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155 Cards in this Set

  • Front
  • Back
What does an incorporator do?
Execute the articles of incorporation and deliver then to the secretary of state.

Note: They might do other things.
Who can be an incorporator?
(1) A natural person

(2) An entity (corporation)
What are the articles of incorporation?
(1) The articles are a contract between the corporation and its shareholders.

(2) The articles are also a contract between the corporation and the state.
What information is contained in the articles of incorporation?
(1) Corporate name (must include "corporation," "incorporated" or "limited")

(2) name and address of each incorporator.

(3) Name of registered agent and address of the registered office which must be in GA.

(4) Address of the principal office (can be anywhere, not just in GA).

(5) Statement of purpose (but not necessary).

(6) Capital structure (how stock is organized).
Must the articles of incorporation contain a statement of purpose?
No.
What is an ultra vires act?
An act that is beyond the stated purpose of the corporation stated within the articles of incorporation.
How are ultra vires acts handled today?
Ultra vires contracts are deemed valid (unlike at common law).

Shareholders can seek an injunction against ultra vires acts.

Responsible officers and directors are liable to the corp. for ultra vires losses.
What is authorized stock?

What is issued stock?

What is outstanding stock?
(1) authorized stock - maximum number of shares the corp. cna sell.

(2) issued stock - number of shares the corp. actually sells.

(3) outstanding stock - shares that have been issued and not reacquired by the corporation.
What effect does the act of the GA Secretary of State actually filing the articles of incorporation have?
This constitutes conclusive proof of a valid formation of the corporation. This results in a de jure corporation (a legal corporation).
What are the immediate steps to be taken immediately after the corporation is formed?
If directors were named in the articles, the board of directors holds organizational meeting, where it selects officers and adopts any bylaws and conduct other appropriate business.

If no directors named in the articles, the incorporators meet to elect directors, who then hold the organizational meeting (or the incorporators can elect directors and then select officers and adopt bylaws).
Who is ultimately liable for what the corporation does?
The corporation itself. Generally, officers and directors are not personally liable for the entity does. Generally, shareholders (owners) are not personally liable for the debts of the corporation.
What does limited liability mean?
Shareholders are generally liable only for the price of their stock (limited liability).
What is the "de facto corporation" doctrine?
This is where the corporation was not validly formed but yet there was some exercise of corporate privileges, so the court elects to treat the corporation as if it were in existence for all purposes except in an action by the state.
What are the requirements that must be met in order for a court to apply the de facto corporation doctrine?
(1) there is a relevant incorporation statute;

(2) the parties made a good faith, colorable attempt to comply with it; and

(3) some exercise of corporation privileges (acting like we have a corporation).
What is the status of de facto corporation in GA?
It may be abolished; we are nto sure.

Note: Walk the examiner through this analysis anyways if necessary).
What is "corporation by estoppel?"
One dealing with a business as a corporation, treating it as a corp. may be estopped form denying the business's corporate statute.

This may be invoked against those who dealt directly with the business as a corporation. It may also be used to prevent the company from avoiding an obligation by asserting its own lack of valid formation.

usually available in contract, not tort, cases.
What is the status of corporation by estoppel in GA?
It is alive.
What is the purpose of a corporations' bylaws?
They are for internal governance - e.g., lay out responsibilities, set regular meeting times and places, prescribe methods of giving notice.
Who adopts the initial bylaws?
Board of directors or the incorporators.
Who can amend or repeal the bylaws of a corporation?
The board or shareholders.

The articles can reserve the power to shareholders only.
If the bylaws conflict with the articles, which controls?
The articles of incorporation. The articles are a contract w/ the state, and thus are a more important document.

Bylaws are an internal document, not filed with a state agency.
What is a promoter?
A promoter is a person acting on behalf of a corporation not yet formed.
Is a corporation liable on a pre-incorporation contract?
No, unless it adopts the contract.
How does a corporation adopt a pre-incorporation contract?
91) express board of directors action adopting the contract.

