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107 Cards in this Set

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FORMATION OF CORPORATIONS

What is the procedure for forming a de jure corporation?
FORMATION OF CORPORATIONS

Incoporators sign + file articles of incorporation with the Secretary of Treasury.
FORMATION OF CORPORATIONS

What term or terms must be included in the articles of incorporation?
FORMATION OF CORPORATIONS

(1) Corporation's name

(2) Corporate purpose

(3) Number of shares authorized

(4) Name and address of each of the incorporators
FORMATION OF CORPORATIONS

Must the corporate charter contain a precise statement of corporate purpose?
FORMATION OF CORPORATIONS

No. As long is it legal, it is fine. In fact, the charter need not contain a statement of purpose at all.
FORMATION OF CORPORATIONS

(1) What is an ultra vires act?

(2) Who is liable for it?
FORMATION OF CORPORATIONS

(1) Act taken by the corporation that goes beyond that which is allowed under the statement of corporate purpose in the corporate charter.

(2) If a corporation has voted to take action that is ultra vires, a shareholder can try to enjoin the act. If the act already happened, the shareholder can proceed against any officer or director who voter in favor of the ultra vires act.
FORMATION OF CORPORATIONS

Explain corporation by estoppel doctrine.
FORMATION OF CORPORATIONS

Defense used by persons who attempt to organize a corporation in good faith but do not suceed.

States that if third person relied on representation that there was a corporation in existence when they entered into a contract, that third person is estopped from denying that the corporation existence for purposes of suit and thereby cannot sue the director, officer, or shareholder personally.

The doctrine also works in reverse to prevent persons who attempted and failed to organize a corporation from denying corporate status to avoid contractual liability.
FORMATION OF CORPORATIONS

What is a de facto corporation?
FORMATION OF CORPORATIONS

Occurs when one has attempted to comply in good faith with all the formalities of incorporation but which nevertheless does not properly incorporate. In this situation, courts will sometimes grant corporate status to the entity.
FORMATION OF CORPORATIONS

Who is personally liable for debts entered into on behalf of a de facto corporation?
FORMATION OF CORPORATIONS

Trick question! No one will bear personal liability for the debts of the business. Liability will be limited to the assets of the corporation.
FORMATION OF CORPORATIONS

Who is personally liable for debts entered into when promoters cannot establish that they are a de facto corporation?
FORMATION OF CORPORATIONS

Promoters + investors (people who thought they would be shareholders) + people running such a business.
FORMATION OF CORPORATIONS

How many directors must a corporation have?
FORMATION OF CORPORATIONS

Most states require, atleast one.
FORMATION OF CORPORATIONS

(1) What are corporate bylaws?

(2) Who adopts corporate bylaws?

(3) Who may amend or repeal corporate bylaws?
FORMATION OF CORPORATIONS

(1) Rules that determine how the corporation is internally goverened.

(2) Initially, the Board of Directors.

(3) Board of Directors or a majority of shareholders if the Articles of Incorporation grant this power.
PRE-INCOPORATION TRANSFER


What is a promoter?
PRE-INCOPORATION TRANSFER

Someone responsible for organizing the corporation. Since there is no corporation in existence at the time he does these things, the promoter is personally liable on contracts he makes to get the business started.
PRE-INCOPORATION TRANSFER

A promoter is primarily and personally liable on the contracts he enters into on behalf of the Corporation that is being formed. When will the promoter scease to be liable on such contracts?
PRE-INCOPORATION TRANSFER

Only when there is novation in whichthe Corporation substitutes itself for the promoter + the third party accepts this substitution.
PRE-INCOPORATION TRANSFER

To who does the promoter owe a fiduciary duty?
PRE-INCOPORATION TRANSFER

-Corporation
-Potential stockholders (those who have signed a subscription agreement)
- Co-promoters, if any.
PRE-INCOPORATION TRANSFER

When does the promoter violate the duty to the corporation + potential stockholders.
PRE-INCOPORATION TRANSFER

If profits from a transaction with the would-be corporation.
PRE-INCOPORATION TRANSFER

Hypo: A promoter secretly obtains land and then sells it to corporation without disclosing his interest, what duties have been violated? What are the remedies? How could the promoter have avoided liability?
PRE-INCOPORATION TRANSFER

The fiduciary duties to the corporation + potential shareholder.

The remedy would be for the corporation to recover whatever profit made from the sale of the land.

