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149 Cards in this Set

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Three Basic Requirements for Formation of a Corporation
1. People - Incorporators (humans only)
2. Paper - Certificate of Incorporation
3. Acts - Incorporators must (i) sign Certificate (ii) acknowledge before a notary; (iii) deliver to the NY Dept. of State; (iv) hold meeting in which adopt bylaws and elect Board of Directors
What information must the Certificate of Incorporation contain?
1. Corporation's Name - must contain "corp.," "inc." etc.
2. Corporate Address - county in NY where corporate office located
3. Name and address of each incorporator
4. capital structure
5. statement of purpose
6. designate NY Secretary of State as agent for service of process
What is the Legal Significance of the Formation of a Corporation?
1.Internal affairs governed by NY Law
2. Corporation become separate legal person with separate legal rights
3. Certificate acts as contract between corporation and state and corporation and its shareholders
May a Corporation make political contributions?
Yes, but no more than $5000 per person or organization per year
May a Corporation make charitable contributions?
Yes, no statutory limit. "Irrespective of corporate benefit."
May a Corporation guarantee a loan not in furtherance of the Corporate business?
Yes, if approved by 2/3 of the voting shares.
What is the De Facto Corporation Doctrine?
1. It is thought to be abolished in NY (although a bit of doubt)
2. If there is (i) a relevant incorporation statute; (ii) parties have made a good-faith effort to compy; (iii) parties have made some exercise of corporate privilege then corporation will be treated as a corporation for all purposes except when sued by the State.
What is Corporation by Estoppel?
1. Abolished in NY
2. If dealing with business as a corporation, could be estopped from denying it corporate status
Who Can Adopt By-laws
1. the Incorporators; then
2. ONLY shareholders UNLESS certificate or shareholder-adopted bylaw allows the Board of Directors to do so
Is a Corporation liable on a pre-incorporation contract?
When it adopts the contract either: by
1. Express adoption
2. Implied Adoption - acceptance of benefit from contract by conduct
When a Promoter Liable on a Contract?
Until there is novation, even if the Corporation is also liable
What is the Secret Profit Rule for Promoters?
A promoter cannot make a secret profit in dealings with the corporation; will be forced to disgorge profits
1. If Sale of Property Acquired Before Became a Promoter - Profit equals sale price minus FMV
2. If Property Sold Acquired AFTER Became Promoter - Profit equal sale price minus price originally paid by Promoter
What must Foreign Corporation do if engaged in regular course of intrastate activity in NY?
Qualify.
1. Must Apply to Dept of State
2. Provide the information on its certificate
3. Evidence of good standing
4. Pay a fee
What happens if Foreign Corporation does not qualify when it should?
1. will pay a penalty when does apply
2. cannot sue in NY, but can be sued in NY
Three Basic Requirements for Formation of a Corporation
1. People - Incorporators (humans only)
2. Paper - Certificate of Incorporation
3. Acts - Incorporators must (i) sign Certificate (ii) acknowledge before a notary; (iii) deliver to the NY Dept. of State; (iv) hold meeting in which adopt bylaws and elect Board of Directors
What information must the Certificate of Incorporation contain?
1. Corporation's Name - must contain "corp.," "inc." etc.
2. Corporate Address - county in NY where corporate office located
3. Name and address of each incorporator
4. capital structure
5. statement of purpose
6. designate NY Secretary of State as agent for service of process
7. Duration (optional; if no statement of duration will be perpetual)
What is the Legal Significance of the Formation of a Corporation?
1.Internal affairs governed by NY Law
2. Corporation become separate legal person with separate legal rights
3. Certificate acts as contract between corporation and state and corporation and its shareholders
May a Corporation make political contributions?
Yes, but no more than $5000 per person or organization per year
May a Corporation make charitable contributions?
Yes, no statutory limit. "Irrespective of corporate benefit."
Does a corporation have the power to give guarantees not in futherance of corporate business?
Yes, if approved by 2/3 of the voting shares.
What is the De Facto Corporation Doctrine?
