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126 Cards in this Set
- Front
- Back
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DGCL?
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Delaware General Corporation Law
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Hierarchy of authorities over a corporation?
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1. DGCL
2. Certificate of Incorporation 3. Bylaws 4. Equity (judge-made law; what's fair under the circumstances) Cert. of Inc. and Bylaws cannot conflict with DGCL. |
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Duties of directors?
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owe a fiduciary duty to corporation and to all shareholders
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duties of majority stockholder
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(owes 50.1%+ of stock)
owes a fiduciary duty to corporation and minority stockholders |
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duties of controlling stockholder?
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owes fiduciary duties to other shareholders and to the corporation IF THEY EXERCISE CONTROL
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duties of parent corporation?
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Parent stockholder is a majority stockholder or a controlling stockholder; owes fiduciary duties to subsidiary corporation and shareholders.
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How to form a corporation?
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1. Reserve name w/ DE Sec. of State
2. File Certificate of Incorporation 3. Adoption (/amendment) of bylaws. 4. Appointment of Initial Bd. of Directors 5. Organizational Meeting |
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Ways to reserve name with DE Secretary of State?
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phone call
written request online |
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How long is request to reserve name w/ DE Sec. of State good for?
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30 days; can be renewed for an additional 30 days
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Requirements for name?
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Name must distinguish it from other corporations or entities, except with written consent from other entity.
Must include one of the following words: association company corporation club foundation fund incorporated institute society union syndicate limited OR AN ABBREVIATION *may be waived by DE Sec. of State for corps w/ over $10mm in assets |
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Who can be an incorporator?
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a natural person or an entity
no citizenship requirement |
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Who and how to file the Certificate of Incorporation?
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Filed by the incorporator with the secretary of state.
Must be executed, acknowledged, filed and recorded. |
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Who can adopt and amend the bylaws?
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1. incorporator
2. initial board of directors before consideration for stock is received 3. board of directors certificate provides 4. stockholders, after payment for stock is received |
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Who / how appoint the initial board of directors?
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the incorporator appoints via:
1. certificate of incorporation or 2. incorporator's statement |
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Purpose of the organizational meeting?
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1. adopting bylaws
2. electing directors 3. electing officers 4. doing other organizational acts, authorizing bank accounts, etc. 5. other business |
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Required notice for the organizational meeting?
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-at least 2 days
-in writing that states time, place, purpose -to each incorporator and director -need not be given to anyone who attends or who signs waiver |
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Is the organizational meeting required?
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may be avoided if incorporator or directors sign instrument stating action taken
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What is required to be in the certificate of incorporation?
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Required contents:
1. name of corporation 2. Name and address of registered agent in DE 3. Nature of business 4. Capitalization 5. Name and address of incorporator 6. Name and address of initial BOD if incorporator's powers will terminate on filing of Cert of Inc. |
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Certificate of Incorporation and contract law?
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k interpretation rules apply to cert. of inc.; whatever powers are granted are contractual rigths
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What happens if the registered agent of the corporation resigns / is no longer the agent?
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30 days to appoint successor or risk forfeiture of charter; file an amendment to the cert of inc.
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Nature of business as listed in the certificate of incorporation?
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usually:
the corporation will engage in any lawful activity for which a corporation may be formed under the DGCL *can't engage in banking or issue honorary / academic degrees |
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Capitalization as in the Certificate of Incorporation?
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1. number of shares to be authorized
2. classes of stock and series within classes to be authorized 3. par value of each class of stock or a statement that they are to be without par 4. may grant board authority ability to file cert. of designations to grant more stock that is not authorized ("blank check preferred" - allows directors to issue preferred stock at their discretion) |
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Permissible provisions that may be in the certificate of incorporation?
