Ny Bar 2007 Corporations

Front 1

Requirements to Form a Corporation

Back 1

1) Incorporators sign and acknowledge the certificate of incorporation, pay a filing fee and deliver the certificate to the Secretary of State.
2) Incorporatos hold an organizational meeting to adopt the bylaws and elect an initial board of directors.

Front 2

Incorporators

Back 2

1 or more adult humans who execute the certificate of incorporation.

Front 3

Purposes of the Certificate of Incorporation

Back 3

Contract between the corporation and the shareholders.
Contract between the corporation and the State.

Front 4

Certificate of Incorportion: Required Information

Back 4

1. Corporate name which must include "Corporation", "Incorporated" or "Limited".
2. County in NY where the office of the corporation exists (does not need to be principal place of business)
3. Designation of the NY Secretary of State as agent for service of process
4. Optional designation of a private registered agent for service of process.
5. Address for forwarding service of process.
6. Name and address of all incorporators.
7. Duration - if not specified it is perpetual.
8. Purpose of corporation - may be general (any lawful act) or specific.
9. Capital structure of the corporation.

Front 5

Ultra Vires Acts

Back 5

If the certificate of incorporation specifies a purpose, ultra vires acts are those outside the scope.
Ultra vires contracts are valid.
Shareholders may seek injunctions against ultra vires acts.
Officers or directors responsible for ultra vires acts may be held personally liable to the corporation.

Front 6

Authorized Stock

Back 6

The maximum number of shares the corporation may sell.

Front 7

Issue Stock

Back 7

The actual number of shares that the corporation has sold.

Front 8

Outstanding Stock

Back 8

Shares that have been issued and not reacquired by the corporation.

Front 9

Treasury Stock

Back 9

Shares that have been reacquired by the corporation.
They may not be voted.

Front 10

Capital Structure Information Required on the Certificate of Incorporation

Back 10

1. The authorized stock
2. The # of shares per class
3. At least 1 class must have unlimited voting rights an at least 1 class must have unlimited dividend rights.
4. Par value, rights, preferences and limitations of each class.
5. Information on any series of preferred shares.

Front 11

Legal Significance of the Corporate Form

Back 11

A corporation is separate legal person whose internal affairs are governed by New York law.
A corporation may:
1. enter into contracts,
2. transfer property,
3. sue or be sued,
4. buy and sell securities,
5. make political contributions up to 5K,
6. make unlimited charitable contributions,
7. guaranty loans not in furtherance of corporate business with approval of 2/3 of the shares.

Front 12

Liability of Corporations in General

Back 12

The directors and officers are not liable for the obligations of the corporation.
The shareholders (owners) enjoy limited liability.
The corporation itself is liable fo corporate debts and obligations.

Front 13

De Facto Corporation Doctine

Back 13

This has been abolished except in limited circumstances.
When a corporation is formed under a relevant incorporation statute which the incorporators have made a good faith colorable attempt to comply with (but failed) and there has been an exercise of corporate privileges, the entity may be treated like a corporation except in actions by the State.

Front 14

Corporation by Estoppel

Back 14

A person who has been dealing with an entity as a corporation may be estopped from denying the business's corporate status in later actions.
This has been abolished in New York.

Front 15

Corporate Bylaws

Back 15

Bylaws are not a condition precedent to formation of the corporation are not necessary to the operation of a corporation.
Bylaws establish internal procedures and responsibilities.
Bylaws are NOT filed with the State.
Bylaws are adopted by the incorporators at the organizatinal meeting and have the status of shareholder-adopted bylaws.
Bylaws may be amended or repealed by the shareholders.
The board of directors may amend or amend or repeal the bylaws only if permitted in the certificate of incorporation or in shareholder-adopted bylaws.
Bylaws inconsistent with the certificate of incorporation are void.

Front 16

Pre-Incorporation Contracts

Back 16

Contacts entered into by the promotor of a corporation on behalf of the not-yet-formed corporation.
The corporation is not liable on pre-incorporation contracts until it adopts the contract expressly through board action or implicitly from the corporation's knowing acceptance of the benefit of the contract.
Promotor remains liable on the contract until novation.

