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;
27 Cards in this Set
- Front
- Back
|
What does it take to form a corporation?
|
Incorporators sign, acknowledge, and file charter and resident agent’s agreement to serve with SDAT. Pay required fees. If the SDAT accepts the charter for filing that is conclusive proof of valid formation.
|
|
|
What is the charter? What must it contain?
|
A contract between corporation and shareholders and between corporation and state.
Must include: - Corporate name (including corporation, incorporated, limited, or company) - name and address of each incorporator - number of directors and the initial directors addresses - name of resident agent - purpose statement - capital structure |
|
|
What is an act outside the scope of the purpose statement called?
|
Ultra Vires act.
ultra vires contracts are valid, but shareholders can request an injunction, and the responsible managers are liable to the corporation for any loses. |
|
|
Name and describe the two doctrines by which a business can be treated as a corporation even if it has not filed correctly.
|
De Facto corporation - it may be abolished in MD, but may apply if parties have made a good faith attempt to comply with the incorporation statute, and have acted like they have a corporation.
Corporation by estoppel - one who treats a business like a corporation may be estopped from denying that it is a corporation later. Only applies to Contracts not torts. |
|
|
Liability for pre-incorporation contracts
|
Promoter will always be liable until novation. Corporation is liable if contract is adopted.
|
|
|
What is a subscription? Can they be revoked?
|
a written offer to buy stock from the corporation
pre-incorporation = irrevocable for 3 months post-incorporation = revocable until accepted |
|
|
What does the term water mean in reference to stock?
|
Stock acquired for no consideration. Anything less than par value. Directors and shareholder are liable to corporation, but third parties are not.
|
|
|
What are preemptive rights?
|
Right of an existing shareholder to maintain his % of ownership by buying more stock at a later issuance for money. Do not exist unless in charter.
|
|
|
Who votes for directors?
|
Shareholders elect directors at annual meeting. Usually not cumulative voting.
Directors can be removed if majority of shares entitled to vote actually vote to remove. Other directors may replace resigning directors by majority vote. |
|
|
How can directors act?
|
1. unanimous agreement in writing
2. at a meeting that satisfies quorum (majority) and voting requirements (must have sent notice too) |
|
|
What is the standard of care for directors?
|
By statute in Maryland, a director must act in good faith, with the reasonable belief that her act is in the best interest of the corporation, and with the care that an ordinarily prudent person would use under similar circumstances. There is a presumption that director action complies with this standard.
good faith best interest ordinarily prudent |
|
|
What must be shown before an interested transaction is allowed?
|
1. the deal was fair and reasonable OR
2. conflict was disclosed and the deal was approved by majority of disinterested directors or disinterested shares actually voting |
|
|
Which directors are liable when there is a breach of a duty?
|
All those that didn't dissent on the record, unless they were absent from the meeting.
|
|
|
Which officers are mandatory?
|
President, Secretary, Treasurer - one person can hold multiple offices, but can be more than one on the same document
|
|
|
Indemnification of Directors and Officers.
|
Cannot indemnify a person adjudged liable to corporation.
Must indemnify a person to the extent they were successful in defending a case against them May indemnify a person that settled CHARTER CAN ELIMINATE DIRECTOR AND OFFICER LIABILITY FOR BREACH OF DUTY OF CARE. |
|
|
What is a close corporation?
|
One managed by the shareholders - no board
Has few shareholders - not publicly traded Shareholders owe fiduciary duties to each other like a pship |
|
|
What is a "professional service corporation"?
|
a close corporation for professionals such as lawyers, doctors, and accountants.
Name must include P.C. (Professional Corporation), P.A. (Professional Association), or Chtd. (Chartered) Only the professionals can be shareholders General corporate law applies otherwise |
|
|
When can you Pierce the Corporate Veil? What are the two common fact patterns?
|
1. shareholders must have abused the privilege of incorporating, and
2. fairness must require holding them personally liable MD courts are reluctant to do this unless there is fraud or illegality Common fact patterns: Alter Ego and Undercapitalization |
|
|
Derivative suit requirements
|
-must be stock holder at time claim arose
-must own the stock throughout the litigation -must make written demand on the board to bring the suit themselves unless it would be futile -the corporation must be joined as a defendant |
|
|
Can the board dismiss a derivative suit?
|
Yes, if an independent committee completes a good faith investigation and determines that the case is not in the best interests of the corporation
|
|
|
Proxy requirements - how long does a proxy last? Are they revocable?
|
Must be in writing, directed to secretary of corporation directing another to vote the shares.
Last 11 months unless it says otherwise (only for one annual meeting) Proxies are generally always revocable, unless the proxy holder also has an interest in the stock such as an option to buy. |
|
|
How is a special meeting called?
|
Can be called by the board, the president, or the holders of 25% of shares.
Must be called for a valid purpose - shareholders cannot call a meeting to remove an officer Notice must be sent and/or waived - otherwise meeting is void |
|
|
Are stock transfer restrictions valid?
|
Only if they are not an undue restraint on alienation.
|
|
|
Types and desciptions of preferred stock
|
preferred stock - gets paid before common
preferred participating - gets paid before common, and then also gets whatever common gets cumulative preferred - dividend accrues year-to-year so normally will have to pay for every year not paid plus the current year - paid first |
|
|
What are the requirements for a fundamental corporate change?
|
1. Board must adopt resolution
2. Board must notify shareholders 3. Shareholders must approve by 2/3 of the shares entitled to vote 4. deliver notice to SDAT |
|
|
When can a shareholder demand appraisal?
|
1. amendments to charter that substantially and adversely affect rights
2. merging or consolidating 3. transferring all or substantially all assets not in ordinary course 4. transferring shares in share exchange |
|
|
What is insider trading called in MD?
|
Failure to share "special facts" by a director or officer with inside information
|