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1. any provision governing management of the business or conduct of the affairs of the corporation
2. Ct. supervision of compromise between corp. and creditors 3. grant of preemptive rights of SH to subscribe to new issuances of shares 4. supermajority vote for SH voting 5. grant of power to BOD to adopt, amend, or repeal bylaws 6. provision limiting / eliminating BOD's monetary damages for braech of duty of care to corp or SHs 7. any other provision that could be in the bylaws 8. provision limiting duration of the corporation |
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In cert of inc:
provisions governing management of the business or conduct of the affairs of the corporation? |
THESE CAN'T BE IN THE BYLAWS; MUST BE IN THE CERT OF INC, IF AT ALL:
1. cumulative voting 2. classified / staggered board (may be in bylaws, but then can be changed) 3. elimination of SH ability to act by written consent that is normally in the certificate of incorporation (not the bylaws) 4. full, limited, or no voting power for class 5. right of one class to elect one or more directors (usually for preferred if dividends are in arrears) 6. granting director more / less voting power |
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Cumulative Voting?
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voting by taking shares, multiplying by open votes, and voting all shares for one or more directors
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Preemptive rights?
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must be in cert of inc, if at all:
gives SH opportunity to purchase additional shares such that their ownership % won't be diluted if new stock is issued |
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Grant of Power to BOD to adopt, amend, or repeal bylaws?
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Must be in certificate of incorporation, if at all.
But, power can't be taken away from SH. |
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What if certificate only has the "minimum requirements"?
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this means none of the permissive provisions are in it.
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Provision limiting / eliminating BOD's monetary damages for breach of duty of care to corp. SHs?
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This is permissible in the certificate of incorporation uner DGCL 102(b)(7). But, can't limit / eliminate liability for:
-breach of duty of loyalty (duty of care is only duty limited) -acts / omissions NOT in good faith -unlawful payments of dividends or stock repurchases (duty not to impair capital) -transaction from which the director receives an improper benefit 102(b)(7) re: duty of care is the fullest extent DE law allows the limitation of fiduciary duty *only gross negligence causing financial / monetary damages violates the duty of care |
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Effective date of the corporation?
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from the date of filing with the DE Sec. of State
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What's the corporate charter?
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another name for certificate of incorporation
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Corrections to the certificate of incorporation?
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may be filed w/ Sec of State and will be retroactive to the original date of filing except for as to anyone who adversely relied upon the incorrect version (then effective on correction filing date)
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BOD Powers w/ respect to bylaws?
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If cert of inc is silent, then BOD has no authority to amend bylaws.
A right for BOD to amend / adopt bylaws must be in cert of inc. Even if given right to amend, appeal, adopt, bylaws, can never remove right from SH. |
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Amendment of the Certificate of Incorporation?
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BOD first passes or approved amendment, and then an absolute majority (50% +1) of ALL share entitled to vote must approve it.
EXCEPTION: SH need not approve if: corp hasn't received payment for shares or corp has no capital stock |
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When is a majority vote of all outstanding shares required?
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50% + 1 of all outstanding stock must be voted to approve:
1. amendment to the certificate of incorporation 2. mergers 3. dissolution 4. sale of all or substantially all of the assets of the corporation (fundamental transactions) |
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How to adopt the bylaws?
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incorporator
stockholders BOD (if specifically authorized to do so in the cert. of inc) |
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What goes in the bylaws?
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may contain any provision not inconsistent with the certificate of incorporation or the DGCL
if there is a conflict, that bylaw provision is void |
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Examples of typical bylaw provisions?
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Indemnification
Officers and responsibilities No. of directors BOD committees notice provisions for meetings of stockholders and directors Record Date Authority to call meetings (quorum provisions) How elections conducted |
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How to amend bylaws?
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1. SH may do at annual meeting or a special meeting called for the purpose of amending the bylaws
or may amend by written consent (UNLESS power to amend by written consent was removed by the Certificate of Incorporation) 2. Directors may only amend if given that right in the Cert. of Inc. |
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When are bylaw amendments affective?
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stated time in amendment
or immediately if no stated time |
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Role of stockholders?
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control the corporation indirectly by electing directors and votes on major transactions and bylaw and certificate amendments
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E-Meeting?
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Annual meeting can be entirely held by electronic communication provided that there are procedures and guidelines that allow the SHs to participate and vote at the meeting. Board has discretion to have e-meetings.
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Annual Meeting
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Must be held every 13 months to elect directors and transact other proper business
If no meeting held after 13 months, then SH may petition Chancery Court to compel a meeting |
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Can you avoid an annual meeting by written consent?