1. It is thought to be abolished in NY (although a bit of doubt)
2. If there is (i) a relevant incorporation statute; (ii) parties have made a good-faith effort to compy; (iii) parties have made some exercise of corporate privilege then corporation will be treated as a corporation for all purposes except when sued by the State.
What is Corporation by Estoppel?
1. Abolished in NY
2. If dealing with business as a corporation, could be estopped from denying it corporate status
Who Can Adopt By-laws
1. the Incorporators; then
2. ONLY shareholders UNLESS certificate or shareholder-adopted bylaw allows the Board of Directors to do so
Is a Corporation liable on a pre-incorporation contract?
When it adopts the contract either: by
1. Express adoption
2. Implied Adoption - acceptance of benefit from contract by conduct
When a Promoter Liable on a Contract?
Until there is novation, even if the Corporation is also liable
What is the Secret Profit Rule for Promoters?
A promoter cannot make a secret profit in dealings with the corporation; will be forced to disgorge profits
1. If Sale of Property Acquired Before Became a Promoter - Profit equals sale price minus FMV
2. If Property Sold Acquired AFTER Became Promoter - Profit equal sale price minus price originally paid by Promoter
What must Foreign Corporation do if engaged in regular course of intrastate activity in NY?
Qualify.
1. Must Apply to Dept of State
2. Provide the information on its certificate
3. Evidence of good standing
4. Pay a fee
What happens if Foreign Corporation does not qualify when it should?
1. will pay a penalty when does apply
2. cannot sue in NY, but can be sued in NY
What is an issuance?
When a corporation sells or trades its own stock.
NOTE: If certificate is silent, a new issuance (such that preemptive rights kick in) will not include sale of shares authorized by the initial certificate and sold within two years of formation OR sale treasury stock.
What is a subscription?
A written, signed offer to buy stock from a corporation.
When is a subscription revocable?
1. Pre-incorporation: irrevocable for 3 months unless says otherwise or subscribers all agree
2. Post-Incorporation: anytime prior to acceptance by the corporation
What are the consequences if a subscriber defaults on payment?
1. If Paid Less than Half the Purchase Price: if has not paid the rest within 30 days after a written demand; the corporation may keep the money and cancel the shares, which become authorized and unissued.
2. If Paid More than Half the Purchase Price: If not paid within 30 days written demand by corp, the corp must try to sell the stock for cash (or promise of cash). If corp gets more than balance due, subscriber gets the excess minus corporation's expenses in resale. If the stocks cannot be resold the shares are cancelled.
What are the proper forms of consideration when a corporation issues stock?
1. money
2. Tangible/intangible property.
3. Service already rendered to the corporation.
4. Promise to pay in the future (by money or property)
5. Promise to perform a service for the corporation in the future having an agreed upon value
What is the amount of consideration necessary for a corporation to issue stock?
1. If par stock: at least the par value
a. If property will serve as consideration, the Board may value it and such valuation is conclusive absent fraud (shareholders ONLY by certificate)
2. If no par stock, the Board sets the price (unless certificate allows shareholders to do so)
What is treasury stock?
Stock previously issued by corporation that has been re-acquired. Can be sold for any price set by the Board absent fraud etc.
What is watered stock?
This is where par stock is issued for less than its value. Corporation can sue for the "water" (lost value).
1. Original Person who bought watered stock is always liable to the corp.
2. Directors are liable if acted in bad faith.
3. Third Party Purchaser will not be liable if acted in good faith.
What are Preemptive Rights?
Rights by a shareholder to maintain her percentage of stock whenever there is a new ISSUANCE of common stock FOR CASH.
Should we assume preemptive rights exist if the certificate is silent?
1. If Corp Formed before Feb. 22, 1998: yes
2. If Corp Formed on or after Feb 22, 1998: NO
How is the number of directors on the Board set?
1. can be set in bylaws; OR
2. by shareholder act (by board only if shareholder act allows)
3. If no number set, there will be one director
Who elects directors and when?
Shareholders at the annual meeting.
Are elections for the Board of Directors necessary every year?