Front 17

Novation

Back 17

An agreement between the promoter, the corporation, and the other contracting party that the corporation will replac the promotor under the contract.
This releases the promoter from liability under the contract.

Front 18

Secret Profit Rule

Back 18

The promoter can NOT make a secret profit on dealings with the corporation and will be disgorged of any profits.
When the promoter sells property to the corporation which was acquired before becoming a promoter, the profit equals the price paid by the corporation less the fair market value of the property at the time of acquisition.
When the promoter sells property to the corporation which was acquired after becoming a promoter, the profit equals the price paid by the corporation less the price paid by the promoter.

Front 19

Foreign Corporations Doing Business In New York

Back 19

A corporation incorporated outside New York must qualify if doing business in New York by applying to the NY Department of State designating the Secretary of State as agent for service of process and paying a fee.
The foreign corporation must file the information on its certificate of incorporation and proof of good standing in its home state.
The penalty for doing business without qualifying may be monetary and the foreign corporation is barred from suing in NY although it may be sued.

Front 20

Stock Subscriptions

Back 20

A written, signed offer to buy stock from the corporation.
Pre-incorporation subscriptions are irrevocable for 3 months unless all subscribers agree or the subscription documents provide otherwise.
Post-incorporation subscriptions are revocable until acceptance.
Acceptance by the board of directors obligates both parties.
Sale of stock must be uniform within each class or series of stock.

Front 21

Stock Subscription: Effect of Subscriber Default on Payment

Back 21

Upon subscriber's default of payment and failure to pay within 30 days of a written demand:
1. if subscriber has paid less than 1/2, the corporation keeps the money and the shares are cancelled becomming authorized and unissued.
2) if subscriber has paid more than 1/2, the corporation must try to sell he stock to another party for cash or a bindig obligation to pay cash. If the corporation can not sell, the corporation keeps the money and the shares are cancelled becomming authorized and unissued. If they sell the shares for more, the defaultin subscriber revocers any excess over the agreed value, less any selling expenses.

Front 22

Valid Consideration for the Purchase of Shares in a Corporation

Back 22

1. Money - cash or equivalents
2. Tangible or intangible property
3. Services already performed for the corporation including those performed in forming the corporation
4. A binding obligation to pay in the future in cash or property
5. A binding obligation to perform future services having an agreed upon value
Note: the use of any other form of consideration leads to unpaid stock which is treated like water.

Front 23

Par

Back 23

Minimum issue price

Front 24

No Par

Back 24

No minimum issue price, the board of directors sets the price. Shareholders may set the price only if permitted in the certificate of incorporation.

Front 25

Valuing Property Acquired with Stock

Back 25

The board of directors values the property which is binding if made in the absence of fraud.

Front 26

Watered Stock

Back 26

If the board of directors issues stock for less than par value it is watered stock.
Directors are liable for the water if they knowingly authorized the issuance.
Purchase is liable for the water since they have notice of the par value via the stock certificate.
A third-party purchaser acting in good faith and without knowledge of the water has no liability.

Front 27

Preemptive Rights

Back 27

Preemptive rights allow shareholders to maintain their percentage of ownership by purchasing stock whenever there is a new issuance of common stock for money, unless it is a sale of shares authorized under the original certificate and sold within 2 years of formation.
Shareholders of corporations formed pre-2/22/98 were presumed to have preemptive rights unless otherwise stated on the certificate.
Shareholders of corporations formed post-2/22/98 do not have preeemptive rights unless explicitly permitted by the certificate of incorporation.

Front 28

Number of Directors

Back 28

Must be 1 or more natural persons set by:
1. The bylaws,
2. Shareholder action,
3. The board of directors if permitted by the bylaws.

Front 29

Election of Directors

Back 29

The intitial board of directors is elected by the incorporators.
Subsequent directors are elected to the board by shareholder vote at the annual meeting.

Front 30

Classified Board

Back 30

A staggered board with up to 4 classes with 1 class elected each year. There must be at least 3 directors per class.