(2) implied adoption - arises if the corporation accepts a benefit of the contract.
Is a promoter liable for a pre-incorporation contract?
Yes. Generally, unless the contract provides otherwise, the promoter remains liable on pre-incorporation contracts until there has been a novation.

Novation - an agreement of the promoter, the corporation, and the contracting party that the corp. will replace the promoter under the contract.
What is a foreign corporation in GA?
A corporation that is incorporated outside the state of GA.
What constitutes transacting business in GA?
Transacting business meansthe regular course of intrastate (not interstate) business activity. Not occasional or sporadic activity in GA, and not simply owning property in GA.
How does a foreign corporation qualify to do business in GA?
By getting a certificate of authority from the GA Secretary of State. It applies by giving information from its articles. It must have a registered agent in GA and pay GA fees.
What happens if a foreign corporation fails to qualify to do business in GA within 30 days of transacting business in GA?
(1) civil fine

(2) the foreign corporation cannot sue in GA, but it can be sued and defend in GA (but it cannot assert a counter-claim against a plaintiff).
What is issuance of stock?
Issuance of stock occurs when a corporation sells or trades its own stock. It is a way to raise capital for the corporation.
What is a subscription?
A written offer to buy stock from a corporation.
Is a pre-incorporation subscription revocable?
No. A pre-incorporation subscription is irrevocable for 6 months unless it provides otherwise or all subscribers agree.
Are post-incorporation subscriptions revocable?
Yes, until the corporation accepts.
When do the corporation and the subscriber become obligated under a subscription agreement?
When the board accepts the offer.
What types of consideration can a corporation receive in exchange for its stock?
Permitted: "any tangible or intangible property or benefit to the corporation." This includes money (cash or check), notes, contracts for future services, release of a claim, services already rendered for the corporation.

Prohibited: anything else.
What does "par value" mean?
"Minimum issuance price" for a corporation's stock.
Is a corporation required to set a par value for its stock?
Par is not required but can be elected in the articles of incorporation.
What does "No par" mean?
This means "No minimum issuance price." The board of directors sets a price.
What is "reacquired" stick (or treasury stock)?
This is stock that was previously issued and has been reacquired by the corporation. it becomes authorized but unissued, and the corporation can then resell it (unless the articles say no). If sold, board sets issuance price.
What are pre-emptive rights?
Pre-emptive right is the right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock FOR MONEY."

"New issuance" includes the sale of reacquired stock.
Are pre-emptive rights automatic?
No. There are no pre-emptive rights unless the articles provide for them.

Exception: in a "statutory close corporation" pre-emption rights exist unless the articles say no.
What is a "poison pill?"
A poison pill is a provision whereby directors can adopt a plan to let existing shareholders acquire more stock at a reduced price to fend off a hostile takeover attempt. This "poison pill" reduces the percentage of shares owned by those trying to take over and this increases their cost of gaining control.
How are the number of directors for the corporation determined?
The number of directors is set in the corporation's bylaws. A corporation must have one or more directors.

Directors must be natural persons.
How are directors elected?
Initial directors can be named in the articles or elected by the incorporators. Thereafter, shareholders elect directors at the annual meeting.

Entire board is elected each year unless there is a "staggered board."

Staggered board - divided into half or thirds, with each half or third elected each year. This type of board is set in the articles or by a shareholder-adopted law.
On what basis can a director be removed from office?
With or without cause unless there is a staggered board. If the board is staggered, a board member can only be removed for cause.
If there is a vacancy on the board before the board member's term is up, who selects the person to serve in the vacancy for the rest of the term?
Board or shareholders. However, if the director was elected by a particular class of stock, that class of shares selects the replacement.
How does the board of directors take an act?
(1) unanimous written consent (email is OK) to act without a meeting, or

(2) a meeting (can be held anywhere that satisfies quorum and voting requirements.

if neither (1) nor (2) is met, the act is void unless later ratified by a valid corporate act.
Would a conference call constitute a proper board meeting?
Yes. You do not have to have everyone in the same room to have a valid board meeting.
Is notice required for general board meetings?