No. Can have classified boards with 2, 3, or four classes of directors and one class elected every year. There must be at least 3 directors per class.
Can a Director be Removed Before the Expiration of Her Term?
1. For Cause:
a. shareholders can always do this.
b. Board ONLY if certificate or bylaws allows.
2. Without Cause:
a. Shareholders ONLY and ONLY IF allowed by certificate
How is a vacancy filled if a director is removed or dies before expiration of her term?
1. Generally, the remaining directors select the person; UNLESS
2. person was removed for cause, in which case only shareholders may choose replacement
How May the Board of Directors Act?
Only in one of two ways:
1. a meeting
2. unanimous written consent of all to take the act
What is a subscription?
A written, signed offer to buy stock from a corporation.
When is a subscription revocable?
1. Pre-incorporation: irrevocable for 3 months unless says otherwise or subscribers all agree
2. Post-Incorporation: anytime prior to acceptance by the corporation
What are the consequences if a subscriber defaults on payment?
1. If Paid Less than Half the Purchase Price: if has not paid the rest within 30 days after a written demand; the corporation may keep the money and cancel the shares, which become authorized and unissued.
2. If Paid More than Half the Purchase Price: If not paid within 30 days written demand by corp, the corp must try to sell the stock for cash (or promise of cash). If corp gets more than balance due, subscriber gets the excess minus corporation's expenses in resale. If the stocks cannot be resold the share shares are cancelled.
What are the proper forms of consideration when a corporation issues stock?
1. money
2. Tangible/intangible property.
3. Service already rendered to the corporation.
4. Promise to pay in the future (by money or property)
5. Promise to perform a service for the corporation in the future having an agreed upon value
What is the amount of consideration necessary for a corporation to issue stock?
1. If par stock: at least the par value
a. If property will serve as consideration, the Board may value it and such valuation is conclusive absent fraud (shareholders ONLY by certificate)
2. If no par stock, the Board sets the price (unless certificate allows shareholders to do so)
What is treasury stock?
Stock previously issued by corporation that has been re-acquired. Can be sold for any price set by the Board absent fraud etc.
What is watered stock?
This is where par stock is issued for less than its value. Corporation can sue for the "water" (lost value).
1. Original Person who bought watered stock is always liable to the corp.
2. Directors are liable if acted in bad faith.
3. Third Party Purchaser will not be liable if acted in good faith.
What are Preemptive Rights?
Rights by a shareholder to maintain her percentage of stock whenever there is a new ISSUANCE of common stock FOR CASH.
Should we assume preemptive rights exist if the certificate is silent?
1. If Corp Formed before Feb. 22, 1998: yes
2. If Corp Formed on or after Feb 22, 1998: NO
How is the number of directors on the Board set?
1. can be set in bylaws; OR
2. by shareholder act (by board only if shareholder act allows)
3. If no number set, there will be one director
Who elects directors and when?
Shareholders at the annual meeting.
Are elections for the Board of Directors necessary every year?
No. Can have classified boards with 2, 3, or four classes of directors and one class elected every year. There must be at least 3 directors per class.
Can a Director be Removed Before the Expiration of Her Term?
1. For Cause:
a. shareholders can always do this.
b. Board ONLY if certificate or bylaws allows.
2. Without Cause:
a. Shareholders ONLY and ONLY IF allowed by certificate or bylaws.
How is a vacancy filled if a director is removed or dies before expiration of her term?
1. Generally, the remaining directors select the person; UNLESS
2. person was removed for cause, in which case only shareholders may choose replacement
How May the Board of Directors Act?
Only in one of two ways:
1. a meeting
2. unanimous written consent of all to take the act
How is Board Compensation Set?
Board may set in any capacity unless certificate or bylaws say otherwise. Compensation must be reasonable and set in good faith or will be waste of corporate assets
When is notice required for a meeting?
Only when special meeting.
What is result if notice not given when required?
Acts at meeting are VOID, UNLESS the director(s) who did not receive notice waive by either:
1. attending the meeting without objection
2. a writing, signed at any time.
