS

D = DIRECTOR MINUTES

S = SHAREHOLDER LIST

Front 27

Right of Shareholder to Inspect Records:

Where Must the Records be Kept?

ABCDEFS?

ABCDS?

Back 27

ABCDEFS? = in Principal Office

ABCDS? = in a Reasonable Place

Front 28

Right of Shareholder to Inspect Records:

What is a "Proper Purpose" for Requesting ABCDS?

Back 28

Proper = evaluation for estate tax purposes,

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

Front 29

Right of Shareholder to Inspect Records:

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

Back 29

Court order for inspection, and

Attorney's Fees!