Front 31

Removal of Directors Before Term Expires

Back 31

1. Shareholders for cause,
2. Board for cause if permitted by certificate or bylaws,
3. Shareholders without cause if permitted by certificate or bylaws.

Front 32

Filling Board Vacancies

Back 32

Mid-term vacancies are filled by the board of directors.
If the director was removed by the shareholders without cause (if permitted by the certificate or bylaws) then the sharholders fill the vacancy.

Front 33

Board Actions

Back 33

Board actions require a meeting or unanimous written consent to act without a meeting.
The meeting may be held anywhere.
Conference calls are permitted unless forbidden by the certificate or bylaws.

Front 34

Board Meeting Notice Requirements

Back 34

Regular meetings require no notice because the time and place is set out in the bylaws.
Special meetings require notice via a method set out in the bylaws.
Faulty notice voids the board action unless the director without notice waives the notice defect i) anytime with a signed writing or ii) by attending the meeting without objection.

Front 35

Board of Director Voting Proxy or Voting Agreement

Back 35

Void as against public policy and may not be used.

Front 36

Board of Director Meeting Quorum Requirements

Back 36

A majority of the entire board, ignoring vacancies.
Requirement may be reduced to a minimum of 1/3 of the directors in the certificate or bylaws.
Requirement may be increased in the certificate only.

Front 37

Board of Directors Meeting Passing Resolutions

Back 37

Passing a resolution requires a majority vote of those present at the meeting.
Requirement can not be reduced.
Requirement may be increased (to a supermajority for example) only in the certificate.

Front 38

The Role of Directors

Back 38

Directors manage the business of the corporation.
Set policy.
Monitor and supervise officers.
Declare dividends and other distributions.
Decide when to issue stock.
Recommend fundamental corporate changes.

Front 39

Delegation of Management Functions by the Board

Back 39

Delegation to a committee of 1 or more persons must be permitted by the certificate or bylaws.

Front 40

Non-Delegable Board Powers

Back 40

Certain powers may not be delegated, but the committee has the power to recommend review by the full board.
1. Amend, repeal or adopt bylaws,
2. Submit a fundamental change to the shareholders,
3. Fill a board vacancy,
4. Set director compensation.

Front 41

Director's Duty of Care

Back 41

A director must discharge his duties in good faith and with that degree of diligence, care and skill that an ordinarily prudent person would exercise under similar circumstances.

Front 42

Director Nonfeasance as a Breach of the Duty of Care

Back 42

When a director does nothing (abstains) he is liable only if the breach of duty caused a loss to the corporation.

Front 43

Director Misfeasance as a Breach of the Duty of Care

Back 43

When a director affirmatively acts and hurts the corporation, the director is not liable if the business judgment rule is met.

Front 44

Business Judgment Rule

Back 44

A court will not second guess a business decision if it was made in good faith, the board was reasonably informed and the decision had a rational basis.

Front 45

Director's Duty of Loyalty

Back 45

A director must act in good faith and with the conscientiousness, fairness, morality and honesty the law requires of fiduciaries.

Front 46

Interested Director Transactions, a Breach of the Duty of Loyalty

Back 46

Any deal between the corporation and one of its directors (including businesses the director is also a director of or has a substantial financial interest in.

Front 47

Results of an Interested Director Transaction

Back 47

The deal is st aside unless the director can show:
1. the deal was fair and reasonable to the corporation when approved or
2. the material facts and the director's interest was disclosed or known and the deal was approved by the shareholders, or the board of directors by sufficient disinterested vote.

Front 48

Board Compensation and Director Duty of Loyalty

Back 48

Set by the board of directors, it must be reasonable, made in good faith and not excessive (otherwise it is a waste of corporate assets and breaches the duty of loyalty).
The use of options in compensating the board requires shareholder approval.

Front 49

Competing Ventures and Director Duty of Loyalty

Back 49

A director may not compete with the corporation.
If a director does compete with the corporation, the corporation receives a constructive trust on the director's profits AND the corporation may sue for damages for any harm caused by the director's actions.