To avoid liability, the promoter should disclose whatever interset he has to the corporation PRIOR to the transaction.
PRE-INCOPORATION TRANSFER

How can a promoter violate duties to pornteial shareholders, only?
PRE-INCOPORATION TRANSFER

By misleading them or concealing any material fact regardifn the corporation that would affect their decision to purchase stock.
PRE-INCOPORATION TRANSFER

How can a promoter violate his duty to co-promoters?
PRE-INCOPORATION TRANSFER

By obtaining a financial benefit in his cpacaity as a promoter that he does not share the benefit with his co-promoters.
PRE-INCOPORATION TRANSFER

Hypo: A promoter obtains land that he intends to sell to the corporation, but the corporation is never formed. If the promoter sells the land at a profit, what must the promoter do in order not to breach his fiduciary duties to his co-rpomoters?
PRE-INCOPORATION TRANSFER

Share the profits.
PRE-INCOPORATION TRANSFER

(1) How will a promoter usually violate his fiduciary duty?

(2) What is the remedy if the promoter violates his fiduciary duty to the corporation?
PRE-INCOPORATION TRANSFER

(1) By excessively profitting from his position as a promoter.

(2) If promoter profits in sale of land to corporation above and beyond market value, the money will be must in a constructive trust and given to the corporation.

If the promoter did not profit excessively from the transaction, then there is no breach of fiduciary duty.
PRE-INCOPORATION TRANSFER

What is the remedy if the promoter violates his fiduciary duty to potential shareholders?
PRE-INCOPORATION TRANSFER

Any shareholder that can prove he invested in the corporation because of the promoter's misrepresentation can recover for the financial injury due to the misrepresenation.
PRE-INCOPORATION TRANSFER

What is a stock subscription?
PRE-INCOPORATION TRANSFER

Legally binding agreement entered into before a corporation exists to purchase a certain amont of stock once a corporation is officially recognized and legally exists. The sucscriber may be an individual or a corporation.
PRE-INCOPORATION TRANSFER

How can a party to a pre-incorporation stock subscription be reaaesed from the subscription agreement prior to fulfilling its terms?
PRE-INCOPORATION TRANSFER

By statute, pre-incorporation stock subscription is irrevocable for up to 6 months. The period may be increased or reduced in the agreement.

The onyl way to be released before the agreed-upon time is if all all subscribers agree to release. Otherwise, the subscriber must purchase the stock.

If the subscriber does not do so, then he is liable for breach.
PRE-INCOPORATION TRANSFER

If a subscription agreement is entered into after the corporation has been form, when may it be withdrawn?
PRE-INCOPORATION TRANSFER

At any time because it legally constitutes an offer.
PIERCING THE CORPORATE VEIL

Under what circumstances may the corporate veil be pierced?
PIERCING THE CORPORATE VEIL

(1) Fraud - corporation used to perpetrate fraud.

(2) Undercapitalization - corporation lacks sufficient funds to cover its liabilities AT THE TIME IT IS FORMED.

(3) Alter Ego Doctrine -- Owner uses corporate funds to pay personal expenses.

(4) Failure to follow corporate formalities -- books + records not kept properly and there are no reguar annual meetings.
PIERCING THE CORPORATE VEIL

Hypo: X Corp. has an injunction agianst it to stop it from enagaging in a particular activity. Shortly thereafter, most of the officers of X Corp. form Y Corp. to engage in the exact same corporate activity. Can the corporate veil be pierced?
PIERCING THE CORPORATE VEIL

Yes, because Y Corp. was formed fo rhte fradulent purpose of subverting the injunction.
PIERCING THE CORPORATE VEIL

If a person is seeking to pierce the corporate veil on grounds of failure to follow corporate formalities, what must they show?
PIERCING THE CORPORATE VEIL

(1) They were injured by failure to folow corporate formalities.

(2) Piercing the corporate veil is necessary to maek them whole again.
FINANCING THE CORPORATION

Define "par value."
FINANCING THE CORPORATION

The minimum amount of money for which stock can be sold.
FINANCING THE CORPORATION

(1) Define "no par" stock.

(2) Why would you do this?
FINANCING THE CORPORATION

(1) Stock that is issued by a company without a minimum purchase price.

