Kansas Corporations

Front 1

Who is a Promoter?

Back 1

Promoters are persons acting on behalf of a corporation not yet formed.

Front 2

When does the corporation become liable on the promoter's pre-incorporation contracts?

Back 2

When the corporation accepts the contract by:
1) Express board resolution
2) By ratifying it
3) Knowledge and acceptance of benefits

Front 3

The promoter remains liable on pre-incorporation contracts until....

Back 3

Novation (an agreement between the promoter, the corporation and the other contracting party that the corporation will replace the promoter under the contract)

Front 4

What happens if the promoter enters into a contract and the corporation is never formed?

Back 4

The promoter alone is liable.

Front 5

What happens if the promoter enters into a contract and the corporation merely accepts the contract?

Back 5

The corporation becomes liable but the promoter is still liable under the novation rule.

Front 6

What is a subscriber?

Back 6

Persons or entities who make written offers to buy stock from a corporation not yet formed.

A pre-incorporation suscription offer is irrevocable for 6 months.

Front 7

Role of incorporators in the corporation formation?

Back 7

They merely sign and file the articles of incorporation

Front 8

What are authorized shares?

Back 8

The maximum number of shares the corporation is authorized to issue.

Front 9

What is the purpose in the articles of incorporation?

Back 9

The articles must contain some purpose even if it is just a general purpose.

Front 10

Effect of activites exceeding the scope of the purpose stated in the articles of incorporation?

Back 10

1. The State of Kansas may enjoin the ultra-vires activity and even dissolve the corporation.

2. Directors and officers are liable PERSONALLY to the own corporation by the ultra-vires activity.

Front 11

Who is the agent?

Back 11

The agent is the corporation's official legal representative and his address and registered office must be in file with the state.

Front 12

Absolute formation requirements to for a De Jure Corporation, the articles must include:

Back 12

N A P A I

1. Name of the Corporation
2. Authorized shares
3. Purpose
4. Agent
5. Incorporators

Front 13

Legal requirement for the corporation's name

Back 13

The name must contain some indicia of corporate status. i.e. The great steak, Inc.
i.e. The great steak, Corp.

Front 14

By-laws requirements in Kansas

Back 14

A bylaw is a rule governing the internal management of an organization, they generally cover topics such as how directors are elected, how meetings of directors and shareholders are conducted, and what officers the organization will have and a description of their duties.

In Kansas, the articles need not contain the by-laws. The shareholders have the power to adopt and amend the by-laws, unless the Articles give the power to the Board.

Front 15

What is the principle of limited liability for shareholders?

Back 15

Generally, shareholders are not personally liable for debts of the corporation. The shareholder is liable only for the piece of her stock.

Front 16

Piercing the corporate veil doctrine

Back 16

As a general rule a shareholder is not liable for the debts of a corporation, but to avoid fraud and unfairness, the courts will from time to time pierce the corporate veil. Doctrine arises in two situation:
1. Alter ego: parent/subsidiary
2. Failure to observe sufficient corporate formalities
2. Undercapitalization: failure to maintain sufficient funds to cover foreseeable liabilities.

Front 17

Selling of stock: what does a corporation need to receive when selling stock?

Back 17

1. Consideration: usually par value which is the minimum issuance price.

Front 18

No par value means...

Back 18

No minimum issuance price, (the boards valuation of adequate consideration is conclusive.)

Front 19

What is treasury stock?

Back 19

No par stock, treasury stock is stock that was previously issued and had been reacquired by the corporation. It can be re-sold

Front 20

Acquiring property with par value stock...

Back 20

Any valid consideration may be received in return of par value stock so long as the board values that consideration to be at least par value.

Front 21

Consequences of issuing par stock for less than par value

Back 21

Directors are liable for authorizing a below par issuance.

Front 22

What are pre-emptive rights?

Back 22

The right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock.

Front 23

Statutory requirements for directors

Back 23

1. Corporations must have a board with at least 1 member
2. Shareholders elect directors
3. Shareholders can remove a director before her term expires with or without cause
4. Action must be taken at a valid meeting

Front 24

Requirements of a valid meeting

Back 24

1. Unless all directors consent in writin gto act without a meeting, a meeting is required.
2. Notice to directors' meting can be set in by-laws
3. Quorum: must have a MAJORITY OF ALL DIRECTORS to do business (unless a different percentage is required in by-laws)
4. Vote: to pass a resolution, a majority vote of those present is required.

Front 25

Duties of directors to the corporation

Back 25

1. Duty to manage
2. Duty of care (prudent person standard)
3. Duty of loyalty

Front 26

Describe the duty of care by a director

Back 26

A director must act with the care of that a prudent person would use with regard to her own business.

Front 27

Describe the duty of loyalty by a director

Back 27

A director may not receive an unfair benefit to the detriment of the corporation or its shareholders, unless there has been material disclosure and independent ratification.

Remember: no usurping and no self-dealing.

Front 28

Indemnification of directors and officers

Back 28

Will depend on whether he prevailed or lost and whether the action if derivative (actions against the person in relation to corporate activities) or non-derivative (not in the right of the corporation):

IF HE LOST:

1. DERIVATIVE SUITS: Indemnification is limited ONLY TO EXPENSES (inc. attorney's fees) only if acted in good faith and in the corporation's best interests.