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Yes, but must receive written consent so usually only a wholly-owned corporation will do this.
Or - have a written consent that elects the directors, but must be by 50% + 1. |
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What if you don't have an annual meeting?
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if more than 13 months passes w/out an annual meeting, then can petition chancery court.
court will order meeting at timing of its discretion |
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Who can call a special stockholder meeting?
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1. BOD
2. Others authorized to call in cert of inc or bylaws. (SH only can if in cert of inc or bylaws) |
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Proxy?
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giving voting authority to another
valid for 3 years unless revoked (presumed to be revocable); irrevocable if writing so states and if it is coupled e/ an interest Proxies can have all powers or limited powers of stockholder. |
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Requirements for a meeting?
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1. proper notice and
2. quorum present |
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What if two proxies are submitted?
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later one controls
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Review of contested election of directors?
Review of vote of stockholders at a meeting? |
Review of contested election of directors? Person running for position or SH has standing to bring claim.
Review of vote of stockholders at a meeting? Only SH can bring a claim. |
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Notice requirements for a mtg of SH?
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1. Must be in writing (or email if the SH consented to email notice)
2. time, date and place + purpose if a special meeting 3. not less than 10 days and not more than 60 days before the meeting unless the cert of inc. says otherwise (*must give 20 days notice for vote on merger or sale of all assets) |
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Exceptions to the notice of mtg. of SH requirement?
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1. if would be unlawful
2. prior communications were returned undelivered |
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Waiver of notice of SH meeting?
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May waive:
1. in writing before or after meeting OR 2. attendance at meeting constitutes a waiver UNLESS presence at the beginning of teh meeting is solely to object to meeting not being lawfully called or convened (this person's attendance wouldn't count towards quorum) |
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What if notice of meeting of SH is defective?
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the meeting is void
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How to adjourn a meeting of SH?
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new written notice required if mtg adjourned for more than 30 days
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Quorum?
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Min. # of SH that must attend a mtg
a majority of shares, unless otherwise provided in bylaws or cert of inc, BUT NEVER LESS THAN 1/3 OF SHARES ENTITLED TO VOTE |
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Votes required for election of directors? Other matters?
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DIRECTORS - Absent specific provisions in cert of inc or bylaws: need a plurality of shares present or present by proxy (plurality = one more than the other guy)
OTHER MATTERS - votes from a majority of shares present or represented by proxy UNLESS required to have super-majority |
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A class vote?
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Majority of all outstanding shares needed for a quorum; majority of those present decide
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Who gets to vote?
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the record owner of the stock on the record date or their proxy
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How do you vote?
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ballot or proxy
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How many votes are there?
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usually one vote per share, unless otherwise in cert of incorporation
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Voting Trust?
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An agreement filed w/ the corporation by which SHs separate voting rights from other ownership rights and confer the voting rights on a trustee to gain voting control. Not effective unless it is filed with the corporation.
1. separates voting rights from other ownership rights 2. irrevocable for set pd of time 3. primary purpose is to gain voting control of the corp |
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voting of jointly held shares?
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if one votes, his actions bind all
if more than one votes, majority binds all if split vote, vote may be proportionate or upon petition to Chancery, court may appoint one to vote to create majority |
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Voting Agreements
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agreement between SHs to vote shares a specified way
-no separation of voting and ownership rights -NOT required to file with corporation |
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Record Date for voting; record date for notice?
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Determines who is entitled to vote at the meeting v. who will get notice. Can be different days.
If no record date fixed by board, record date for who gets to vote shall be the same as for who gets notice. persons who acquire stock after the record date for voting cannot vote |
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Record date for dividends or other distributions?
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If fixed by board:
-can't be before date of the resolution fixing the date -may not be more than 60 days before distribution -if not date fixed, record date is date of board resolution approving distribution |
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How to give written consent?
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any action that can be done at a meeting can be done by written consent unless removed in certificate of incorporation
written consent can be expressed on 1. paper 2. telegram / cablegram 3. other electronic transmission *"e-consent" is not effective until printed and delivered to the company, unless the board approves e-consents |
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What is the vote requirement for written consent?