Front 50

Corporate Opportunities and Director Duty of Loyalty

Back 50

A director cannot usurp a corporate opportunity (an opportunity the corporation needs, has an interest or tangible expectancy in, or that is logically related to its business).
Directors must present all corporate opportunities to the board and if rejected by the board the director may take the opportunity.
The remedy is a constructive trust requiring the director to sell to the corporation at his cost or disgorging the director of his profits.

Front 51

Director Liability for Improper Loans of Corporate Funds

Back 51

For pre-2/22/98 corporations a shareholder vote is required to determine whether a loan benefits the corporation, unless the certificate permits the board to make such determination.
For post-2/22/98 corporations, the board of directors decides whether a loan benefits the corporation.
Sarbanes-Oxley forbids corporate loans to executives in public companies.

Front 52

Director Liability for Improper Distributions

Back 52

No dividend may be paqid if the corporation is insolvent or if the payment would make it insolvent.
Directors are liable for dividends paid contrary to restrictions in the certificate.
Cash or property dividends may ony be paid out of surplus (assets - liabilities - stated capital)

Front 53

Director Liability for Approval of Improper Board Actions

Back 53

A director is presumed to have concurred with a board action unless:
1. Dissent is noted in writing in the corporate records (meeting minutes, in writing to the corporate secretary at the meeting or registered letter to the corporation promptly after meeting).
If director is not present at meeting he must register written dissent within a reasonable amount of time after learning of the action.
A director may rely in good faith on information, opinions, reports or statements made by reliable employees, lawyers, public accountants or board committees.

Front 54

Officers in General

Back 54

Officers owe a duty of care and a duty of loyalty to the corporation.
Officers are agents of the corporation and can bind the corporation if authorized.
Officers: President, 1 or more VPs, secretary, treasurer - as defined in bylaws.
Compensation is set by the board of directors.

Front 55

Selection and Removal of Officers

Back 55

Board of directors selects and removes unless certificate authorizes shareholders to do so.
If shareholders elect (permission in certificate) only shareholders may remove, but board may restrict officer's authority to act.
Officers may be removed by judicial action commenced by the attorney general or a holder of more than 10% of the shares to remove officer for cause or bar reappointment of an officer so removed.

Front 56

Indemnification of Officers and Directors

Back 56

A person sued in the capacity as officer or director by or on behalf of the corporation may be indemnified.
Indemnification is prohibited if the officer or director is found liable.
Indemnification is of right if the director or officer was succesful in defending the suit.
Indmenification is permissive if the officer or director acted in good faith for a purpose reasonably believed to be in the corporation's best interest and may be reimbursed any settlement amount, expenses and attorney's fees but not any judgment.

Front 57

Permissive Indemnification of Officers and Directors

Back 57

Indmenification is permissive if the officer or director acted in good faith for a purpose reasonably believed to be in the corporation's best interest and may be reimbursed any settlement amount, expenses and attorney's fees but not any judgment.
Eligibility is determined by:
1. The board with a quorum of directors being non-parties, or if there is no quorum,
2. The shareholders or a quorum of disinterested directors or
3. the board pursuant to a report from independent legal counsel.

Front 58

Advancement of Director or Officer Litigation Expenses

Back 58

Litigation expenses may be advanced but must be repaid unless director or officer is entitled to reimbursement.

Front 59

Indemnification of Directors or Officers Liability By Certificate or Bylaws

Back 59

Indemnification is available by i) resolution of the board; ii) resolution of the shareholder or iii) agreement, unless:
1. the director or officer acted in bad faith,
2. the director or officer was deliberate and dishonest in a material way to the case,
3. the director or officer wrongly profitted.

Front 60

Elimination of Director Liability

Back 60

The certificate may eliminate director liability for breach of a duty except if the director:
1. acted in bad faith,
2. acted with intentional misconduct,
3. received an improper financial benefit,
4. approved an unlawful distribution or loan.

