Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
47 Cards in this Set
- Front
- Back
|
What is a derivative suit and how can one be filed?
|
Suit brought by a shareholder on behalf of the corporation to redress a wrong the corporation has suffered.
1. Shareholder must have owned shares in the corporation when the challenged act occurred, or acquired them by operation of law (e.g. inheritance or divorce) from someone who did. ("contemporaneous owner") 2. Before instituting a derivative suit, a shareholder must make a demand on the board to take suitable action, and wait 90 days for a response. |
|
|
What is a close corporation?
|
It has few shareholders and stock is not public ally traded. In a close corporation, management can be set up differently from an ordinary corporation. A close corporation can have a BOD, but don't have to have one. Shareholders can take over management or it can be vested in a particular person.
To change the management in a close corporation, the SHAREHOLDERS AGREEMENT must authorize the change (in writing and approved by ALL shareholders. (all stockholders should get a copy of the agreement, but if they don't it doesn't affect the validity). Once the corp starts operating under the agreement, i t files with the SOS a STATEMENT OF OPERATION. Managing shareholders do NOT have the duties of care and loyalty as a matter of law, BUT a court could find a fiduciary duty depending on the facts provided. **could be tested (court could pierce the corporate veil and hold shareholders personally liable if they have abused the privelege of incorporating and 2) limiting liability would be unfair (prevent fraud and achieve equity) |
|
|
How do you form a corporation and a close corporation?
|
Same for both except the COF has "this is a close corporation"
1. Certificate of Formation (includes names and addresses of corporation, organizer, initial directors, corporate agent, a statement of purpose, corporate structure (stock). 2. Organizers sign the certificate ad deliver to SOS who files it and sends acknowledgement. 3. Board holds organizational meetings to select officers, adopt bylaws and conduct other company business. (don't have to have mtg in Texas) |
|
|
What are the benefits of a close corporation?
|
Increased flexibility and informality. May limit authority, or eliminate altogether the BOD and run like a partnership as provided by the COF or shareholder's agreement. Don't have to adopt bylaws if provisions required to be contained in the bylaws are contained in the COF or SA.
|
|
|
General Partnership
|
1. easy and inexpensive
2. formed by agreement 3. no filingn or insurance is required 4. flexible (can determine by agreement how to manage on most matters) 5. not subject to federal income tax, so it will likely owe less tax than if incorporated 6. BAD THING: partners are personally liable (jointly and severely) for firm obligations |
|
|
Limited Liability Partnership (LLP)
|
Offers the same benefits of GP, PLUS, partners are not personally liable for firm obligations (with few narrow exceptions for torts).
Only BAD THING are the required formalities and added expense. Must file a COF with SOS and pay fee. Must also maintain $100,000 in insurance (or segregate), and must maintain a registered agent/registered office. |
|
|
Limited Liability Company (LLC)
|
1. Members not liable for firm debts
2. Not required to buy insurance 3. Does not pay income tax unless it opts to be taxed like a corporation. BAD THING: Increased formality. Also must file COF with SOS and have registered agent/office. All of these types of businesses must designate in the title the words or abbreviation of the type of org. |
|
|
Continuing a partnership corporation past the dissolution date in the Partnership Agreement
|
-may avoid dissolution by unanimously agreeing to continue the business
-if no express agreement, continuation of the business for 90 days without settlement or objection from a partner is prima facie evidence of an agreement to continue the partnership. |
|
|
How do you wind up a partnership:
|
1. partners must stop carrying on the partnership's business
2. collect and sell the partnership property 3. perform any other act required to wind up partnership business and affairs. |
|
|
Who's debt is discharged first in its obligations to creditors and creditor partners?
|
1. All creditors (including creditor partners get a shared and will divide pro rate if not enough partnership funds. The shortfall must be paid by the partners personally. If one partner does not have enough personal funds, the other partners must make up for the money (then those partners can recover from partner whom they had to cover). If there IS money left over, the partners can get back their capital contributions.