May Board members enter into voting agreements or vote by proxy?
No. Against public policy.
What is major requirement for business to be done at a meeting?
Must be a quorum present (majority of entire board).
What part of quorum needed to act?
A majority.
Can a Corporation Decrease the amount of directors needed to make up a quorum?
yes, but ony if certificates or bylaws allow it, and in any case never to less than 1/3 of directors.
Can Corporation decrease the requirement that a majority of the quorum is required to pass a resolution?
NEVER.
Can a Corporation increase the amount of directors required to constitute a quorum?
yes, BY CERTIFICATE ONLY
Can a Corporation require a supermajority to pass a resolution
yes, BY CERTIFICATE ONLY
What is Duty of Care Owed to Corp by Directors?
directors must use the care and skill that an ordinarily prudent person would use in similar circumstances and in like position and must carry out duties in good faith.
How to show breach of duty of care if director committed nonfeasance?
Must show:
1. that ordinarily prudent person would have acted
2. that failure to act caused a loss to the corporation
How to show breach of duty of care where director committed malfeasance?
Courts apply Business Judgment Rule. They will not second-guess a decision if it was made in good faith was reasonably informed, and had a rational basis when made.
What is the Duty of Loyalty Owed by a Director the Corporation?
a director must act in good faith and with the care, diligence, morality, and honesty that the law requires of fiduciaries.
What is an Interested Director Transaction?
Any dealing between corp. and director (or corp. where directors serves on board or has substantial financial interest etc.).
When will an interested director transaction be set aside?
It will be set aside UNLESS:
1. the dealing was fair and reasonable to the corporation when approved
2. The material facts of the deal and the director's interest were disclosed AND it was approved by any of the following:
a. the shareholders
b. Board by suficient vote, not counting interested directors (although they can count towards quorum)
c. unanimous vote of disinterested shares if not enough of them to constitute an act by the Board otherwise
Can a Director engage in competing ventures with the corporation?
Never. The Remedy is a constructive trust for the benefit of the corporation plus any damages the corporation may have suffered for harm caused by the competition.
What is the rule regarding corporate opportunity and directors?
A director may NOT usurp a corporate opportunity. Must offer it to corporation first and wait for corp. to reject it before acting on it. Remedy is a constructive trust.
What is required for a loan of corporate funds to a director or loan to guarantee a director's personal obligations (i.e. improper loans)?
If Corp. was formed on or before Feb 22, 1998: shareholder vote (quorum of disinterested shares) UNLESS certificate allows Board to decide that the loan benefits the corp.
2. If corp formed after Feb 22, 1998: just need Board approval that loan will benefit the corporation.
What law govern improper loans to directors if the corporation is publicly traded?
Sarbanes-Oxley
What happens if the Board makes improper distributions?
Directors liable and corporation can sue for losses
When Board acts improperly, which directors will be held liable?
Liability imputed UNLESS dissent noted (i) in writing in the corporate records (minutes, letter to corporate secretary after meeting, or registered letter to corporation after adjournment)
Exceptions to presumption that director concurred in act of Board.
1. If director was out sick, not liable if registers dissent within reasonable time after learning of act
2. where director acted in good faith reliance on information, opinions etc. by a committee of which not a member, officers or employee of corp believed competent, or lawyers or accountant believed competent
What duties do officers owe the corporation
Same duties of care and loyalty as directors
When can an officer bind the corporation to her acts?
The officer is an agent of the corporation so may bind whenever has agency authority to do so.
How are Officers Elected?
By Board of Directors, UNLESS certificate allows for shareholder election
How are Officers Removed?
1. Generally the Board UNLESS certificate allowed for shareholder election in which case only shareholders can remove.
2. NOTE that Attorney General or 10% of ALL SHARES may sue for a judgment removing an officer for cause
Who sets compensation for officers
Board or CEO
When is Indemnification of an Officer/Director Prohibited?
If held liable to the corporation.
When is there Indemnification as of Right for a Director/Officer by the Corp?