Front 61

Piercing the Corporate Veil

Back 61

Generally shareholers are not liable for the debts or acts of the corporation.
A court may pierce the corporate veil and hold the shareholders personally liable if they have abused the privilege of incorporating and fairness demands that the shareholders not have limited liability.
The veil may be pierced to prevnt fraud or to achieve equity, a corporation may not be used as a cloak for illegal activity.
There is no piercing if the corporation has any existence or will of its own, there must be some separation between sharholders and the corporation.
Innocent shareholders will not be held liable.
Undercapitalization is not eenough to pierce the veil unless there is also domination, fraud or illegality.

Front 62

Shareholder Liability for Wages in a Close Corporation

Back 62

The 10 largest shareholders of a corporation are liable fo wages and benefits of the employees.

Front 63

Shareholder Management of a Corporation

Back 63

Generally the board manages the corporation. Management responsibilities may be transferred to the shareholders if all shareholders or incorporators approve, it is conspicuously noted on the fron and back of shares, subsequent shareholders have notice and the corporation is a close corporation.

Front 64

Professional Corporations

Back 64

Shareholders, officers and directors must licensed professionals.
Professionals are individually liable for their own malpractice.
The corporate entity is liable for contractual obligations.
Entity must purchase the stock from a departing professional or one that loses his license.

Front 65

Shareholder Derivative Suits in General

Back 65

A shareholder may sue to enforce a claim of the corporation since the duties of care and loyalty are owed to the corporation.
If successful, the corporation gets recovery after the shareholder's attorney's fees unless recovery would return money to the offending officers or directors.
If suit is unsuccesful, shareholder may be liable for the defending directtor's costs.

Front 66

Ownership Requirements to Bring a Shareholder Derivative Suit

Back 66

Shareholder must own stock at the time the claim arose or have received it by operation of law (inheritance, divorce settlement) through the entry of judgment.
The shareholder must adequately represent the interest of the corporation and the shareholders.
The shareholder must post a bond if he owns less than 5% or $50K worth of stock.

Front 67

Procedural Requirements to Bring a Shareholder Derivative Suit

Back 67

The shareholder must make a demand of the board to bring suit unless it would be futile.
The shareholder must plead with particularity on why it is futile.
If demand is made and denied the shareholder may only sue if a majority of the board is interested or its procedure was incomplete or inadequate.
Corporation is joined as a necessary defendent.
Parties may dismiss or settle only with court approval.
The court looks at the independence of the investigating directors and the sufficiency of their investigation when deciding.

Front 68

Factors Making a Demand on the Board Futile

Back 68

1. The majority of the board is interested,
2. The board is controlled by an interested director,
3. The board did not inform itself of the transaction to the extent reasonable under the circumstances (duty of care)
4. The transaction is so egregious on its face it could not be the product of sound business judgment.

Front 69

Factors Allowing Corporation to Move to Dismiss a Shareholder Derivative Suit

Back 69

A corporation may move to dismiss a shareholder derivative suit if based upon a finding of the independent directors or special litigation committee the usit is not in the corporation's best interest.
A suit is not in the corporation's best interest if there is a low chance of recovery or the suit will cost more than can be recovered.

Front 70

Right of Shareholder to Vote

Back 70

Generally the owner of shares as of the record date has the right to vote.
The record date must be >10 but <60 days before the shareholder meeting.
The executor of an estate may vote decedent's record stock.
The corporation does not vote treasury stock.

Front 71

Proxy Voting

Back 71

Shareholders may vote by proxy by delivering a signed writing directed to the corporate secretary authorizing another to vote the shares (may be faxed or emailed).
A proxy is revocable unless the proxy states it is irrevocable and the proxy-holder has an interest in the shares other than voting.

Front 72

Voting Trusts

Back 72

Shareholder voting trusts are permitted by sending a copy of a written trust agreement controlling how shares are to be voted to the corporation.
Legal title to the shares must be transferred to the trustee and the original shareholder receives a voting trust certificate valid for 10 years maximum, but may be timely renewed.
Original shareholder maintains all other rights in the shares (dividends).

Front 73

Voting Agreements or Pooling Agreements

Back 73

An signed writing agreeing as to shareholder actions. It may not be specifically enforced and may be irrevocable.
If all the shareholders are directors, it may direct board action.