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the same number as it would be if all shares showed up to vote at the meeting (50% + 1), unless its a super-majority vote
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Who deliver written consent to?
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1. registered agent in DE
2. principal place of business 3. agent or officer having custody of minutes of stockholder meetings |
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Record date for written consents
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1. may not be before or more than 10 days after the date one which the board passes the resolution fixing the record date (applies when consent process is started by the board)
2. if none set, then on the date when first signed consent is delivered to the corp. (applies if consent process started by stockholder) 3. if none set and some prior action by board is required, record date is day on which directors adopt resolution taking such action 4. after first consent delivered, board may not set a record date |
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How long is record consent good for?
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60 days from delivery of first consent - if you don't win the vote w/in 60 days of delivery of the first consent, you lose
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Who manages the corporation?
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DGCL SECTION 141!
The business and affairs of every DE corporation shall be managed by or under the direction of a board of directors. ALWAYS STATE ON EXAM |
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Who can be a board member?
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Natural persons.
Requirements can be in the cert of inc or bylaws. |
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Number of board members?
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at least 1
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How do directors get on the board?
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1. Cert. of Inc. may contain names and addresses of persons who are to serve as the directors until the first annual meeting of stockholders.
2. At organizational meeting, incorporator may elect "..." 3. Stockholders elect at annual meeting |
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How long do you serve as a director?
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until successor is elected and qualified or until replaced, resignation, removal or retirement.
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Classified board?
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better to have in cert of inc. because is more protected there; but can also have in bylaws
usually there are three classes with each class serving for 3 years |
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Cumulative voting?
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Must be provided for in the certificate of incorporation
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Removal of a director?
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must be done by the SH
can be at annual meeting or special meeting called for the purpose of removing that director If it's a classified board, then can only be removed for cause. Otherwise, can remove with or without cause (unless the cert of inc says otherwise). |
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Vacancies on BOD?
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Board appoints someone to serve until successor is elected and qualified; majority of BOD don't need to be there.
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The business and affairs of every DE corporation shall be managed by or under the direction of a BOD.
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Section 141
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How can the BOD act?
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1. meetings (DGCL wants the BOD to have meetings)
2. written consent - must be unanimous to act by written consent (reflects desire for BOD to have meetings) |
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Requirements for BOD to hold a meeting?
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1. Notice
2. Quorum |
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Must BOD meetings be held in person?
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preference for face to face, but permissible to do by phone
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Necessary votes for BOD to pass something?
Proxies? Quorum? |
No proxies. Must have majority of directors present vote in favor in most cases.
Quorum est. same as for meeting of SH (1/2 unless otherwise in Cert or Bylaws, but no less than 1/3) |
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Proper notice of BOD Meeting?
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Requirements in the bylaws.
Notice must be given to all directors - electronic notice okay. Director may not willfully refuse notice. |
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BOD Meeting W/out Proper Notice?
Waiver of notice? Who can challenge validity of actions? |
actions at meeting held without proper notice are invalid; validity of actions can be challenged by director or SH
defects in notice can be waived in writing or can be waived by attending meeting for purpose other than objecting to meeting |
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May bylaws require presence of a certain number of directors at BOD meeting?
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yes, quorum requirement may even be all directors
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BOD Meeting:
what happens if a director leaves the meeting and quorum is lost? |
action taken after he leaves but ratified later may be valid
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BOD - consent in writing?
how to give consent? |
may take action by unanimous consent in writing in lieu of meeting UNLESS otherwise stated in bylaws or cert of inc
consent may be on paper or e-transmission; mus sign the consent at time they consent |
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voting on BOD?
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1 vote per director unless otherwise provided in bylaws or cert of inc
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Delegation of BOD responsibilities to committees?
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directors can delegate its responsibilities to others in the form of committees if it chooses
there must be a specific delegation of authority to the committee committees and its authorities often in bylaws |
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Examples of common BOD committees?
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executive committee
audit / SOX committee compensation committee nominating committee special litigation committee independent committees |
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Composition of committees?