2. NON-DERIVATIVE SUITS: May indemnify for expenses, judgments, settlements and costs if acted in good faith and in the best interest of the corporation.

IF HE PREVAILED:

The corp. MUST ALWAYS indemnify expenses and reasonable costs if he wins a lawsuit against any party REGARDLESS OF WHETHER THE SUIT IS DERIVATIVE OR NOT.

Front 29

What is a derivative suit?

Back 29

A suit by shareholders to enforce corporate rights against directors or other insiders.

Always ask, could the corp. have brought this suit? If so, it's a derivate suit.

Front 30

Requirements for bringing a derivate suit?

Back 30

1. Contemporaneous stock ownership
2. Written demand on directors unless futile.

Front 31

Where do shareholders vote?

Back 31

1. Annual meeting
2. Specially noticed meeting

Front 32

Who has the right to vote at an upcoming meeting where voting occurs?

Back 32

Only the record date owner. Record date is the voter eligibility cut off date set by the board between 10-60 days in advance of the meeting.

Front 33

What is shareholder voting by proxy?

Back 33

A proxy is a (1) wriing, (2) signed by the record shareholder; (3) directed to the secretary of the corp. (4) authorizing another to vote the shares (5) valid for 3 years

Front 34

Revocability of proxies

Back 34

Proxies are freely revocable unless:
1) they say conspicuously irrevocable, AND
2) they are coupled with an interest

Front 35

What is the quorum required at a shareholder meeting?

Back 35

A quorum requires the majority of outstanding shares, unless otherwise provided in the articles.

Front 36

Voting by shareholders

Back 36

If quorum is present, action is approved if a MAJORITY of the shares REPRESENTED at the meeting vote in favor.

Front 37

How can shareholders increase their influence on voting even when they don't own the majority of shares?

Back 37

Shareholders who own relatively few voting shares can increase their influence by agreeing to vote alike.

Front 38

Pooled or block voting methods

Back 38

1. Voting trusts
2. Shareholder voting agreements

Front 39

What is voting trust?

Back 39

A formal delegatin of voting power to a voting trustee.

It has to be (1) written (2) filed with corp. (3) transfer of shares to voting trustee (4) SH's get trust certificates, and (5) shareholders retain all other rights except for voting.

Front 40

What is a shareholder voting agreement?

Back 40

Written agreement among shareholders dictating how they will vote their shares.

Front 41

Voting for directors

Back 41

General rule, each share is entitled to vote once and the candidates receiving the most votes win.

Front 42

Cumulative voting

Back 42

Under cumulative voting, multiply the number of shares times the number of directors to be elected.

Front 43

Right of shareholders to examine the books and records of the corporation

Back 43

Any Shareholder shall have access for proper purpose at proper times .

Front 44

Dividends

Back 44

Are to be declared in Board's discretion but the board members are liable fr declaring unlawful dividends that exceed the corporation's capital surplus or net profits.

Front 45

Priority of Distribution

Back 45

1. Preferred Shares
2. Participating preferred shares
3. Common stock

Front 46

Requirements of a close corporation

Back 46

1. Articles of incorporation must indicate that you are operating as a close corporation
2.Two Thirds of each class of stock must elect to operate as a close corp.
3. There must be some reasonable share transfer restriction i.e. no public trade

Front 47

Purpose of a Limited Liability Company

Back 47

The limited liability of a corporatin plus the tax status of a partnership

Front 48

Requirements to form an LLC

Back 48

1. Organizers file the Art. of organization
2. Members = shareholders: Managers=Directors
3. Limited life/limited liquidity

So an LLC= ltd liability + lts life = ltd liquidity + ltd tax

Front 49

Fundamental Corporate Changes

Back 49

1. Merger: consolidation, dissolution
2. Fundamental: amendment of articles, sale of substantially all of the corporations assets

Front 50

Fundamental corporate changes procedural steps:

Back 50

1. Board resolutioin
2. Notice of Special meeting
3. Approval by majority of shares
4. Dissenter right of appraisal
5. File notice w/state

Front 51

Anti-Fraud Section 10(b) of the Securities and Exchange Act of 1934

Back 51

1. Scienter -intent to deceive
2. Deception - material misrep. or misappropriation of material nonpublic information.
3. In connection with the actual purchase or sale of securities
4.

Front 52

When does Section 16(b) Short swing trading profits apply and what happens when it applies?

Back 52

1. Big corporations
2. Big shot defendant
3. Buying/selling stock within a single 6 month period (short-swing trading.

All profits will be recoverable by the corporation.

Front 53

Sabanes-Oxley Act

Back 53

2 requirements:
1) no knowingly false filings; and
2. No benefits during falsehoods or blackout periods.

Front 54

Dissolution of the corporation and time to bring claims against the corporation

Back 54

After dissolution a creditor has three years in which to bring claims. If the corp. has assets, the creditor can recover from the corp. If no assets, the former SH's and directors are generally not liable for the corp. debts.

Front 55

Exception to the general rule of no liability for SH's and directors after the corporation is dissolved

Back 55

A corporation may not distribute assets to Shareholders if the corporation is insolvent, creditors can hold the directors liable for the amount that was improperly distributed.

Front 56

De factor merger doctrine

Back 56

Generally, when one corp. buys the asseets of another corp. the buying corp. does not become liable for the selling corp. debts. But if the transaction was entered into fraudulently to escape liability on existing debts, then the new corp. will be liable.