If successful in defending case on the merits OR otherwise
BUT, cannot get fees an expenses in suing the corporation to get this indemnification
What is needed for permissive reimbursement of director/officer?
person acted in good faith AND for purpose reasonably believed to be in the corporation's best interest. Permissible reimbursement may NOT contain judgment amount.
Who determines whether to provide director/officer with permissive reimbursement
The Board where a quorum is the directors who were not parties. If no such quorum:
1. shareholders or quorum of disinterested directors
2. Board pursuant to report from independent counsel
Can the certificate or bylaws provide for indemnification by resolution of the board or shareholders or by agreement?
Yes, unless director acted in bad faith, was dishonest in a material way, or wrongfully profited.
When may a court pierce the corporate veil?
If shareholders have:
1. abused the privilege of incorporating
2. fairness demands that shareholders have liability.
Corporation cannot serve as a cloak for illegality and there cannot be excessive domination to point where corporation is simply alter ego of shareholders.
Note that undercapitalization alone is probably never enough for PCV
Who is liable for wages and benefits of employees in a close corporation?
shareholders are PERSONALLY LIABLE.
When can shareholders manage the corporation?
Must have all of the following:
1. closely held corp (shares not listed on public exchange or regularly quoted over counter and few shareholders)
2. all incorporators or shareholders approve
3. conspicously noted on front and back of all shares
4. all subsequent shareholders have notice
What duty do controlling shareholders owe in a closely held corporation?
Owe a duty of utmost good faith. Must not oppress minority shareholders or use power for personal gain at minority shareholders' expense.
What are characteristics for a Professional Service Corporation?
1. all members (shareholders, directors, officers) must be members of licensed profession.
2. professionals will remain liable for personal malpractice, but not for that of others
3. If one member dies, the Professional Service Corporation must buy the stock
4. Must say P.C. in name
5. Must meet all other requirements for regular corp.
What are requirements for a shareholder to bring a derivative suit against corporation?
1. must be enforcing a right of the corporation
2. must have stock ownership when brough suit and through entry of judgment
3. must first make demand that directors bring suit unless demand would be FUTILE
4. must plead, with particularity, efforts to get Board to sue or reasons why futile
What are results if shareholder brings suit?
1. If Successful - corp gets recovery and S receives costs and attorney's fees.
2. If Unsuccesful: S cannot recover costs/fees and others S barred from bringing suit arising out of same transaction as barred by res judicata
Can a Board bring a motion to dismiss a shareholder derivative suit?
1. Yes, based on finding by independent directors that suit not in corp's best interest.
Can a Director sue for violation of duties to the corporation?
Yes. Can always sue to compel accounting for violation of duties. Does not have to meet shareholder pre-requisites
Can parties/directors settle or dismiss a derivative suit without court approval?
NO
In shareholder votes, who actually votes?
The record owner as of the record date, which must be set no fewer than 10 and no more than 60 days before the meeting.
EXCEPTIONS: (1) corp can't vote treasury stock; (2) death of shareholder; (3) Proxy voter is permitted
What are requirements for a proxy vote for a shareholder?
1. writing
2. signed by shareholder or authorized agent
3. directed to the secretary of the corporation
4. authorizing another to vote shares
Generally (outside voting agreement context), what is the only way to make a proxy irrevocable?
Must do both:
1. proxy must state irrevocable
2. proxy holder must hold some interest in the shares other than voting
What are requirements for a voting trust by shareholders
1. 10 year time limit (renewable 6 mths prior to expiration).
2. written agreement controlling how shares will be voted
3. copy to the corporation
4. transfer of legal title in shares to trustee
5. original shareholders receive voting trust certificates and retain all shareholder rights except voting
What are requirements for a shareholder voting agreement?
1. must be writing & signed

Note that these are not specifically enforceable, although a proxy under this will be irrevocable if says so.

2. cannot make agreements about how will vote AS DIRECTORS
How May Shareholders Act?
1. meeting
2. unanimous, signed consent of all voting shares
Who may call a special meeting of shareholders?
Board or anybody entitled by certificate
When must a special meeting of shareholders be called?