Front 74

Shareholder Action Without a Meeting

Back 74

Shareholders may act without a meeting only with written consent signed by holder of all the voting shares.

Front 75

Shareholder Meetings

Back 75

Directors are elected at annual meeting.
Special meetings may be called by the board or anyone specified in the certificate.

Front 76

Notice Requirements for Shareholder Meetings

Back 76

Notice must be given to every shareholder able to vote >10 days but <60 days before any meeting (email permitted).
Notice states the time and place of the meeting and whether action would entitle shareholder to appraisal rights and why.
Notice for a special meeting must state who called it and for what purpose which defines the only business that can be transacted at the special meeting.
Notice defect results in the action being void unless those receiving faulty notice waive expressly in a signed writing or impicitly by attending the meeting without objection.

Front 77

Quorum Requirements for Shareholder Meetings

Back 77

Generally, a quorum consists of a majority of the outstanding shares.
Quorum requirement may be reduced to no less than 1/3 by certificate or bylaws.
Quorum requirement may be increased only in the certificate.
Once established, quorum is not defeated when a shareholder leaves the meeting.

Front 78

Voting Requirements for Shareholder Action at Meetings

Back 78

Generally an action may be passed by a majority of the shares able to vote.
The certificate may increase this requirement.

Front 79

Cumulative Shareholder Voting

Back 79

If permitted in the certificate, cumulative voting may be used when electing directors to help small shareholders gain board representation.
You take the number of shares owned and multiply by the number of directors to be elected to determine the number of votes the shareholder may cast for any candidate.

Front 80

Restrictions on Shareholder Sale of Stock

Back 80

Shareholder's ability to sell stock may be restricted in the certificate, the bylaws or by agreement.
The restrictions must be reasonable under the circumstances and must not be an undue restraint on alienation.
There can be no action against a transferee if the shares are invalidly transferred under the restrictions to a party without knowledge of the restrictions.

Front 81

Shareholder's Right to Inspect the Books and Records

Back 81

Under the BCL:
The minutes of shareholder proceedings and a record of the shareholders must be made available upon 5 days writted demand. The corporation may require an affidavit stating the purpose of the request is in the best interests of the corporation and that the requestor has not attempted to sell a shareholder list within 5 years.
The corporation must provide distributed balance sheets and income statements must be provided upon written request.
Shareholders have the right to inspect and copy a list of officers and deirectors upon 2 days written notice.
Common Law:
All shareholders may inspect records at a reasonable time and proper place for a proper purpose.

Front 82

Board Determined Distributions

Back 82

Dividends - must not make corporation insolvent
Share repurchases into treasury stock
Redemption if permitted in certificate.

Front 83

Types of Dividends

Back 83

Preferred dividends are paid first.
Participating preferred dividends are paid first and again with the common dividend.
Cumulative preferred meand all unpaid dividends from prior years are paid first, then the current dividend is paid before the common dividend is distributed.

Front 84

Appraisal Rights Triggers

Back 84

1. Certain amendments to the certificate.
2. Consolidation.
3. Merger into another corporation.
4. Tansfer of substantially all the assets.
5. Shares acquired in a share exchange

Front 85

Actions Required to Perfect Appraisal Rights

Back 85

Availability of appraisal rights must be in the shareholder meeting notice.
Before the meeting the shareholder files a written objection and intent to demand payment.
During the meeting the shareholder must abstain or vote against the proposal.
After the vote the shareholder must make written demand on the corporation to have his shared purchased.
Company must purchase at an agreed upon fair value which the court will determine if unable to agree.
There is no minority shareholder discount in NY.

Front 86

Changes in Certificate of Incorporation that Trigger Appraisal Rights

Back 86

1. Alterations to preferences.
2. Changes in redemption rights.
3. Changes in preemptive rights.
4. Limitations on voting rights.