For special board meetings?
No notice is required for general board meetings.

two day's notice is required for special meetings. Failure to give can be waived in writing anytime or by attending without objection.
Can directors give proxies or enter voting agreements for how they will vote as directors?
No. These are void. They are against public policy.
What constitutes a necessary quorum for board of directors' meetings.
Must have a majority of all directors to do business (unless a different percentage is required in bylaws).

If a quorum is present at a meeting, however, passing a resolution (which is how the Board takes an act at a meeting) requires only a majority vote of THOSE PRESENT.
Can a board act is a quorum is broken (people leave)?
Once a quorum is no longer present, Board cannot take an act at that meeting.
What are the general duties of the board of directors?
To manage the business of the corporation. The board sets policy, supervises officers, declares distributions, determines when stock will be issued, recommends fundamental corporate changes to shareholders.
Can a board delegate to a committee of one or more directors?
Yes, but a committee cannot fill a board vacancy, amend or repeal bylaws, or propose a fundamental corporate change.
What are the major duties that a corporation's directors owe to the corporation?
(1) duty of loyalty: a director must discharge her duties in what she believes in good faith to be the best interests of the corporation.

(2) duty of care: director must discharge her duties with the care that an ordinary prudent person in a like position in similar circumstances would use.
What is the "standard" statement?
A director must discharge her duties in what she believes in good faith to be the best interests of the corporation and with the care that an ordinary prudent person in a like position in similar circumstances would use.
When can a director be held liable for a breach of the duty of care?
When the breach caused a loss to the corporation.

The plaintiff must show causation as well as breach of the duty of care.
What is the Business Judgment Rule (BJR)?
A court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis.

A director is only liable for a decision if the decision is irrational or negligent.
What is the "Interested Director Transaction" test?
Interested director transaction will be set aside (or the director will be held liable in damages) if

(1) the corporation entered into a transaction

(2) the director knows of the deal and of her interest

(3) the deal is between the corporation and (i) the director or (ii) a member of the director's household, or (iii) another business of the director's.
Is there an exception to the interested director transaction test?
Yes. The transaction will be set aside UNLESS the director shows:

(1) the deal was fair to the corporation when entered, OR (2) her interest and the relevant facts were disclosed or known and the deal was approved by either (a) a majority (at least 2) of the disinterested directors actually voting; or (b) majority of all disinterested shares (not shareholders).
Can directors set their own compensation as directors or officers?
Yes, but it must be reasonable and in good faith. If excessive, it's a waste of corporate assets, and a breach of the duty of loyalty.
Can a director enter into a venture that competes with the corporation on which she serves as a board member?
Generally no. A director cannot compete unfairly with the corporation on which she serves as a board member.

Almost always, a director entering into direct competition is considered unfair.
What is the remedy against a director that unfairly competes with the corporation?
The profits made by the director from the competing venture are held in a constructive trust.
What is a corporate opportunity?
Something that the corporation has a legitimate interest or expectancy in.
Can a director personally take advantage of a corporate opportunity?
Yes, if certain conditions are met. A director cannot USURP a corporate opportunity, meaning that the director cannot take the corporate opportunity until he 91) tells the board and (2) waits for the board to reject the opportunity.
What happens if a director usurps a corporate opportunity by acquiring property for himself that the corporation would have purchased?
If the director still has the property in question, he must sell it to the corporation at his cost. IF the director has sold it for a profit, the corporation gets the profit (constructive trust).
Exactly which directors are held liable for actions taken by the board that render the board liable?
A director is presumed to have concurred with board action UNLESS she objected to the transacting business or her dissent or abstention is noted IN WRITING in corporate records.
What constitutes a valid dissent in writing?
The director's dissent is noted (1) in the minutes or (2) delivered in writing to the presiding officer at the meeting or (3) written dissent to the corporation immediately after the meeting.

Note: Sending an email meets this requirement.
When is a director deemed not liable for the board's action if there is no record of their dissent?
(1) An absent director is not liable for the actions taken at the meeting she missed.