1. Board must call if failure to elect sufficient number of directors to conduct business
2. If Board fails to call for above reason, 10% of all shares may demand in writing that meeting called.
3. If secretary fails to give notice at this point, shareholders may do so.
What are the notice requirements for a special meeting of the shareholders?
1. must state where and when
2. be provided between 60 and 10 days prior to meeting
3. inform shareholders of proposed action and whether it would entitle them to shareholder appraisal rights
4. why it would entitle them to such rights, if it does
5. who called the meeting and purpose of meeting
What happens if there is failure to provide necessary notice for special meeting of shareholders
Acts void unless waiver by:
1. attendance without objection
2. waiver in writing, signed
How do shareholders vote?
Quorum of outstanding shares. Then majority of quorum.
Can shares quorum be reduced to less than a majority?
Yes, if certificate or bylaws permit, and never to below 1/3 of shares
Can requirement of majority approval by shares making up the quorum to take an act be diminished?
NO
Can corporation require a supermajority of shares to constitute a quorum
Yes, but ONLY BY CERTIFICATE
Can corporation require a supermajority voting requirement for shareholder voting?
Yes, ONLY BY CERTIFICATE
How much consideration required for a shareholder to sell stock?
Can sell for any price (not an issuance)
How are stock transfer restrictions set?
In certificate or by-laws or by agreement
When will stock transfer restrictions be upheld?
Generally upheld if reasonable under the circumstances and do not constitute a total restraint on alienation. Rights of first refusal are reasonable so long as the price offered is reasonable.
Can a Stock Transfer Restriction be invoked against a transferee?
Must be reasonable, and even if it is, it will not be enforced if:
1. not conspicuously noted on stock certificate; OR
2. transferee did not have actual knowledge of restriction
What is the Statutory Right of Inspection by Corporate Shareholder
1. Can inspect minutes of shareholder proceedings and record of shareholders on 5 days written notice (corp. can demand an affidavit prior to allowing inspection that requires shareholder to state purpose is not in interest other than corporation's and that, in last 5 years, has not tried to sell a list of the shareholders).
Can a Shareholder inspect corporation's annual balance sheet, profit and loss statement, and latest interim statement?
yes, upon written request. Corporation must provide documents and may do so by mail.
What is a shareholder's common law right of inspection?
can inspect records at reasonable time in proper place for proper purpose. (may be broader than statutory right)
Can directors inspect books and records?
yes, at any time.
What are distributions by the corporation?
These can be:
1. dividends
2. payments to repurchase shares
3. redemption of shares (forced sale at price set in certificate)
Who has discretion to declare distributions?
At Board's discretion. Court will only interfere if done in bad faith or with dishonest purpose.
What funds can be used for a distribution?
Only surplus, which equals assets minus liability minus stated capital
How do we compute stated capital
1. Par stock's par value amount is all stated capital.
2. If common stock, within 60 days of issuance the board can allocate any amount, but not all, to surplus. What is not allocated becomes stated capital.
When is corporation forbidden from making distribution?
when insolvent or distribution would send it into insolvency. Directors will be personally liable for improper distributions.
What actions will trigger a right of appraisal?
First, stock cannot be listed on NASDAQ or National Exchange PLUS
1. certain amendments to the certificate
2. consolidation
3. if your corp is being merged into another
4. if your corp is selling all or substantially all of its assets not in ordinary course of business
5. your corp's shares are acquired in a share exchange
What actions must a shareholder take to perfect his right of appraisal?
1. must file written objection and intent to demand payment before shareholder vote.
2. must abstain from vote or vote against.
3. Must make written demand following vote to be bought out
What constitute major changes to certificate giving rise to appraisal rights (fundamental corporate change)?
1. change of name
2. change of purpose
3. change in duration
4. Increase/decrease of shares or par
5. new classes of stock
6. denial or grant of limitation of preemptive rights
What is required to add major change to certificate?
Board Approval AND majority of shares entitled to vote
What approval is needed for minor changes to certificate?
just board approval.
