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117 Cards in this Set
- Front
- Back
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What is a corporation?
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A legal entity separate and distinct from legal personalities of those who own and manage the corp.
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What is a promoter?
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A person acting on behalf of a corporation not yet formed.
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What fiduciary duties do promoters have between themselves?
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1) They have fiduciary duties of joint venturers until the corp is organized.
2) After incorporation, the have only rights duties and oblighations of SHs. |
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What fiduciary duties do promoters have to outside investors for profits taken before those investors come in?
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They must account to the corp for profits from self dealing befor outsiders came, whenever issuance of additional shares to uninformed SHs was contemplated or the public was invited to become original SHs.
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What fiduciary duties do promoters have to outside investors for profits taken after those investors come in?
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They must disclose and account to the corporation for their secret profits and profit from self dealing.
**unless there was ratification |
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What is the liability of the corporation for contracts signed by a promoter b/f the corporation came into existence?
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A corp is NOT liable on preincorporation contracts until it ADOPTS the contract.
**Adoption may implied from knowing acceptance of he contract's benifits |
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What is the liability of the promoters for contracts entered into b/f the corporation came into existence?
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Promoter is personally liable for all contracts unless
1) the intention of the parties was evidently to bind the corp, or 2) novation of the contract has occurd between the 3rd contract and the corp. |
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Can the corp enforce a preincorporation contract entered into by the promoter?
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Yes, provide it adopts the contract.
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Who can be a incorporator?
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Natural humans over age 18 - no entities.
** this is unusual b/c in most states an entity could be an incorporator. |
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What are the purposes of the certificate of incorporation?
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1) It's a contract between the corp and SHs;
2) It's also a contract between corp and state. |
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What are the contents of the ceritificate of incorporation?
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1) Name of the corp (must use corp, incorp, or ltd in the name)
2) Purpose (may be any lawful purpose); 3) County where the office will be located; 4) Number of authorized shares and description; 5) Designation of the sec of state as agent for service; 6) Duration (perpetual if not stated) 7) Limitations on director liability. |
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How is the certificate executed and filed?
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1) The certificate must be signed by the incorporators b/f a notary.
2) The corp commences existence upon the filing of the certificate by the department of state. |
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Is there a minimum capital requirement before the corp commences business?
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No
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What is the defacto corporation doctrine?
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Where there is defective formation, there will be a defacto corp where:
1) There is colorable compliance with the corp statute; 2) Good faith; and 3) User of corporate privilage **It is unclear whether this doctrine is still viable. |
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When may the corp entity be disregarded?
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When it is necessary to prevent fraud or to achieve equity. The SH domination must be so complete and interference so intrusive that the corp is merely an agent of the SHs.
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What are the major statutory powers of a corp?
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The power to
1) Transfer or mortgage all or any of its assets 2) Lend money 3) Buy and sell securities 4) Contract and borrow 5) Compensate employees 6) Participate in other ventures as a promoter/partner |
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What is an ultra vires act?
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An act by the officers or directors, outside the corp's stated purpouse.
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When may ultra vires be asserted?
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1) an action against an officer or director
2) In a proceeding by the attorney general to annul, disolve, or enjoin the corp 3) Injunction action by SHs to enjoind any unauthorized act |
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Is ultra vires a defense to contracts?
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Usually not in NY.
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What is the liability for Corp ultra vires losses?
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Responsible officers and directors are liable to the corp for the ultra vires losses
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What rights do SHs have in management of the corp?
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Can only exert indirect control via:
1) elections of directors, 2) amendment of certificate, and 3) approval org changes. **Closely held corps may confer management power on SHs |
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What notice must be given for SH meetings?
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Written notice must be given to each SH entitled to vote no less than 10 or more than 60 days before the date of the meeting.
**Notice for special meetings must indicate who called the meeting and the purpose. |
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What is the effect of failure to give notice?
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It renders action taken at the meeting void.
**SH may waive notice in writting or by attendance in person or by proxy, unless lack of notice is raised. |
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Who is eligible to vote at the SH meetings?
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Each SH of record is entitled to vote for each share held by the SH, unless otherwise provided in the certificate.
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When is the day of record (ie, when eligibility to vote is determined)?
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1) May be set by the corp, but no less than 10 or more than 60 days before the meeting
2) If no date is fixed, the date is the close of the business day after notice 3) If no notice, it's the day befor the next meeting |
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What are proxies?
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Any shareholder entitled to vote at a meeting may authorize another person to act for him by proxy.
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What form must a proxy take?