(2) The director in good faith relied on information (including financial info) presented by an officer, employee, or committee (of which the director relying was not a member), or a professional reasonably believed to be competent.
Can an officer of a corporation bind the corporation?
Yes. Officers are agents of the corporation. They can bind the corporation for facts for which they have authority to bind it.
Who selects and removes officers? Directors?
The board of directors hires and fires officers. Shareholders hire and fire directors.
When is a corporation barred from indemnifying a director or officer who is sued in his capacity as a board member or officer?
If the person is adjudged liable on the basis of an improper financial benefit.

Note: This is narrow and is the only circumstance when the corporation is completely barred from indemnifying the director or officer.
When must the corporation indemnify a director or officer who is sued in his capacity as a board member or officer?
If the director or officer is "wholly" successful on the merits or otherwise, in defending the suit. She wins a judgment on the ENTIRE case.
When is a corporation permitted to indemnify?
When (a) the director or officer is not adjudge liable on the basis of an improper financial benefit, or (b) the director did not win a judgment on the entire case.
Can the articles of incorporation limit or eliminate director liability to the corporation for damages?
Yes, but not for intentional misconduct, usurping corporation opportunities, unlawful distributions, r improper personal benefit.
In what situation can shareholders run the corporation directly?
When the corporation is a "close corporation."
What are the characteristics of a close corporation?
(1) there are few shareholders

(2) the stock is not publicly traded
In GA, can the shareholders of a closely held corporation authorize the elimination of the board and run the corporation?

If so, how is this authorization accomplished?
Yes. This authorization can take two forms: (1) it can be in the articles or bylaws and approved by all shareholders or (2) unanimous written shareholder agreement.

This agreement should be conspicuously noted on the front and back of the stock certificates.

Time limit to these agreements: 20 year terms.
IN a closely held corporation, what fiduciary duties do majority shareholders owe to minority shareholders?

Remedies for minority shareholders?
Controlling shareholders should not oppress minority shareholders, e.g., by selling control to people who loot the corporation (without reasonable investigation of the buyer).

Minority shareholders can sue the oppressing controlling shareholder(s).
What are the requirements of a statutory close corporation in GA?
(1) 50 or fewer shareholders

(2) shares are not publicly traded

(3) No board is required

(4) Managing shareholders owe the duties of care and loyalty

(5) Unlike a regular corporation, shareholders in a statutory close corporation have preemptive rights unless the articles take them away.
What are the requirements and rules for creating a professional corporation (PC)?
(1) Name must include "associated," "professional association," "professional corporation," or an abbreviation of one.

(2) Articles must state that the purpose is to practice in the profession named and that the corp. is governed by the GA Professional Corporation Act.

(3) Shareholders must be licensed processionals and generally may practice in one profession.

(4) At least one director and the president must be a licensed processional.

(5) The P.C. may employ non-professionals (but not to render service).
What are professionals in a P.C. and the P.C. held personally liable for?
Professionals and the P.C. remain personally liable for malpractice or misconduct from rendering professional services. Shareholders are generally not liable for corporate obligations
When can shareholders be held personally liable for the corporation's actions?
If the court elects to pierce the corporate veil (PCV).

To PCV and hold shareholders personally liable, (1) they must have abused the privilege of incorporating and (2) fairness must require holding them liable.
GA PCV standard: GA courts may PCV to avoid fraud or evasion of contract or tort responsibility or evasion of public policy.
What are the primary situations where a court will probably permit piercing the corporate veil?
(1) shareholders treat the corporation as their alter ego - commingling personal assets with the corporation's assets, using the corporation to pay personal debts. However, sloppy administration generally is not enough to PCV.

(2) Undercapitalization - shareholders failing to invest enough to cover prospective liabilities of the corporation.
In GA, is undercapitalization alone enough to pierce the corporate veil?
No. Plaintiff must also show that undercapitalization was done with the intent to avoid future obligations.

