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32 Cards in this Set

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  • Back
Types of corps
1. general business corp
2. close corp
3. foreign cor
4. professional corp
features of general business corp
1. must be organized in compliance with state statute

2. separate legal entity with perpetual existence

3. shareholders that can transfer shares and are usually not held personally liable
Close corporation

1. defined

2. duty of loyalty

3. less harmful alternatives
1.
- small number of shareholders (2-30)

- no ready market for corporate stock (not publicly traded

- substantial majoriyt shareholder participation in managment direction adn operations

2. duty of utmost good faith and loyalty is more stringent than other corps

- offers to purchase shares
from controlling shareholder must apply to minority shareholders

- no misappropriation of goodwill: can't use superior power to cause corp to be dissolved and start new corp with old customers

-- no termination of employment of minority shareholder without legitimate business reason

3. court will weight legitimate business purpose of any corporate action against practicality of less harmful alternatives
Professional corporations
Organized to provide personal services performed by members of profession

1. all members must be licensed to practice profession

2. doesn't shield from personal liability for professional services rendered
Foreign corporation

1. defined
2. reqs
1. formed under law of another jurisdiction

2. Foreign corps doing business in MA must:

- file cert w/ secretary of state w/in 10 days of commencing business in ma
- file report of condition each year
- must have registered agent that is MA resident, domestic corp, foreign corp registered in MA w/ offic ein MA

**doing business in MA:
- own/lease MA real estate
- activity in MA requiring performance of labor
- work on any structure, road in MA

-NOT bank account, meetings, proceedings
when is business treated as corp?
1. de jure corporation (formed in compliance with applicable laws)

2. de facto

3. by estoppel
Requirements for forming a de jure corporation
1. At least one incorporator
- signs and files articles of organization

2. Articles of incorporation
- name w/ corp. incorp. co. or ltd.
- number of shares authorized
- name/address of incorporators

3. supplemental form
- name/address of corp's registered agent
- name/address directors and officers
Corp acting ultra vires

1. defined
2. effect
1.
undertaking activities beyond scope of stated purpose (only if articles of organization have business purpose, but not necessary)

2.
shareholder (enjoin), state (dissolve corp), corp (damages against individ. at fault) may sue
when can corp lend money to director?
1. approved by holders of majority of outstanding voting shares, excluding those of benefiting director

OR

2. board determines that loan benefits corp and specifically approves it.
1. When does corp existence begin?

2. when does de jure corp become operative?
1. when articles submitted to state, found to comply with law, and filed.

2. when organizational mtg to adopt bylaws, elect officers
Reason to incorporate
To avoid personal liability for obligations of business

--available in de jure, de facto corps and corps by estoppel
De facto corp
1. reqs
2. rights
1.
(a) could be legally incorporated under corporate law like MBCA

(b) good faith attempt to comply with state law (colorable compliance)

(c) must act like corporation

**individuals who purport to act on behalf of corp, while knowing it doesn't exist are personally liable

2. all rights and powers of de jure but subject to attack in proceeding by state
Corporation by estoppel
persons who treat an entity as a corporation will be estopped from later claiming that entity was not a corporation

* usually not available in torts cases because not treated as corporation
When no corporate status, who is held liable
Associates held liable as partners under joint and several liability
Piercing the corporate veil defined
shareholders, officers, and directors held personally liable for corporate obligations because

1) corporate formalities ignored

2) corp inadequately capitalized at outset

3) to prevent fraud
Alter ego (ignoring corporate formalities)

1. relevance

2. defined
1. relevant because grounds for piercing corporate veil and holding members liable

2. when shareholders treat assets of corp as their own AND results in basic injustice
Alter Ego grounds for piercing corp veil?

1. one person dominates stock ownership in several corps

2. parent and subsidiary dont' observe formalities of separate corp procedures--eg hold meetings together, have overlapping directors

3. shareholders mix their financies with copr, fail to hold meetings and issue stock
1. corps will not be responsible for others on this ground alone

2. yes, alter ego grounds for piercing coproate veil

3. yes alter ego
Adequate capitalization

1. defined

2. why relevant
1. unencumbered capital reasonably adequate for its prospective liabilities
--insolvency may be indicator

2. relevant bc failure of shareholders to adequately capitalize corp at outset is grounds for piercing corp veil
Piercing of corporate veil based on need to prevent fraud
When shareholder uses corps to avoid personal liability
AND
engages in other unequitable acts

e.g. to avoid covenant not to compete
Liability when corporate shield pierced
1. people active in management or operation of business will be held personally liable under theory of joint and several liability

2.
Who may pierce corp veil?
Often creditors and tort victims

Rarely contract cases and shareholders--they have chose to deal wiht corporation and had chance to investigate
Where does corporate capital come from?
Securities

1. debt securities: debt security holder had no ownership interest
- mortgage: secured
- debenture: unsecured

2. equity securities: becomes part owner of business as shareholder
authorized shares
shares described in corps articles
- corp can't sell more than authorized
Issued and outstanding shares
shares that have been sold to investors
what are shares called that are reacquired by corp?
revert from issued and outstanding shares

to authorized shares
common shares
when only one type of shares giving each shareholder an equal ownerhisp right

- no classes, or series within a class
Requirements for having classes of stock
1. articles must prescribe shares for each class and name them
2. desciberights preferences and limitations
blank stock
directors may reclassify unissued shares into shares of a different class or series

Shares subject to this power are blank stock
1. fractional shares

2. scrip
1.
certs representing fractions of shares

holders have rights of shareholders

2.
entitles holder to full share on surrendering enough scrip

don't have rights of shareholder unless provided in scrip
Subscription agreement
offer to purchase shares from corp
Preincorporation subscriptions

1. defined
2. rules
1. offer to purchase shares from corp

2.
- irrevocable by subscriber for 6 mths from date of subscribption or unless consent

- payable on demand from directors (when demand from all subscription holders) unless otherwise provided

- if no payment w/in 20 days of demand, corp may effect rescission or forfeiture
Consideration requirements for stock
1. any tangible or intangible property or benefit to corp

2. Board can make conclusive good faith determination of what consideration is adequate. No par value approach.

3. Articles of org can give par value for consideration. Only effective if specifically state that shares can't be sold for less than par. E.g. "the shares shall have a par value of 10 and may not be sold for less than par"