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1) A written proxy signed by the SH or its authorized officer or agent is valid
2) A telegram or other electronic means is valide if the appointment is accompanied by some means for determining that it was authorized by the SH. |
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How long are proxies valid?
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Proxies are valid only for 11 months from the date they are given unless otherwise provided in the proxy.
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Are proxies revocable?
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A proxy is revocable at will of the SH executing it unless
1) Expressly irrevocable and coupled with an interest (e.g., acquired ownership after record date), OR 2) Expressly irrevocable and given pursuant to a voting agreement |
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What is the effect on the proxy of death or incompetence of the SH?
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Revokes the proxy only if, before the authority is exercised, the officer responsible for the SHs’ list receives written notice.
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What is a quorum?
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Generally, requires majority of outstanding shares entitled to vote
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What is the effect of a lack of quorum?
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If a quorum is not represented at the meeting, SH action is invalid absent unanimous written consent.
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Can the quorum be increased or decreased by the corp?
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1) Can be decreased by certificate or by laws
2) Can be increased by certificate only. **quorum can never be less than 1/3 |
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What number of votes are required for a SH action on an ordinary matter?
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Majority of shares voted.
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What number of votes are required for a SH action on a fundamental change?
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2/3 of all outsanding shares entitle to vote.
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How may SHs vote for directors in a cumulative system?
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Each SH gets the same number of votes as directors being elected, and may vote them in any way (eg, could use all 8 votes for one director)
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How may SHs vote for directors in a non-cumulative system?
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May not vote more than once for any director.
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What is a voting trust?
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An agreement by 2 or more SH to vote their shares in a particular manner.
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What are the requirements for a voting trust?
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1) Written trust agreement controlling how shares will be voted,
2) Copy to Corp, 3) Transfer legal title of shares to voting trustee (i.e., it is a "real" trust), AND 4) Original SHs receive voting trust certificate and retain all SH rights except voting |
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What is a voting agreement?
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Signed writing by 2 or more SHs that their shares will be voted,
1) as provided in the agreement 2) as they may agree in the future 3) as determined by a procedur agreed upon by them |
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What is the difference between a voting trust and voting agreement?
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1) In a trust, the SHs only retain beneficaial ownership,
2) In an agreement, the SHs retain legal and beneficial ownership. |
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When can SH action be taken without a meeting?
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1) When there is written consent of 100% of the SHs entitled to vote, or
2) when there is written consent of an amount provide in the certificate |
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What are the fiduciary responsibilities of SHs?
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Generally no responsibility, except that controlling SH must exercise utmost good faith to minority.
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Who may be a director?
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Must be at least 18, but the certificate or bylaws may add other qualifications.
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What is the role of directors?
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Generally, the business of the corp is managed under their direction.
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When may the management authority of the directors be restricted or transfered to SHs via the certificate?
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If:
1) allowed in the certificate, 2) all incorporators or SHs of record have authorized such provision, 3) all subsequent SHs have notice of such provision, and 4) no shares are listed on an exchange or are regularly quoted over the counter. |
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When may the management authority of the directors be restricted or transfered to SHs via the bylaws or other agreements?
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1) via bylaws if the restrictions are consistent with law and don't prevent directors from acting with their best judgment.
2) by other agreements if the certificate so provides |
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How many directors must/may there be
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At least one, but any other number can be set in the bylaws, by the SHs, or by the directors if the bylaws give them such power.
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How are directors elected?
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1) Intial directors are chosen by the incorporators
2) At each annual SH meeting, new directors are elected |
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What is a classified board?
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The certificate or bylaws may divide the board into classes and provide that only one class will be elected at each annual meeting.
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How are vacancies on the board filled?
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By vote of other directors.
**unless the last director was removed w/o cause by the SHs, then the SHs vote. |
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When may a director be removed for cause?
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1) Any or all may be removed by a vote of the SHs
2) the board may remove pursuant to the certificate or bylaw adopted by SHs. **exception: directors elected by class may never be removed by the board |
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When may a director be removed without cause?
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Only by SHs if the certificate or bylaws so provide.
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How many vote are needed to remove a director elected by cumulative voting?
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no director may be removed if the votes cast against removal would be sufficient to elect the director at election of the entire board.
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What are the formalities for action by directors?
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Generally action must be by formal meeting, but may also be by unanimous written consent unless the certificate or bylaws provide otherwise.
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When will action by the corp be binding in spite of lack of formal action by directors?
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Where grounds exist for finding ratification or acquiescence by the directors.
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Where can meetings be held?
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In or outside NY, and may be by teleconference.