What else is required besides Bd/shareholder approval where major amendment to certificate?
delivery to department of state for filing
What is required to amend the certificate to (i) change or strike supermajority quorum or voting requirement for director voting; or (ii) strike a provision restricting board authority if certificate is silent?
Board Approval PLUS:
1. If Formed on or before Feb 22, 1998: 2/3 of shares entitled to vote
2. If Formed After Feb 22, 1998: majority of shares entitled to vote
What is required to amend the certificate to (i) change or strike supermajority quorum or voting requirement for shareholder voting; or (ii) strike a provision restricting shareholder authority if certificate is silent?
Board approval plus 2/3 of shares entitled to vote no matter when corporation was formed.
What are requirements for a merger or consolidation?
1. each corporation's board must adopt a plan of merger
2. Shareholder approval by each corp:
a. If corp formed on or before Feb 22, 1998: 2/3 of shares entitled to vote
b. If formed after Feb 22, 1998: majority of shares entitled to vote
3. Rights of appraisal for corp. that will disappear or for both in a consolidation
When is there no need for shareholder approval in a merger?
If it is a "short form" merger where the parent corp. owned 90% or more of each class of stock in the subsidiary that is being merged into parent.
(Note: still rights of appraisal for corp that disappears)
What is the right of appraisal?
The right of a shareholder to force the corporation to buy her shares at fair value
requirements for a transfer of all or substantially all assets not in the ordinary course of business
1. Each corp's BOD authorizes deal.
2. Approval by SELLING corp's shareholders:
a. If corp formed on or before Feb 22, 1998: 2/3 of shares entitled to vote
b. If corp formed after Feb 22, 1998: majority of shares entitled to vote
3. Deliver plan of exchange to Department of State for Filing in share exchange. Where transfer of assets, no such filing required.
4. Appraisal rights for shareholders of selling corp. ONLY
When is there successor liability?
1. Merger or consolidation
2. not in transfer of assets UNLESS deal provides otherwise OR purchasing company mere continuation of seller OR deal was entered into fraudulently to escape liability.
What are requirements for voluntary dissolution?
1. NO BOD approval necessary.
2. If corp formed on or before Feb. 22, 1998: majority of shares entitled to vote must approve
3. If corp formed after Feb. 22, 1998: majority of shares entitled to vote must approve
3. Delivery to Dept. of State for filing
How Can Involuntary Dissolution be accomplished?
1. BOD Resolution or Resolution of Majority of Shares entitled to vote that corp has insufficient assets to discharge liabilities or that dissolution would be beneficial to shareholders
2. Half or more of shares entitled to vote may petition if the Directors are too divided to manage or shareholders are too divided to elect directors or magnitude of internal dissention makes dissolution beneficial
3. any shareholder entitled to vote may petition if shareholders unable to elect directors for more than 2 consecutive meetings
4. twenty percent or more of voting shares in a CLOSELY HELD CORP may petition if either (i) management acting in illegally oppressive of fraudulent manner, i.e. conduct that substantially defeats expectations of the minority shareholder;
(ii) management is wasting, looting, or diverting assets.
When may courts deny dissolution?
Courts may do so if there is another way by which the shareholder(s) can get a fair return, such as a buyout. The Corporation can avoid dissolution if, within 90 days of petition for dissolution, it buys petitioner's shares at a fair value on terms approved by the court.
What are special duties of a controlling shareholder in a public corp?
1. cannot use dominant position at expense of minority shareholders
2. cannot sell controlling interest if sells without reasonable investigation of buyer or sells a corporate asset de facto (may have to disgorge profits)
3. Cannot trade on inside information (corp can recover profit and for any damages incurred, breach of duty.
Are freeze-out mergers ok?
NO. Must have legitimate purpose.
What is the rule regarding special facts?
All directors, officers (probably controlling shareholders) owe duty not to disclose special facts and trade on them.
1. A special fact is one that a reasonable investor would find important to decision to purchase/sell
2. a shareholder with whom Dir/offic breaches duty can sue and recover the difference between the price paid and value of the stock a reasonable time after public disclosure of the fact.