(2) To avoid issue of watered stock.
FINANCING THE CORPORATION

What types of consideration may be accepted by a corporation in exchange for its stock?
FINANCING THE CORPORATION

Cash, promissory notes, tangible + intagible property, as well as past + future services.
FINANCING THE CORPORATION

What is preferred stock?
FINANCING THE CORPORATION

Stock that gives its holder preference with regard to one or all of the following:

(1) dividends

(2) voting rights

(3) right to redemption upon liquidation of the corporation ahead of holders of common stock
FINANCING THE CORPORATION

What does it mean for preferred stock to have a cumulative dividend?
FINANCING THE CORPORATION

Stock will provide a dividend even in years when the board of directors does not declare a dividend.
FINANCING THE CORPORATION

Hypo: On a bar exam essay, the facts state that par value stock has been sold for less than par value. What are the ramifications of this sale to:

(1) The board of directors?

(2) The purchaser of the stock?

(3) Anyone who buys it from the original purchaser?
(1) Directors who issue stock + have knowledge that is being sold for less than par value are personally liable for the difference between the sale price adn the par value price.

(2) If bought with knowledge shares were watered, then personally liable for the difference between the sale price and the par value.

(3) If bought with knowledge stock was watered, personally liable for the difference between the sale price to the original purchaser and the par value.
FINANCING THE CORPORATION

Once par value stock is sold, how is the sale recorded on the books of the corporation?
FINANCING THE CORPORATION

As stated capital.
FINANCING THE CORPORATION


How is sold stock recorded on the books of the corporation, if it was sold in excess of par?
Captial surplus.
FINANCING THE CORPORATION


Hypo: How is stock recorded if one share with a par value of $50 is sold for $75.
FINANCING THE CORPORATION


$50 recorded as stated capital. $25 will be recorded as capital surplus.
FINANCING THE CORPORATION

(1) What is redemption of stock?

(2) When will a corporation be allowed to redeem stock?
FINANCING THE CORPORATION

(1) Occurs when a corporation buys back its stock from its shareholders. Ability is given by the charter. Stockholders must sell their stock back, even if they don't want to.

(2) Usually, a supermajority of stockholders is needed to do this.
FINANCING THE CORPORATION

Why would a close corporation redeem its stock?
FINANCING THE CORPORATION

A publicly traded corporation may want to redeem to become a closely held corporation.

A closely held corporation want to redeem its stock as a way of realeasing one of the members of the corporation because there is no other available marktet for the shares.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

What is prohibited under Section 11 of the 1933 Secutiries Exchange Act?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Prohibits anyone from making material representations in a registration statement (filed with SEC before co. issues stock + provided to investors before they invest).
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Define insider trading.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Insider trading occurs when people with non-public information intentionally use it for their own gain or for the gain of another person.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Hypo: A corporate president tells his nephew to buy stock in his company right before it is acquired by another pesron. Is this insider trading? Who is liable? What about a third party who overheard the information?
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Yes. Both the uncle and nephew are liable. The third party is not liable because the disclosure was unintentional.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Is it illegal to use insider trading to make a decision not to buy stock?
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

No.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

(1) What is prohibited by Rule 10b-5?

(2) What does this include?

(3) What is the remedy?

(4) Where must suit be brought?
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

(1) Any person from using a means or instrumentality of interste commerce to defraud, or make or omit, a material fact, or to make a misleading fact, in connection with the purchase or sale of any security.

(2) This includes insider trade.

(3) Criminal or civil remedies.

(4) Federal Court.
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

(1) What is prohibited by Rule 16(b)?

(2) What is the remedy?
DUTIES RELATIONG TO THE PURCHASE OR SALE OF SHARES

Making a profit on purchase and sale of stock done with 6 months by an officer or director owning any shares and shareholders owning 10% or more of corporate stock.

(2) Return of profits they made on the purchase and sale of the stock.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) What do you have to be an officer,director, or shareholder owning more than 10% for Rule 16(b)?

(2) What are applicable companies?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) Either during the purchase or sale.

(2) Traded on national exchange or have more than 500 shareholders + assets in excess of $10 million.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Who can remove and find subsequent replacement for a director?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

A majority of shareholders may remove with or without cause.

The shareholders, if they do removal.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Who may fill the vacany created by the death, resignation, or removal of a director?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Other directors, unless charter states otherwise.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Who may remove an officer?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

A simple majority of the directors.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Can a fundamental change in the corporate structure ever be undertaken without the consent of the shareholders?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

No.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

How much notice must be given to stockholders regarding the corporation's annual meeting?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Notice of the annual meetign will be ineffective if given less than 10 but more than 60 days before the meeting.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) Articulate what is meant by cumulative voting?