Note: GA courts may be more willing to PCV for a tort victim than a contract claimant. A contract claiman cannot use undercapitalization to PCV if it could have determined that the corporation was undercapitalized.
What is a shareholder derivative suit?
Where a shareholder is suing to enforce the corporation's claim, not her own.

note: Always ask - Could the corporation have brought this suit? if so, it is probably a derivative suit.
What are the consequences of a successful derivative suit?

What does the plaintiff get?
Generally, the recovery in any successful derivative suit goes to the corporation.

Plaintiff shareholder receives costs and attorneys' fees, usually from the corporation.
What are the consequences of an unsuccessful shareholders' derivative suit?
Plaintiff cannot get costs and attorneys' fees.

Plaintiff can be held liable to the defendant for its costs and attorneys' fees if she sued without reasonable cause.
What are the requirements for bringing a shareholder derivative suit?
(1) stock ownership when the claim arose - person either owned it or got it from someone when the claim arose from an operation of law (inheritance or divorce decree).

(2) adequate representation of the corporations' interest.

(3) plaintiff must make a written demand on the corporation (usually to the board) that the corporation bring the suit. In GA, demand is never excused.

(4) the corporation must be joined to the suit as a defendant.

(5) there is no dismissal or settlement of a derivative suit without court approval. Court may give notice to shareholders and get their input on whether to dismiss or settle.
When can a corporation move to dismiss a shareholder derivative suit?
Corporation can move to dismiss upon showing that independent investigation showed the suit (the one P claims was necessary) was not in the corporation's best interest (e.g., low chance of success or expense would exceed recovery).

This investigate must be made by independent directors or a court-appointed panel of one or more independent persons.
What shareholders are entitled to vote?
General rule: The "record shareholder" as of the "record date" has the right to vote.
What is a record shareholder? Record date?
The person shown as the owner in the corporate records.

The record date is a voter eligibility cut-off.

Thus, if a shareholder sells their stock after the record date, but before the voting date, they are still entitled to vote.
What are the exceptions to the general rule that the record owner on the record date votes?
(1) the corporation reaquires stock before the record date. The corporation DOES NOT vote the reacquired stock.

(2) If a shareholder dies, the shareholder's executor can vote the shares.

(3) Shareholder has executed a proxy.
What is a proxy?
A proxy is a (i) writing (fax and email are OK), (ii) signed by the record shareholder (e-mail OK if can identify sender), (iii) directed to the secretary of the corporation, (iv) authorizing another to vote the shares.
How long is a proxy agreement valid for?
11 months, unless it says otherwise.
Can a shareholder revoke a proxy even though it is irrevocable?
Yes,
Can someone create an irrevocable proxy? If so, how?
The only way to create an irrevocable proxy is for the shareholder to (1) give the proxy holder some interest in the shares (sell, create an option to buy, pledge, etc.) after the record date but before the annual meeting, and (2) give an "irrevocable proxy" to vote the shares at the annual meeting.

This is because the proxy (1) says it is irrevocable and (2) the proxy holder has some interest in the shares other than voting.
What is required to form a valid voting trust?
(1) written trust agreement controlling how the shares will be voted;

(2) transfer legal title of shares to voting trustee

(3) transfer legal title recorded with the corporation;

(4) original shareholders receive trust certificates and retain all shareholder rights except voting.
What is the maximum duration for voting trusts?
10 years.
What is the maximum for a valid shareholder voting agreement?
20 years, renewable up to twenty years more.
Are voting agreements specifically enforceable?
Yes.
Where must shareholder meetings be held?
No restriction. Meetings can be held anywhere in the world.
What is the primary purpose of the annual meeting?

How long can the corporation go without holding an annual meeting without judicial intervention?