Joint and several liability - must first serve process. |
|
|
Can a shareholder be personally liable for a corporations's actions?
|
Generally, no. But a court may pierce the corporate veil (PCV) if the corporation is used as a sham or to perpetuate fraud. PCV claims are by law (TBOC), limited only to ACTUAL FRAUD in contract cases.
|
|
|
Can an officer be personally liable for a corporations's actions?
|
Generally no, but under the TX PCV statute can hold officer liable based on the circumstances and WITHOUT ACTUAL FRAUD.
Officer cannot use corporate funds/assets as his own. Under, ALTER EGO, may PCV, and treat officer's assets as they are the corporations assets. |
|
|
Who has preemptive rights in the shares of a TX corporation?
|
No one unless the COF states otherwise.
|
|
|
Can you revoke a waiver of preemptive rights?
|
TBOC provides that a written waiver of preemptive rights is irrevocable. (says nothing about oral waivers)
|
|
|
Do preemptive rights apply to all newly issued shares?
|
Unless COF states otherwise, preemptive rights exist only with respect to the general public, and not those issued as compensation to an officer or for consideration other than money. Can only take up to the percentage a shareholder already owns. e.g. if own 20% of shares, have preemptive rights to 20%
|
|
|
Can a shareholder make the corporation pay him for his shares. Called appraisal rights.
|
Shareholders of a corporation that is party to a merger can assert appraisal rights unless the shares are publicly traded or are part of a class held of record by more than 2000 shareholders.
Appraisal rights let a shareholder who dissents from a merger demand that the corporation pay hin the fair value of his shares. Steps include: 1. shareholder must notify the corporation before the special shareholders' meeting of his dissent from the merger, 2. demand that the corporation pay him the fair value of his shares (notice must specify the number of shares owned and an estimate of their fair value) 3. Shareholder must vote against the merger 4. Shareholder must submit his shares to the corporation no more than 20 days after the date on which he made his initial demand. |
|
|
How can you tell if the property belongs to partnership (and not the partner)
|
Property acquired in the name of one or more partners is partnership property if the instrument transferring title indicates the person's capacity a a partner or the existence of a partnership.
|
|
|
How can you tell if property acquired in the name of one or more partner's is the partner's personal property?
|
If the instrument transferring title does not indicate the person's capacity as a partner or the partnership's existence, AND it is not acquired with partnership funds. THIS IS THE PRESUMPTION
|
|
|
Presumption of Partnership property exists if...
|
purchased with partnership funds, regardless of the name in which it was acquired.
|
|
|
Can a partner use partnership property for personal purposes?
|
No, a partner's duty of loyalty includes holding for the partnership any profit derived from his use of its property. Also can't compete with partnership under this duty of loyalty.
|
|
|
When is a partnership bound by a partner's acts?
|
A partner's act binds the partnership if the act is apparently for carrying on in the ordinary course the business of the partnership, and the partners are each jointly and severally liable, after partnership assets are exhausted for the debts of the partnership.
Exception is when a partner does not have authority to bind the partnership and the person with whom the partner is dealing knows that partner lacks authority. |
|
|
What's a PLLC?
|
Professional Limited Liability Company. It may render only one kind of professional service. The name must include PLLC.
|
|
|
Who is liable in a PLLC?
|
A member of a PLLC is laible for her own negligence and the PLLC is also liable for a member.s negligence with the ordinary course of business (other members NOT liable)
|
|
|
Who is liable in a PLLP?
|
A partner in a LLP is not liable for the negligent acts of other partners or employees of the LLP unless she was directly involved in the negligence, was supervising the negligent person or knew about the person's negligence and did nothing to stop it.
|
|
|
Partnership Agreement
|
-does not have to be in writing
-have to show intent to form a partnershpi -have right to partricipate in control |
|
|
How do partners share in profits and losses?
|
UOA, partners share equally in profits, and share in losses the same way they share in profits (if different than equal shares)
|
|
|
What is the fiduciary duty of one partner to the others?
|
-deal fairly with each other
-refrain from competing -use best efforts -disclose important info -account for any profits -exercise partnership powers for the benefit of the partnership (and not themselves alone) |
|
|
What prevents the wind up of a partnershp?
|
When a partner leaves before he is suppose to ((partnership for a period of duration). Otherwise, the partners can unanimously agree to wind up or just continue the partnershp.