(2) Hypo: A corporation has fivedirectors and all five slots are up for election. There are two candidates for each seat. If a shareholder has 100 shares, how may she vote?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Cumulative voting allows a shareholder to multiply the number of shares by the number of directors to be elected and to call all of her votes for one director.

(2) She has 500 shares, which she may distribute as 100 per each seat or 500 shares all for one candiate. The latter scenario is cumulative voting.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

What is a proxy?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

A written agreement in which a shareholder allows another person to vote for her. The holder of the proxy becomes the legal holder of the shares. The shareholder, however, remains an equitable owner of the shares. The shareholder receives whatever dividends are issued.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

For how long is a proxy valid?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

No proxy is valid for more than 11 months.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

When will a proxy be irrevocable?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Normally, proxies are revocable, even if it sates otherwise. Subsequent proxies revoke earlier ones.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) What is the effect ona corporate resolution if one or more shareholders did not receive notice of the meeting?

(2) What is the exception?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) Any action taken is void.

(2) If a shareholder did not receive notice but somehow learned of the meeting + attended, she could rnot raise the objection.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) What is the record date?

(2) What is its signifigance?

(3) What happens if a person does not own the stock after the record date?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) Any date more than 10 but less than 70 days before the meeting.

(2) Only persons who own shares of a corporation on the record date can vote the shares at any type of shareholder meeting.

(3) Still entitled to vote it if they had ownership on the record date.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

What procedure must be followed before a corporation can issue additional stock?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Board must pass a resolution to allow the issuance of additional stock.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

What are preemptive rights?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Shareholder's right to purchase additional shares from the corporation to maintain her proportional ownership of the corporation.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

When do shareholders have preemptive rights?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Until recently, shareholders had preemptive rights unless charter said otherwise. Now, strong trend, to grant preemptive rights only if rights are granted in the charter.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

When can a corporation not declare dividends?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

If the corporation is insolvent or if paying dividends would render the corporation insolvent.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) What is an S corporation?

(2) How does a corporation qualifiy?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

(1) Business organization taxed like a partnerhsip but that enjoys all the protection of a corporation.

(2)
-Has only one class of stock
-Shareholders are American citizens
-75 shareholders are American citizens
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Can a close corporation restrict the way its stockholders transfer its shares?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Yes. Reasonable restrictions w/ good reason are permitted.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Can a corporation rescind its decision to issue dividends?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

No. Once declared, each stockholders has a right to the dividend declared.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Hypo: X becomes insolvent. A week later, it pays out dividends of $10,000. What result? What exception?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Any director who approved the dividend is personally liable for the money that is distibuted.

Except, a director will not be liable, if he or she reasomably relied on financial documents that indicated the finances of the corporation were sound.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Who has the power to declare dividends?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Board of Directors.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

When can a shareholder compel a corporation to pay dividends?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

If the shareholder proves that the dividends have been withheld in bad faith.

If the bad faith rises to the level of breach of fiduciary duty, the court may comepl dividends.
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Who recieves distributions paid by the corporation?
DUTIES RELATING TO THE PURCHASE OR SALE OF SHARES

Shareholder of record - person listed as being the owner of the stock on the record date. This person may be entitled to receive a dividend, even if she does not own the stock when the dividends are distributed.
STOCKHOLDER MEETINGS

What is the effect on a corporation if it fails to have at least one meeting the course of a year?
STOCKHOLDER MEETINGS

No effect. However ,if someone tries to pierce the corporate veil, they will be more likely to be successful if they can show that the corporation did not comply with its formalities.
STOCKHOLDER MEETINGS

Who may call a special stockholder's meeting?
STOCKHOLDER MEETINGS

(1) President of corporation
(2) Board of Directors
(3) Stockholders owning at least 10% of any class of stock.
(4) By laws may authorize others.
STOCKHOLDER VOTING

Who is eligible to vote at shareholder meetings?
STOCKHOLDER VOTING

The person who ownd the share as of the record date set by the corporation.
STOCKHOLDER VOTING

Can a corporation vote its own stock?
STOCKHOLDER VOTING

No. Only shareholders' stock may be voted.
STOCKHOLDER VOTING

What is the difference between a stock voting trust, proxy, and a stock voting pool.
STOCKHOLDER VOTING

Voting trust - formal, agreement in writing, plus copy with the corporation, not exceeding 10 years, where the voting trustee has legal title to the shares and the shareholder has equitable owner of the shares and receives dividends. Voting trustee can vote the shares and is entitled to notice of all meetings, but cannot have dividends.