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may consist of 1 or more directors
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What powers may be delegated by the BOD to a committee?
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Broad power to delegate, but can't take actions prohibited by statute or actions that require full BOD, such as:
-vote to amend certificate -adopt merger agreement -recommend to SH a sale of all or substantially all the assets -dissolve company -amend bylaws -declare dividends, issuance of stock -anythng involving taking $ out of corporation or big deal transactions |
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Subcommittees of BOD committees?
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A committee may form a subcommittee which consists of one or more members of the committee and may delegate to the subcommittee any or all of the powers and authority of the committee
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BOD delegation to officers?
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delegation of the management to officers is permitted, but the BOD retains oversight responsibility
the BOD must take steps to see officers are properly managing the corporation's business and affairs |
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how can BOD appoint officers?
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the board may appoint officers as set forth in the bylaws or by board resolution
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Outside experts?
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The board may delegate extensive responsibility to outside experts.
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Board's duty to seek out wrongdoing?
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Board doesn't have an obligation to seek out corporate wrongdoing, but does have obligation to put in information and reporting systems to ensure the corporation is complying with the law in its business performance.
Directors are entitled to rely on the honesty and integrity of subordinates until something occurs to make them suspect something is wrong. Sustained or systematic failure of BOD to exercise oversight can be basis of finding of lack of good faith - liability. |
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Record Date
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Record date = owners on the record date get to vote
The new change in law allows the notice date to be different than the record date. |
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Types of merger?
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1. Long form
2. Short form in both, one company is merged into another |
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Process for a Long form merger?
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1. Board must approve merger agreement in advance.
2. SH get 20 - 60 days notice of meeting 3. vote is majority of outstanding shares of target (and of surviving if will require change to art of inc) 4. if approved corporation files certificate of merger or consolidation OR the merger agreement w/ sec of state |
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Process for a Short Form Merger?
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1. parent corp or stockholder owns 90% of corp
2. BOD or Parent adopts resolution (SUBSIDIARY BOD don't get vote 3. no vote of the SH 4. Cert. of ownership and merger filed and recorded *parent SH has duty to provide adequate info to minority SH so minority SH can determine whether to demand appraisal BOD of subsidiary corp can't do anything to stop it |
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Sale of Assets - procedure?
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Corp that proposes to sell all or substantially all of assets:
1. BOD approval 2. SH vote: majority of outstanding SH approval; 20-60 days notice *no appraisal right |
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Sale of substantially all the assets of a subsidiary?
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may possibly be considered a sale of substantially all the assets of the parent and require a SH vote
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Fiduciary Duties of Directors, Majority SHs, Controlling SHs
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Fiduciary Duty is made up of:
1. DUTY OF CARE 2. DUTY OF LOYALTY 2a. duty of good faith Duty of good faith is a subsidiary element of duty of loyalty. |
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Duty of Care?
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Directors have a duty to act on an informed basis:
1. duty to exercise care in the decision making process (i.e. on an informed basis) 2. duty to exercise care in all other aspects (i.e. delegation and oversight) uninformed action will violate this duty - a violation if grossly negligent |
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Standard for breach of duty of care?
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Gross Negligence
directors MUST consider all material information reasonably availabel AND decision making is actionable only if grossly negligent *always note that analysis of violation only applies if person was grossly negligent |
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Directors' entitlement to information?
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directors are statutorily entitled to information about their corporation - including to inspect the corporation's books and records that are reasonably related to the role as director of the corporation
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If transaction shown to be breach of duty of care?
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directors must show the transaction was entirely fair to the corporation
(i.e. if its shown there was a breach of duty of care, then business judgment rule presumption is overcome and and BOD is prima facie liable - burden shifts to BOD to show the transaction was entirely fair to the corporation) |
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Breach of duty of care and 102(b)(7)?
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if the cert. of inc. contains a 102(b)(7) provision, then the corp can exculpate directors from PERSONAL liability (it won't stop an injunction against the BOD's actions)
bars personal liability for monetary damages for breach of duty of care THIS CAN BE ASSERTED IN A MOTION TO DISMISS IN AN ACTION WHERE SHs ARE SEEKING PERSONAL DAMAGES FROM DIRECTOR |
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102(B)(7) provision and officers?