Front 87

Amendments to the Certificate of Incorporation

Back 87

Board may make minor changes such as office location and registered agent.
Board approval and a majority of the shares entitled to vote must approve corporate name changes, purpose, changes in number of shares or par, creation of new classes of stock and changes in preemptive rights.
Amendments making harder for the board to act (increase in quorum or voting requiremets) or increases in board authority require board approval and pre-2/22/98:2/3 shares entitled to vote or post-2/22/98:a majority of the shares entitled to vote.
Amendments making it harder for shareholders to act such as increases in quorum or voting requirements must have board approval and approval of 2/3 shares entitled to vote.
Amended certificate must be delivered to Department of State.

Front 88

Mergers or Consolidations

Back 88

Each company's board adopts a plan of merger or consolidation.
Each company obtains shareholder approval (pre-2/22/98=2/3 shares entitled to vote, post-2/22/98=majority).
Short form mergers where parent owns 90% of subsidiary do not require shareholder vote.
Shareholders of disappearing corporation have appraisal rights.
Successor Liability: the surviving corporation succeeds to all the rights and liabilities of the merged corp.
Certificate is filed with Secretary of State.

Front 89

Asset Transfers

Back 89

A transfer of all or substantially all of the assets not in the ordinary course of business or share exchanges is a fundamental change only to the selling corporation.
Board approval and pre-2/22/98: 2/3 shares entitled to vote ro post-2/22/98: majority shares entitled to vote required.
Buying corporation's shareholders do not vote.
Share exchange must be filed with Secretary of State.
Shareholders of selling corporation receive appraisal rights.
Generally, the purchasing corporation will not be liable for the torts of the company whose assets were acquired unless provided otherswise, the purchasing company is a mere continuation of the selling company or the deal was made to fraudulently escape obligations.

Front 90

Voluntary Dissolution

Back 90

No board vote necessary.
Pre-2/22/98: 2/3 shares entiteld to vote.
Post-2/22/98: majority of shares entitled to vote.
Certificate of dissolution delivered to the Department of State.

Front 91

Involuntary Dissolution - Insolvency

Back 91

Board resolution or majority of shares entitled to vote stating the corporation has insufficient assets to discharge its debts and dissolution would be beneficial to shareholders.

Front 92

Board Determined Distributions

Back 92

Dividends - must not make corporation insolvent
Share repurchases into treasury stock
Redemption if permitted in certificate.

Front 93

Types of Dividends

Back 93

Preferred dividends are paid first.
Participating preferred dividends are paid first and again with the common dividend.
Cumulative preferred meand all unpaid dividends from prior years are paid first, then the current dividend is paid before the common dividend is distributed.

Front 94

Appraisal Rights Triggers

Back 94

1. Certain amendments to the certificate.
2. Consolidation.
3. Merger into another corporation.
4. Tansfer of substantially all the assets.
5. Shares acquired in a share exchange

Front 95

Actions Required to Perfect Appraisal Rights

Back 95

Availability of appraisal rights must be in the shareholder meeting notice.
Before the meeting the shareholder files a written objection and intent to demand payment.
During the meeting the shareholder must abstain or vote against the proposal.
After the vote the shareholder must make written demand on the corporation to have his shared purchased.
Company must purchase at an agreed upon fair value which the court will determine if unable to agree.
There is no minority shareholder discount in NY.

Front 96

Changes in Certificate of Incorporation that Trigger Appraisal Rights

Back 96

1. Alterations to preferences.
2. Changes in redemption rights.
3. Changes in preemptive rights.
4. Limitations on voting rights.

Front 97

Amendments to the Certificate of Incorporation

Back 97

Board may make minor changes such as office location and registered agent.
Board approval and a majority of the shares entitled to vote must approve corporate name changes, purpose, changes in number of shares or par, creation of new classes of stock and changes in preemptive rights.
Amendments making harder for the board to act (increase in quorum or voting requiremets) or increases in board authority require board approval and pre-2/22/98:2/3 shares entitled to vote or post-2/22/98:a majority of the shares entitled to vote.
Amendments making it harder for shareholders to act such as increases in quorum or voting requirements must have board approval and approval of 2/3 shares entitled to vote.
Amended certificate must be delivered to Department of State.