What can a shareholder do after this point?
The annual meeting is held to elect directors. If non is held in 15 months, a shareholder can petition the court to order one.
Who can call a special meeting for the corporation?
Special meeting can be called by the board or the holders of at least 25 percent of the voting shares or anyone else authorized in the bylaws.
What notice must be given to shareholders about meetings where shareholders can vote?
Written notice (fax or e-mail OK; reasonable oral notice OK) must be given to every shareholder entitled to vote, for every meeting (annual or special). Notice must be delivered 10-60 days before the meeting.
What must the notice given to shareholders contain?
When and where the meeting will take place. Notice of a special meeting must also state the purpose of the meeting (cannot transact any other business at the special meeting).

The notice must always tell when a fundamental corporate change or removal of a director is on the agenda.
What is the consequence of failure to give proper notice to all shareholders?
Any action taken at the meeting is void unless those not sent notice waive the notice defect.

How does waiver occur?

(1) express - in writing and signed anytime (fax and e-mail are OK)
(2) implied - attend the meeting without objection.
How many shareholders must be represented at the meeting in oder for voting to occur?
A quorum must be represented at the meeting. Quorum is based on the number of shares represented not the number of shareholders.

You need a majority of the shares that can vote.
Is a shareholder quorum lost if enough shareholders leave the meeting?
No. A shareholder quorum is not lost if people leave the meeting .

Note: This is different than a director's quorum.
If less than a quorum of the number of shares present at the meeting vote an a particular proposal, how many shares must vote for the proposal for it to be accepted by the shareholders?
A majority of those shares that actually voted (not a majority of the shares actually present).
What is cumulative voting?
This is where a shareholder multiplies the number of shares they have by the total number of directors to be elected, and this total is how many votes the shareholder gets.

This is a device that gives small shareholders a better chance of electing someone to the Board.
If a corporation follows cumulative voting, how must each shareholder apportion their votes?
There are no limits. Each shareholder can divide up their votes anyway they want. They can place all of their votes for one candidate if they wish.
If a corporation's articles are silent as to whether shareholders can vote cumulatively, can shareholders vote this way?
No. Cumulative voting exists only if the articles of incorporation provide for this.
What types of stock transfer restrictions will be considered valid?
Stock transfer restrictions will be upheld provided they are reasonable under the circumstances, which means no tan undue restraint on alienation.
Can the seller of stock place a right of first refusal restriction on the subsequent sale of the stock?
Yes. This is not an undue restraint on alienation. The shareholder is not totally barred from selling their stock.
What is required in order for a stock transfer restriction be invoked against the transferee?
A valid stock transfer restriction cannot be invoked against the transferee unless either (a) it is conspicuously noted on the stock certificate or (b) the transferee had actual knowledge of the restriction.
What types of documents can ANY shareholder demand access to inspect and copy during regular business hours?

Must the shareholder give a reason for wanting these documents?
Articles, bylaws, annual registration statements, identity of officers and directors, minutes of shareholder meetings for the past three years, and written communications to shareholders in the past three years.

No reason must be given for wanting to see these documents.
What types of documents must a shareholder provide a purpose for inspection?
For more sensitive documents (accounting records, excerpts from minutes of directors' meetings.
How much notice must a shareholder who wants to inspect corporate documents give the corporation?
Shareholder must make a written demand at least 5 business days before inspection.
What happens if the corporation fails to allow proper inspection of documents requested by a shareholder?
Superior court has the power to compel production of the records.
What is a distribution? What types of distributions are there?
A distribution is a payment by the corporation to shareholders.

A distribution be either (1) dividend or (a repurchase of shareholder's stock or (3) a redemption of stock (redemption is a forced sale to corporation at price set in the articles).
Who declares a distribution?

When does a shareholder have a right to a distribution?
Distributions are to be declared at the Board's discretion.