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only applies to directors - not officers
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Duty of Loyalty?
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Directors' duty to act in the best interest of the corporation and to put the corporation's interests over their own personal interest.
BOD and SHs that own a majority interest OR exercise actual control over corporation's business affairs owe duty of loyalty to minority SH (all SHs in case of BOD) AND to corporation. |
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When is duty of loyalty implicated?
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When director or majority / controlling SH has substantial self-interest that is inconsistent with the interests of the corp. or SHs.
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Duty of loyalty - standard of review?
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Entire fairness standard is applied when there is self dealing or a lack of independent judgment.
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Duty of loyalty and self dealing?
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Under the entire fairness standard, self-dealing is not per se prohibited:
directors cannot self-deal for personal gain at the expense of the corporation unless the transaction must be entirely fair. |
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Duty of loyalty and compensation of directors? stock options?
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directors may set their own salaries in any form, BUT salary must be reasonable in relation to the value of services provided. Factors considered:
-salary of other similarly situated directors -ability / performance -IRS guidelines -amt previously received -comparison to what company pays other employees Stock options as salary? courts consider value of consideration and whether plan is reasonably calculated to insure corporation will receive benefits contemplated |
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Duty of Loyalty - corporate opportunities?
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BOD, Officers, Controlling SH may not take business opportunities which rightfully belong to the corporation. Opportunity belongs to the corporation if:
1. corporation is financially ABLE to take the opportunity 2. opportunity is in the corporation's SAME line of BUSINESS and would be a practical advantage 3. corporation has an interest / reasonable EXPECTATION of the opportunity OR 4. by taking opportunity, director will be placed in CONFLICT with duties to corp. |
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Duty of Loyalty - when may director take opportunity?
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1. opportunity is presented to director in PERSONAL, not corporate capacity
2. opportunity is NOT ESSENTIAL to the corp. 3. corp. has no interest / NO EXPECTANCY in opportunity OR 4. director has not wrongfully employed resources in EXPLOITING the opportunity |
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Easiest way to deal with corporate opportunity and duty of loyalty situation?
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Presentment - if unsure whether can take opportunity, may present to to the board for their opinion.
Then remove self from discussion. If board, independent from you, can decide to let you take the opportunity and you won't be subject to an after the fact finding that you violated your duty of loyalty. |
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Safe harbor statute?
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SECTION 144 OF THE DGCL
Interested director transaction won't be considered void or voidable if brought before the board if: 1. approved by a majority of fully informed disinterested directors, even if less than a quorum. 2. approved by a majority of fully informed disinterested SH 3. contract or transaction is shown to be fair to the corporation (this is the most difficult to show) Ct. will then review the transaction under the business judgment rule. |
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Duty of Good Faith?
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Is subsumed within the duty of loyalty. STONE V RITTER
Bad faith will be shown where: 1. subjective bad faith - motivated by an actual intent to do harm OR 2. directors failed to act where there was a known duty to act, thereby demonstrating a conscious disregard of their responsibilities If alleged breach of duty of good faith is a failure in oversight responsibilities, must show: 1. directors failed to implement reporting system or 2. failed to monitor system so not informed |
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Duty of Candor / Duty of Disclosure
When applies? |
duty of disclosure based on a materiality standard - flows from the duty of care and duty of loyalty
Directors must exercise this duty when communicating publicly or directly with SHs about the corporation's affairs. |
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Duty of Candor / Duty of Disclosure standard?
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Materiality Standard - material facts are those for which there is a substantial likelihood that a reasonable person would consider them important in deciding how to vote (or tender, or demand appraisal). Directors required to be honest when:
1. public statements made to the market 2. statements about the corp to SH w/out a request for SH action 3. statements to SH in connection with a proposed SH action |
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Breach of duty of candor / disclosure and 102(b)(7) provision in Certificate of Incorporation?
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If can show duty of candor / disclosure violation flows from duty of care, then can avoid personal liability.
If can show it flows completely from duty of loyalty, then 102(b)(7) protection wouldn't apply. |