Voting trust superior to poroxy because proxy only last 11 months, and voting trust lasts 10 years.

A voting pool - informal agreement, shares are retained by shareholders, but the pool is contractual and disputes are settled by arbitration.
STOCKHOLDER VOTING

(1) What is meant by quorum of shareholders?

(2) How can quorum be adjusted?

(3) Once quorum is present, what percentage is needed to approve a resolution?
STOCKHOLDER VOTING

(1) Number of shares present at a meeting needed to take action. This is the majority of all votes eligible to be cast.

(2) Corporate Charter

(3) Majority of quorum.
STOCKHOLDER VOTING

True or false: Intention to make a tender offer constitutes an improper purpose for inspecting corporate books and is ground for which a corporation may deny shareholder access to the corporate books for inspection.
STOCKHOLDER VOTING

False. Shareholder must state reason for wanting to inspect the books. Only failure to state any reason is goods to deny.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS


What is the officer + director duty of care?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Discharging duties in god faith, as an ordinary prudent person in a similiar position would act, and in the best interests of the corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

What is a director + officer's best defense to charge she has violated Duty of Care?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Business Judgment Rule - director cannot be held liable for good faith business decisions, even if decision has undesirable or unfortunate consequences.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Articulate 3 ways director + officer can violate her Duty of Loyalty to the corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

(1) Interested Director Transaction - interest in an transalation not disclosed to corporation before transaction is approved.

(2) Corporate Opportunity Doctrine - receives opportunity because of position with the company and does not first give the corporation an opportunity to take advantage of the opportunity.

(3) Competing Venture - Competiting directly with the corporation for whom she works.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

What is a defense to interested director transaction breach?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

(1) Disclose interest before it is approved; or

(2) Show that transaction was fair to corporaiton.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

What is a defense to the Corporate opportuntity doctrine breach?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Took advantage of opportunity only after offering it to the corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

What is a defense to the Competing Venture breach?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Not engaging in direct competition- not same business as the corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Is a corporation bound by a contract in which one of the directors had an interest that he did not disclose to the corporation?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS


No. Corporation can void transaction or be voided by a shareholder via derivate suit.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

What cause of action should a shareholder bring against a corporation if the shareholder feels that the directors have overcompensated themselves? What result?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Action for waste. A court can order a reduction in the amount of compensation if excessive.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Who has standing to bring suit regarding a violation of the duty of care or loyalty?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Shareholder, officer, director, or corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Must a director make a demand that the corporation file suit against another director who violated a fiduciary duty to the corporation, or can the director institute the suit herself?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

The director can bring suit on behalf of the corporation without first making a demand of the corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Articulate the duties an officer owes a corporation.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

Sae duties as directors.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

(1) How many directors must be present at a meeting to take action?

(2) Are interested directors counted?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

(1) Quorum - a majority.

(2) Yes, but not for voting on transaction where he has an interest.
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

When is a corporation not permitted to indemnify a director or officer for violating her duties of care and loyalty?
FIDUCIARY DUTIES OF OFFICERS + DIRECTORS

If the officer/direcor has intentionally wronged the corporation.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

Articulate the definition of a close corporation.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

A corporation managed directly by shareholders, without a board.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

What percentage of the shareholders of a close corporation is it necessary to approve the issuacne of additional shares of stock?
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

100%
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

Under what conditions may a stockholder transfer her shares in a close corporation?
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

Approval of all other shareholders.
CORPORATE STRUCTURE

Articulate the difference between a merger and a consolidation.
CORPORATE STRUCTURE

Merger - one co. buys the assets of another, such that one co. suvives and the other disappears.

Consolidation - both corporations disappear and a new corporation is formed consisting of the two old corporation.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

(1) If one corporation is merged into another corporation, who is laible for the debts and liability of the merged (non-existent) corporation?

(2) What about consolidation?
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

(1) The corporation into which the non-existent corporation was merged.

(2) Same.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

(1) If one corproation buys substantially all of the assets of another corporation, is the purchasing corporation liable for the debts and liabilites of the corporation whose assets are purchased?

(2) Exceptions.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

(1) Generally, no.

(2)

- Express or implicit agreement by purchasing corp. to assume debts + liabilties.

- Merger or consolidation.

- Buying corporation is a continuation of the selling corporation.