A shareholder has no right to a distribution until it is declared by the board.
What is the difference between preferred stock and common stock?
Preferred means pay first. When a distribution occurs, holders of common stock are paid before the holders of common stock.
What does it mean when a shareholder is a preferred participating shareholder?
"Participating" means pay again. Thus, when someone is a preferred participating shareholder, they are paid first as a preferred shareholder, then they are also paid again when the common stock shareholders are paid.
What is a cumulative dividend? How does this work?
A cumulative dividend accrues year-to-year. Thus, if a corporation does not pay a dividend for the past 3 years, and then decides to pay one in year four, the corporation owes the cumulative dividend shareholders a dividend for a total of 4 years. You multiply the number of years owed by the dividend per share payment amount.

if a shareholder is a preferred shareholder entitled to cumulative dividends, then their entire cumulative dividend is paid first, before the common shareholders are paid.
What funds can be used for distribution payments?
A corporation can make a distribution even though it lost money the last year; however, the corporation cannot make a distribution if it is insolvent or if the distribution would render it insolvent.
What is the definition of insolvent?
(1) The corporation is unable to pay its debts as they come due; or

(2) Total assets are less than total liabilities (and liabilities include preferential liquidation rights of shares with preference superior to those shares receiving the distribution).
When are directors and shareholders held liable for an improper distribution?

What type of liability is imposed on the directors?
Directors are jointly and severally liable for an improper distribution if declaring it was negligent, reckless or intentional.

Shareholders are personally liable if they knew the distribution was improper when they received it.
What are the characteristics of a fundamental corporate change?
(1) Extraordinary circumstances, so they require board of director action and

(2) approval by a majority of the shares ENTITLED to vote

(3) possibility of a dissenting shareholder right of appraisal.
What is the right of appraisal?
The right of a shareholder to force the corporation to buy her shares at fair value. IN setting fair value, there can be no discount for the fact that there is no public market or that the person has a small interest.
When will a shareholder have a dissenting shareholder right of appraisal?
Certain actions trigger this right:

(1) some amendments to the articles;

(2) merger;

(3) Disposition of substantially all assets not in the ordinary course of business; or

(4) Transfer of shares in a share exchange.
When does a shareholder not have a right to a shareholder appraisal?
When the corporation's stock is listed on a national exchange or has more than 2,000 shareholders.

Thus, the right of appraisal really only applies in close corporations.
What does the shareholder have to do to perfect her right of appraisal?
(1) Before the shareholder vote, files with the corporation written notice of objection and intent to demand payment;

(2) abstain or vote against the proposed change; and

(3) After the vote, within the time set by the corporation, make a written demand to be bought out and deposit stock with the corporation.
What can happen if the corporation and shareholder cannot agree on fair value of the shares?
The court may appoint an appraiser.
What is required for a corporation's articles to be amended?
(1) Board of directors action and notice to shareholders.

(2) Shareholder approval (a majority of those shares entitled to vote must approve the amendment, not simply a majority of those who vote).

(3) If approved, files a certificate of amendment with the appropriate state agency.
What is required and happens for a valid merger?
(1) Board of directors action (for both corporations), and notice to shareholders.

92) Shareholder approval (generally both corporations). As always, majority of shares entitled to vote.

(3) No shareholder approval required in a "short-form" merger, where 90% or more owned subsidiary is merged into a parent corporation (or vice-versa).

(4) If approved, surviving corporation files articles of merger with the Secretary of State.
How does a merger effect the rights and liabilities of the merged company?
Thw surviving corporation succeeds to all rights and liabilities of the constituents. This is called successor liability.
For what corporation is a "disposition of all or substantially all of the assets not in the ordinary course of business" or share exchange (one corporation acquires all the stock of another) deemed a fundamental corporate change?

Requirements?
These are fundamental corporate changes for the transferring corporation only.

Requirements:
(1) Board of director action (both corporation), and notice to selling corporations' shareholders.

(2) Approval by transferring corporation's shareholders.

(3) File articles of exchange in share exchange. Usually no filing in transfer of assets.
For a "disposition of all or substantially all of the assets not in the ordinary course of business" or share exchange (one corporation acquires all the stock of another), is the acquiring company liable for the debts of the acquired company?
No, unless the deal says otherwise, or the company purchasing assets is merely a continuation of the selling corporation.

This makes sense, because the corporation that sold its assets still exists, so a creditor can still sue it.
What is required for a valid voluntary dissolution of a corporation?
(1) Board of directors action AND

(2) approval by a majority of the shares entitled to vote.

