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110 Cards in this Set

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Requirements to Form a Corporation
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.
Incorporators
1 or more adult humans who execute the certificate of incorporation.
Purposes of the Certificate of Incorporation
Contract between the corporation and the shareholders.
Contract between the corporation and the State.
Certificate of Incorportion: Required Information
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.
Ultra Vires Acts
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.
Authorized Stock
The maximum number of shares the corporation may sell.
Issue Stock
The actual number of shares that the corporation has sold.
Outstanding Stock
Shares that have been issued and not reacquired by the corporation.
Treasury Stock
Shares that have been reacquired by the corporation.
They may not be voted.
Capital Structure Information Required on the Certificate of Incorporation
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.
Legal Significance of the Corporate Form
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.
Liability of Corporations in General
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.
De Facto Corporation Doctine
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.
Corporation by Estoppel
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.
Corporate Bylaws
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.
Pre-Incorporation Contracts
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.
Novation
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.
Secret Profit Rule
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.
Foreign Corporations Doing Business In New York
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.
Stock Subscriptions
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.
Stock Subscription: Effect of Subscriber Default on Payment
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.
Valid Consideration for the Purchase of Shares in a Corporation
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.
Par
Minimum issue price
No Par
No minimum issue price, the board of directors sets the price. Shareholders may set the price only if permitted in the certificate of incorporation.
Valuing Property Acquired with Stock
The board of directors values the property which is binding if made in the absence of fraud.
Watered Stock
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.
Preemptive Rights
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.
Number of Directors
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.
Election of Directors
The intitial board of directors is elected by the incorporators.
Subsequent directors are elected to the board by shareholder vote at the annual meeting.
Classified Board
A staggered board with up to 4 classes with 1 class elected each year. There must be at least 3 directors per class.
Removal of Directors Before Term Expires
1. Shareholders for cause,
2. Board for cause if permitted by certificate or bylaws,
3. Shareholders without cause if permitted by certificate or bylaws.
Filling Board Vacancies
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.
Board Actions
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.
Board Meeting Notice Requirements
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.
Board of Director Voting Proxy or Voting Agreement
Void as against public policy and may not be used.
Board of Director Meeting Quorum Requirements
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.
Board of Directors Meeting Passing Resolutions
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.
The Role of Directors
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.
Delegation of Management Functions by the Board
Delegation to a committee of 1 or more persons must be permitted by the certificate or bylaws.
Non-Delegable Board Powers
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.
Director's Duty of Care
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.
Director Nonfeasance as a Breach of the Duty of Care
When a director does nothing (abstains) he is liable only if the breach of duty caused a loss to the corporation.
Director Misfeasance as a Breach of the Duty of Care
When a director affirmatively acts and hurts the corporation, the director is not liable if the business judgment rule is met.
Business Judgment Rule
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.
Director's Duty of Loyalty
A director must act in good faith and with the conscientiousness, fairness, morality and honesty the law requires of fiduciaries.
Interested Director Transactions, a Breach of the Duty of Loyalty
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.
Results of an Interested Director Transaction
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.
Board Compensation and Director Duty of Loyalty
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.
Competing Ventures and Director Duty of Loyalty
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.
Corporate Opportunities and Director Duty of Loyalty
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.
Director Liability for Improper Loans of Corporate Funds
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.
Director Liability for Improper Distributions
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)
Director Liability for Approval of Improper Board Actions
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.
Officers in General
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.
Selection and Removal of Officers
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.
Indemnification of Officers and Directors
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.
Permissive Indemnification of Officers and Directors
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.
Advancement of Director or Officer Litigation Expenses
Litigation expenses may be advanced but must be repaid unless director or officer is entitled to reimbursement.
Indemnification of Directors or Officers Liability By Certificate or Bylaws
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.
Elimination of Director Liability
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.
Piercing the Corporate Veil
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.
Shareholder Liability for Wages in a Close Corporation
The 10 largest shareholders of a corporation are liable fo wages and benefits of the employees.
Shareholder Management of a Corporation
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.
Professional Corporations
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.
Shareholder Derivative Suits in General
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.
Ownership Requirements to Bring a Shareholder Derivative Suit
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.
Procedural Requirements to Bring a Shareholder Derivative Suit
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.
Factors Making a Demand on the Board Futile
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.
Factors Allowing Corporation to Move to Dismiss a Shareholder Derivative Suit
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.
Right of Shareholder to Vote
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.
Proxy Voting
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.
Voting Trusts
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).
Voting Agreements or Pooling Agreements
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.
Shareholder Action Without a Meeting
Shareholders may act without a meeting only with written consent signed by holder of all the voting shares.
Shareholder Meetings
Directors are elected at annual meeting.
Special meetings may be called by the board or anyone specified in the certificate.
Notice Requirements for Shareholder Meetings
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.
Quorum Requirements for Shareholder Meetings
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.
Voting Requirements for Shareholder Action at Meetings
Generally an action may be passed by a majority of the shares able to vote.
The certificate may increase this requirement.
Cumulative Shareholder Voting
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.
Restrictions on Shareholder Sale of Stock
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.
Shareholder's Right to Inspect the Books and Records
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.
Board Determined Distributions
Dividends - must not make corporation insolvent
Share repurchases into treasury stock
Redemption if permitted in certificate.
Types of Dividends
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.
Appraisal Rights Triggers
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
Actions Required to Perfect Appraisal Rights
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.
Changes in Certificate of Incorporation that Trigger Appraisal Rights
1. Alterations to preferences.
2. Changes in redemption rights.
3. Changes in preemptive rights.
4. Limitations on voting rights.
Amendments to the Certificate of Incorporation
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.
Mergers or Consolidations
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.
Asset Transfers
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.
Voluntary Dissolution
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.
Involuntary Dissolution - Insolvency
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.
Board Determined Distributions
Dividends - must not make corporation insolvent
Share repurchases into treasury stock
Redemption if permitted in certificate.
Types of Dividends
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.
Appraisal Rights Triggers
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
Actions Required to Perfect Appraisal Rights
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.
Changes in Certificate of Incorporation that Trigger Appraisal Rights
1. Alterations to preferences.
2. Changes in redemption rights.
3. Changes in preemptive rights.
4. Limitations on voting rights.
Amendments to the Certificate of Incorporation
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.
Mergers or Consolidations
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.
Asset Transfers
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.
Voluntary Dissolution
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.
Involuntary Dissolution - Insolvency
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.
Dissolution - Internal Dissention
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.
Dissolution - Inability to Elect Directors
Any shareholder entitled to vote may petition for dissolution if the shareholders have been unable to elect directors at 2 annual meetings.
Dissolution - Management's Bad Acts
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.
Wind-up Upon Dissolution
1. Gather all assets and convert to cash.
2. Pay creditors.
3. Distribute remainder to shareholders pro-rata unless there is a dissolution preference.
Controlling Shareholders
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.
Sale of Controlling Interests
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.
Freeze-out Mergers
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.
Insider Trading
A corporation may recover profits made by a controlling shareholder trading on confidential information gained by a person's control position.
Non-disclosue of special facts or circumstances
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.