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Is notice required for board meetings?
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Only for special if regular meetings are fixed in time and place by the bylaws or the board
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What is the effect of lack of notice?
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Actions taken are invalid absent ratification.
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When may notice of the board be waived?
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1) By signed written notice before or after the meeting, or
2) attendance without protest prior to commencement of the meeting |
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What is the quorum for board meetings?
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Majorty of directors unless certificate or bylaws provide for less
**No less than 1/3 |
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What number of votes is required for action by the board?
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Generally, majority of directors present.
**Votes to change the number of directors must be by majority of all directors. |
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What are director committees?
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If authorized by the certificate or the bylaws, the board may designate one or more directors to constitute a committe which has all the powers of the full board.
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Who are the officers of a corp?
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The board may elect or appoint a president, one or more VPs, a secretary, and a treasurer.
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May a person hold more than one corp office?
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Yes.
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May the officers be elected by the SHs?
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Yes, if the certificate or bylaws provide so.
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How long do officers hold meetings?
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Unless the certifcate or bylaws otherwise provide, officers hold office until:
1) the first directors’ meeting after the next annual shareholders’ meeting, or 2) the next annual meeting of shareholders (if the officers are elected by the shareholders). |
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How are the powers and authority of officers determined?
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Rules of agency determine the authority and power against outsiders.
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How may unauthorized acts of officers be ratified?
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1) by express resolution of the board
2) acquiesence or acceptance of benefits of the acts with knowledge of facts |
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What is generally the power of the president?
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Power to enter into ordinary contracts
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What is generally the power of the secretary?
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The power to keep and maintain corporate records.
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What is generally the power of the treasuer?
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The power to handle finances.
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How may an officer be removed?
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Usually with or without cause by the board unless the officer was elected by SHs.
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What are the fiduciary duties of directors and officers?
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1) Duty of care
2) Duty of loyalty |
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What is the duty of care for directors and officers?
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Directors and officers must discharge their duties:
1) in good faith, and 2) with care a skill that a oridnarily prudent person would exercise under similar circumstances in like positions. |
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What is the business judgment rule?
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Courts will not second guess the opinions of directors if exercised in good faith.
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What is the extent of a director's liability for breach of duty of care?
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Recovery may only be had for loss proximately caused by the director's negiligence.
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What information may a director or officer rely upon?
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If acting in good faith, they may rely upon info, opinions, or reports of employees, counsel, public accountants, or a committe of the board.
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What is the duty of loyalty for directors and officers?
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Duty to act in good faith.
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How are interested director transaction tested for duty of loyalty violations?
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BCL supplies 2 tests (approval and fairness) for interested director transactions, and if either is met, the that transaction can't be avoid simply because of an interested director
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What is the approval test?
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A interested director transaction is not voidable if:
1) the disinterestd directors approve the transaction, or 2) SHs approve the transaction by vote with awareness of all material facts. |
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What is the fairness test?
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A transaction not approved above may be avoided by the corp unless the parties thereto affirmativel establish the transaction was fair/reasonable to the corp at the time of approval.
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Does the board have the power to fix director compensation?
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Yes unless restricte by the certificate or bylaws.
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What is the duty of loyalty's corporate opportunity doctrine?
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Neither directors, officers, nor controlling shareholders may acquire or divert to themselves property or opportunities that the corporation needs or is seeking.
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What actions must a director or officer take regarding a corp opportunity?
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Must present the opp to the corp, disclose all material facts, and take advantage only if the corp does not pursue.
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When will taking of "corp opp" not violate the corp opp doctrine?
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Where:
1) The corp has refused the opportunity, 2) The corp would not have been able to take advantage of the opportunity, or 3) The opp is not appropriate or logically related to the business. |
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May director or officer sell his corp office to another?
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No, he must account to the corp for payments recieved as payment for turning over his office.
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What is the statutory liability of directors?
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Jointly and severally liable to the corp if they vote for:
1) Dividends or other distribution in violation to the BCL or certificate 2) Repurchasing of shares by the Corp contrary to the BCL or certificate 3) Distributing assest after dissolution without adequately providing for known liabilities 4) Making any loan to a director w/o the required SH approval |
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What is the exception to director statutory liability?
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No director is liable who has discharged his duties in good faith and with requisite duty of care.
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How is it determined which directors are liable?
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1) Directors are presumed to have conncurred unless dissent is noted in writing in corp recs.
2) Absent directors are liable unless they register dissent w/in reasonable time. |
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Who may bring an action against directors or officers for misconduct?