Front 98

Mergers or Consolidations

Back 98

Each company's board adopts a plan of merger or consolidation.
Each company obtains shareholder approval (pre-2/22/98=2/3 shares entitled to vote, post-2/22/98=majority).
Short form mergers where parent owns 90% of subsidiary do not require shareholder vote.
Shareholders of disappearing corporation have appraisal rights.
Successor Liability: the surviving corporation succeeds to all the rights and liabilities of the merged corp.
Certificate is filed with Secretary of State.

Front 99

Asset Transfers

Back 99

A transfer of all or substantially all of the assets not in the ordinary course of business or share exchanges is a fundamental change only to the selling corporation.
Board approval and pre-2/22/98: 2/3 shares entitled to vote ro post-2/22/98: majority shares entitled to vote required.
Buying corporation's shareholders do not vote.
Share exchange must be filed with Secretary of State.
Shareholders of selling corporation receive appraisal rights.
Generally, the purchasing corporation will not be liable for the torts of the company whose assets were acquired unless provided otherswise, the purchasing company is a mere continuation of the selling company or the deal was made to fraudulently escape obligations.

Front 100

Voluntary Dissolution

Back 100

No board vote necessary.
Pre-2/22/98: 2/3 shares entiteld to vote.
Post-2/22/98: majority of shares entitled to vote.
Certificate of dissolution delivered to the Department of State.

Front 101

Involuntary Dissolution - Insolvency

Back 101

Board resolution or majority of shares entitled to vote stating the corporation has insufficient assets to discharge its debts and dissolution would be beneficial to shareholders.

Front 102

Dissolution - Internal Dissention

Back 102

1/2 the shares entitled to vote may petition for dissolution if i)the directors are too divided to manage, ii) the shareholders are too divided to elect directors or iii) the magnitude of internal dissention makes dissolution beneficial to the shareholders.

Front 103

Dissolution - Inability to Elect Directors

Back 103

Any shareholder entitled to vote may petition for dissolution if the shareholders have been unable to elect directors at 2 annual meetings.

Front 104

Dissolution - Management's Bad Acts

Back 104

A holder of 20% or more of the voting shares of a close corporation may petition for dissolution on the grounds of:
1. Management's illegal, oppressive or fraudulent acts towards the complaining shareholder (substantially defeating that shareholder's expectations), or
2. Management is wasting, diverting or looting.
Court will deny dissolution if it finds it unncessary to provide the complaining shareholder a fair return.
Corporation, within 90 days of the petition, may purchase complaining shareholder's shares at fair value on terms approved by the court in order to avoid dissolution.

Front 105

Wind-up Upon Dissolution

Back 105

1. Gather all assets and convert to cash.
2. Pay creditors.
3. Distribute remainder to shareholders pro-rata unless there is a dissolution preference.

Front 106

Controlling Shareholders

Back 106

In a close corporation, a controlling shareholder owes a duty to the other shareholders if he occupies a control position or has owrking control over the corporation based on percent owned.
That controlling shareholder owes a fiduciary duty to the minority shareholders and sometimes to the corporation and may not use his dominant position for individual advantage at the expense of the corporation or the minority shareholders.

Front 107

Sale of Controlling Interests

Back 107

Control premiums are permitted unless there is an undisclosed principal (sale without reasonable investigation as to the buyer) or a de facto sale of corporate assets or the sale of a board position.

Front 108

Freeze-out Mergers

Back 108

Mergers aimed solely at cahing out the minority shareholders unfairly.
The court looks at the transaction as a whole, assesse price and course of dealing to make sure the whole transaction was fair.
Factors include self-dealing, fair dealing with minority shareholders and legitimate business reasons for merger.

Front 109

Insider Trading

Back 109

A corporation may recover profits made by a controlling shareholder trading on confidential information gained by a person's control position.

Front 110

Non-disclosue of special facts or circumstances

Back 110

Controlling shareholders have an affirmative duty not to trade on special facts in a securities transaction with a non-insider.
Special facts are those a reasonable investor would consider important in making an investment decision.
Damage is the difference in the price paid and the value of the stock after public disclosure of the special fact.