Notice of intent to dissolve must be filed with the secretary of state. Corporation stay in existence until wind up. Creditors must be notified so that they can make claims.
When can a corporation be dissolved by a court order (involuntary dissolution)?
Present shareholder cna petition because of:
(1) director deadlock causing irreparable harm to the corporation
(2) waste of assets;
(3) shareholders have failed at two consecutive anntual meetings to fill a vacant board position; or
(3) 20% of the outstanding shares petition because of illegal, oppressive, or fraudulent acts by directors.

Court can also order a buyout of the objecting shareholder (likely in a close corporation).
When can a creditor of a corporation petition for an involuntary dissolution of a corporation?
When the corporation is insolvent and (1) he has an unsatisfied judgment or (2) the corporation admits the debt in writing.
When can the GA Attorney General seek dissolution of a corporation?
When the corporation's incorporation was procured through fraud or there is an abuse of authority.
What is an administrative dissolution?
A Secretary of State gives notice of failure to pay license tax for one year, failure to maintain registered office, failure to file annual registration, etc. If the corporation does not remedy this situation within 60 days, Secretary of State can sign certificate of dissolution, dissolving the corporation.

Corporation can apply for reinstatement.
What is the "winding-up" of a corporation?
Dissolution is nto the end of the corporation. It is the beginning of a process that will end the corporation existence. Winding-up is the liquidation of the corporation's assets and payment of debts and distributions to creditors and shareholders.
What does winding up consist of?
(1) gathering all assets

(2) converting ot cash

(3) paying creditors, and

(4) distributing remainder to shareholders, pro-rata by share unless there is a liquidation preference.
What is a liquidation preference?
Basically means that when the corporation is liquidates, the holder of a liquidation preferences must be paid first.
What are the primary types of securities?
(1) debt - Investor lends capital to the corporation, to be repaid (usually with interest) as specified in the agreement. Usually either secured by corporate assets (mortgage bond) or unsecured ("debenture").

(2) equity - investor buys stock, and has an ownership interest in the corporation.
What is the purpose of federal rule 10b-5?
The federal law prohibits fraud or misrepresentation (or nondisclosure) in connection with the purchase or sale of any security (debt or equity).
What are the elements of a 10b-5 claim?
(1) "instrumentality of interstate commerce" used (mail, telephone, or if deal goes though, a national exchange).

(2) certain type of transaction:
(a) - misrepresentation of material information
(b) trading on material inside information when there is a duty to disclose
(c) tipping (passing along material inside information for a wrongful purpose).

(3) Materiality - The misrepresentation or omission must concern a "material" fact - one a reasonable investor would consider important in making an investment decision.

(4) Scienter - D must have na intent to deceive, manipulate or defraud. Recklessness may suffice.

(5) Reliance - Said to be a separate element, but is presumed in public misrepresentation and nondisclosure cases.
What is a tipper for 10b-5 purposes? A Tippee?
Tipper: One who (1) passes along material inside information in breach of a duty to the corporation, and (2) benefited from providing such a tip (Note: Making a gift or enhancing reputation is enough to constitute a benefit).

Tippee: One who traded on a tip and (2) knew or should have known that the information was improperly passed.
What is the purpose of federal rule 16b?
This is a federal law that provides for recover by the corporation of "profits" gained by certain insiders from buying and selling the company's stock.
When does rule 16b apply?
(1) A "reporting" corporation - one that is (a) listed on a national exchange or (2) has at least 500 shareholders and $10,000,000 in assets.

(2) types of defendants
(a) officer (either hen she bought or sold) or
(b) director (either hen she bought or sold) or
(c) shareholder who owns more than 10% (BOTH when she bought AND sold)

(3) types of transaction: Buying and selling stock within a single 6-month period (short-swing trading).
What happens when 16b applies?
All "profits" from such short-swing trading are recoverable by the corporation.
What is considered a "profit" for 16b purposes?
If, within 6 months before or after any sale, there was a purchase at a lower price, there is a profit.