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1) the corp
2) a receiver, trustee in bankruptcy, or corp creditor 3) an officer or director 4) a SH or voting trustee, provide the derivative action conditions are met. |
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When is indemnification of Directors and officers allowed for suits is by or on behalf of the corp?
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1) Prohibited if D/O is found liable to corp
2) As a matter of right if D/O was successful in defending the action |
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When is indemnification of Directors and officers allowed for suits by some other party?
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It is permitted if D/O shows he acted in good faith and for a purpouse reasonably believed to be in the corp's best interest.
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Who may order payment of indemnification if D/O was wholly successful in defense?
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If the D/O was wholly successful in defense ordinary corp action is sufficient
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Who may order payment of indemnification if D/O was wholly successful in defense?
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Indemnification by corp action requires authorization by either:
1) The board upon finding the applicable standard was met 2) SHs upon finding the applicable standard was met, or 3) The board upon written opinion of legal counse that indemnification is proper. |
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What is a derivative suit?
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SH steps in to sue on behalf of Corp to enforce Corp's claim
**always ask whether Corp could have brought suit, or if SH is suing Corp for personal claim |
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What is the recovery for derivative suits?
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1) If successful, Corp gets recovery, but must reimburse SH for costs and expenses
2) If unsuccessful, SH not entitled to reimbursement for costs, and may even be liable to Corp for its costs |
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What are the three basic requirements for a derivative suit?
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1) Stock ownership at the time the claim arose through entry of jugdment
2) Suit must adequately represent the interests of the corp and SHs. 3) Must first demand that the director bring suit unless that would be futile. |
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When will demand be deemed futile?
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Only if P can show
1) a majority of the board is interested, 2) investigation was incomplete or inadequate, or 3) the transaction was so egregious that it could not have been the result of sound business judgment. |
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When may the corp have a derivative action dismissed?
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1) Showing P knew of, assented to, and benefited from the acts
2) Where there is a low chance of recovery, costs exceed benefits, etc. |
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What is authorized stock?
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The max number of shares a corp can sell.
**may be modified by amendment of the certificate |
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What is par value for shares?
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Minimum is issuance price.
**if no par is given, board sets price unless right is reserved to SHs in the certificate |
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What is treasury stock?
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Stock that was previously issued and then reacquired by the corp
**treated as no par for consideration purposes |
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What are subscriptions for shares?
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Written signed offers to buy stock from the corp.
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When may subscription be revoked?
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1) Pre-incorporation, they are irrevocable for 3 months, unless the agreement provides otherwise or all other subscribers consent to the revocation
2) Post-incorporation, revocable until accepted by the board. |
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What form of consideration may be used to pay for shares?
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1) Money
2) Property 3) Past Services 4) Agreement to pay in the future in cash or property y) Agreement to provide future services |
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Who can make the judgment of consideration value?
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Ussually the board's judgment as to the value of consideration recieved for shares is conclusive absent fraud.
**Shares judgment is conclusive in proper no par cases. |
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Who is liable in a "water stock" transaction (ie, issuing par stock for less than par)?
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1) Directors if the knowing authorize the issuance
2) Purchasing SH **subsequent transferee not liable if he acted in good faith |
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What are preemptive rights?
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The right of an existing SH to maintain a percentage of ownership whenever there is a new issuance of stock for money.
**does not apply to sales of treasury sales OR shares authorized by original cert and sold w/in 2 years of formation. |
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Do preemptive rights exist if the certificate is silen regarding preemptive rights?
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1) If formed on/before 2/22/98, yes for all shares with voting rights
2) If formed after 2/22/98, then no. |
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What form may dividends take?
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1) Cash
2) Corp bonds 3) Property 4) Shares |
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What are SH's rights to receive dividends?
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Directors have discretion when and to what extent to declare dividends, but once lawfully declared SHs take creditor status.
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What are preferred shares?
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Holders of preferred shares are generally entitled to have stipulated dividends declared on their shares before any dividend on junior shares
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When will a dividend payment be illegal?
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1) If the corp is insolvent
2) It is contrary to the certificate restrictions 3) Cash and property dividends may only be paid from surplus **After dividend, the net assets must at least exqual stated capital |
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Who is liable for illegal dividends?
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1) Directors are personally liable (w/ possible good faith exception)
2) Shareholders are personally liable if they knew distribution was unlawful when recieved |
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What basic procedures are required to effectuate fundamental corp changes?
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1) must be authorized by SHs, board, or both
2) must be filed by dept of state |
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What are the specifics for the different changes?
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See chart.
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