The partner who left before time expired does not get paid until the end of the duration period. NOTE: withdrawal does not discharge partner of preexisting obligations of partnership (will still have to pay debts) |
|
|
When do sharehold's have a right to vote?r
|
-fundamental crporate change, outside the ordinary course of business
-includes the sale of corporations assets and requires approval from 2/3 of the shareholders NOTE: this is not a fundamental change for the company that is buying it |
|
|
What is the duty of care (burden on plaintiff)
|
requires directors use the care of an ordinarily prudent person under similar circumstances would use, and in good faith
|
|
|
Interested director transaction
|
only valid if it is fair to the corporation or approved (after disclosure of all material facts) by the majority of disinterest directors or shares
|
|
|
BJR
|
-shields directors if they act in good faith and with a reasonable basis (will not second guess)
|
|
|
Duty of Loyalty (burden on defendant)
|
-must act in good faith and with a reasonable belief that what she does is in the corporation's best interest
3 kinds: 1. Interested Director (deal between the corp and a director--must show fair to corp and interest were disclosed and approved in good faith) 2. Competing Ventures 3. Corporate opportunity |
|
|
Shareholders' Agreement
|
Must be in writing and signed by the shareholders. Needs to be either in the COF or by-laws, AND stock certificate should not the close corporation status and that shareholders are to manage (those this does not effect the effectiveness). Also, all shareholders should get a copy, but it doesn't effect the effectiveness.
|
|
|
Statement of Operation
|
Must be filed with the SOS when the corp starts operating under a shareholders agreement. Makes it public record.
NOTE: shareholders do not owe each other a fiduciary duty, but still should argue it!!! look for question on this |
|
|
How long is shareholders agreement valid?
|
default rule is 10 years, but can provide for longer.
|
|
|
Can shareholder look at company books and records?
|
-only if own more than 5% and makes a written demand stating a proper purpose.
|
|
|
Record Date
|
Only shareholders of record on the record date are entitled to notice of shareholders' meetings. Set by BOD, but can't be more than 60 days before the meeting. If none is set, it is deemed to be the date notice of the meeting is given.
|
|
|
Shares in a close corporation can be subjec to a right of first refusal if provided in the shareholders agreement.
|
If transferee has notice or knowledge of this, the transfer is invalid (will have knowledge if it's on the certificate, or if they say they are subject to a shareholders agreement)
|
|
|
Notice date of a shareholder meeting:
|
-can be no longer than 21 days out
-must contain date/time and the PURPOSE of meeting -quorum must be present at the meeting (majority of shares entitled to vote) quorum is a majority |
|
|
In partnership questions, watch for:
|
: partners acting with actual or apparent authority
: employees acting in the scope oftheir employment |
|
|
Formation requirements of a corporation:
|
-submit articles of incorporation to SOS
-must be at least 18 years od -not required to be TX resident -certificate is conclusive proof that all conditions precedent for incorpaotion were met -to avoid paying federal income tax, shareholders can elect to be taxed under subchapter S of the RIS, it they meet its many requirements NOTE: a cattle raising farm cannot be incorporated in Texas |
|
|
How do you properly issue stock?
|
-initial directors name in the COF hold a mtg to adopt by-laws, elet directors, and conduct other business.
Corporation must receive CONSIDERATION when it issues stock. Don't have to have a par value. Can impose a restriction on it if it is on the certificate and enorceable against transferee with knowledge. |
|
|
Can a BOD indemnify a director?
|
Yes, can be authorized, but only if director acted in good faith.
|
|
|
When can one PCV for director, and make her liable?
|
It's okay if just using corporation to avoid liability, however may be able to PC if abused for personal benefit (siphoning corporate funds)
|
|
|
How are 3rd parties protected from acts of a partnership, that is later determined to NOT be a partnershp?
|
estoppel principles protect against false rep of partnership
|
|
|
When is withdrawn partner liable?
|
Liable for up to 2 years after withdrawal if the other party did not have notice and reasonably believe the withdrawn partner was a partner at the time of the transaction. Jointly and severally liable.
|