- Transaction excuted by the purchased corporation to avoid its liabilities.
CLOSE CORPORATIONS AND SPECIAL CONTROL DEVICES

What are the appraisal rights (aka dissenter's rights)?
CORPORATE STRUCTURE

Shareholders who object to a fundamental corporate change may demand the corporation buy their shares. If the corporation and the dissenting stockholders cannot agree on a fair price, the stockholders may bring suit.
CORPORATE STRUCTURE

What is the procedure for receiving appraiser's rights?
CORPORATE STRUCTURE

File an objection to the proposed matter before the shareholders meeting where voting on the fundamental change will take place. After the meeting, the shareholder then has a limited period of time to file a written demand on the corporation for payment of his shares. In most jurisdictions, this period is 20 days.
CORPORATE STRUCTURE

In a merger, which shareholders have appraisal rights?
CORPORATE STRUCTURE

Only the shareholders of the merged (non-existent) corporation.
CORPORATE STRUCTURE


What percentage of shareholders must give their approval for a merger or consoldiation?
CORPORATE STRUCTURE

A majority of shareholders.
CORPORATE STRUCTURE

What is a short form merger?
CORPORATE STRUCTURE

Occurs when a parent corp owns 90% of more of another corporation - the parent corporation merges the smaller corporation into itself. Does not require the approval of the shareholders.
CORPORATE STRUCTURE

(1) What is a dissolution?

(2) How can it occur for closely held and regular corporation?
CORPORATE STRUCTURE

(1) Process by which a corporation ceases to exist.

(2)

- In a close corporaiton, this requires consent by 100% of the shareholders. For regulation corporations, requires majority of board + 2/3rds of shareholders. Articles of Dissolution must be filed with Secretary of Stae and notice must be fiven to all corporation's creditors before the dissolution.

- Also, can occur by stockholders if corproation cannot function because directors are deadlocked.

- Additionally, by secretary of sate if it is engaging in illegal or fradulent activities.

- Finally, by creditors to recove compensation.
CORPORATE STRUCTURE

How are a corporation's assets distrubuted upon winding up?
CORPORATE STRUCTURE

Corporation's outside creditors are paid. Any remaining funds are distributed to shareholders.
SHAREHOLDER LITIGATION

What is a shareholder derivative suit?
SHAREHOLDER LITIGATION

Suit brought by a shareholder in the name of a corporation to addres a wrogn committed against he corporation. Such such are brought only after the directors have taken no action to address the wrong and have ignored the shareholder's request to take action. The shareholder may not ahve to demand the baord take action if it can be shown that the demand would be futile.
SHAREHOLDER LITIGATION


Who bears the cost of a shareholder's derivative suit?
SHAREHOLDER LITIGATION


The shareholder. If susccessful, she is entitled to recover the cost of the suit.
LIMITED LIABILITY CORPORATIONS

How is an LCC similair to a corporation?
LIMITED LIABILITY CORPORATIONS

Both provide owners with limited liability and both are legal entities distinct from their members.
LIMITED LIABILITY CORPORATIONS

(1) How is an LLC different from a corporation?

(2) To be an LLC for tax purposes, what must be proven?
LIMITED LIABILITY CORPORATIONS

- Must have at least two members (whereas a corp needs only one),

- Dissolves once a member dies, resigns, declares bankruptcy (whereas corp not affected by theses)

- Can have unlimited membership (S corp can only have 75),

- Requires unanimous consent of all existing members for a new member , and

(1) Three of four factors are present:

-perpetual life

- centralized management

- ownership must be freely transferrable

- owners have limited liability.

(2) Fails at least two of the above tests.
LIMITED LIABILITY CORPORATIONS

What is a professional services corporation?
LIMITED LIABILITY CORPORATIONS

Like any other type of corporation, but organized by people who provide professional services.
LIMITED LIABILITY CORPORATIONS

When will an LLC dissolve?
LIMITED LIABILITY CORPORATIONS

- Occurence of an avent specified in articles.

- 100% of members consent to dissolution.

- A judicial decree ordering dissolution.
LIMITED LIABILITY CORPORATIONS

Are the members of a professional services corporation liable for the negligent or intentional acts of other members of the corporation?
LIMITED LIABILITY CORPORATIONS

No. Only for own acts and acts they approve or ratify.
LIMITED LIABILITY CORPORATIONS

What is a foreign corporaiton?
LIMITED LIABILITY CORPORATIONS

Does business in a state other than the state where it is incorporated.