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249 Cards in this Set

  • Front
  • Back
What is a corporation?
A legal entity separate and distinct from legal personalities of those who own and manage the corp.
What is a promoter?
A person acting on behalf of a corporation not yet formed.
How are the # of directors set?
1) in the bylaws
2) by shareholder act
3) by the board if a shareholder-adopted bylaw allows
What 3 things do you need to form a corp?
People, Paper, and Acts
Are the directors named in the certificate?
NO
What is a de jure corporation?
A validly formed corporation
What do the incorporators do at the organizational meeting?
1) Adopt any bylaws
2) Elect the initial BoD (whereby BoD takes over management and the incorporators bow out)
What does an incorporator do?
1) execute the certificate and deliver it to the Department of State in Albany
2) hold an organizational meeting
How many incorporators do you need?
1 or more
Can a corporate entity serve as an incorporator?
NO, only adult humans can serve as incorporators
Does the office of corporation have to be the place where the corporation actually does business?
NO, doesn't have to be
Whom must you designate as the corp's agent for service of process?
The NY Secretary of State must be designated for agent
What other information must be given for service of process besides the corp agent?
An address for forwarding process to the Corp
How long does a corporation last?
Indefinitely, unless the certificate talks about duration
Are ultra vires contracts valid?
YES, you do not void these contracts however you are liable for the results
What is issued stock?
# of shares the corporation actually sells
What is outstanding stock?
Shares that have been issued and not reacquired by the corporation
What fiduciary duties do promoters have between themselves?
1) They have fiduciary duties of joint venturers until the corp is organized.
2) After incorporation, the have only rights duties and obligations of SHs.
Can the promoter make any profit from the dealings with the corporation?
YES, but NO secret profit, it all depends on the corp's knowledge
How can you calculate the profit of the promoter from the sale to the corp of property acquired before becoming promoter?
Profit = price – FMV
How can you calculate the profit of the promoter from the sale to the corp of property acquired after becoming promoter?
Profit = price – promoter price
What fiduciary duties do promoters have to outside investors for profits taken before those investors come in?
They must account to the corp for profits from self-dealing before outsiders came, whenever issuance of additional shares to uninformed SHs was contemplated or the public was invited to become original SHs.
What fiduciary duties do promoters have to outside investors for profits taken after those investors come in?
They must disclose and account to the corporation for their secret profits and profit from self dealing.
**unless there was ratification
What is express adoption?
Where the BoD takes an act to adopt a contract
What is an implied adoption?
Arises from Corp's knowing acceptance of a benefit of the contract
When does the promoter escape liability?
When there has been a novation; until there, the promoter remains liable for all pre-incorporation contracts
What is Novation?
An agreement of the promoter, the corporation, and the other contracting party that the corporation will replace the promoter under the contract
What is the liability of the corporation for contracts signed by a promoter BEFORE the corporation came into existence?
A corp is NOT liable on preincorporation contracts until it ADOPTS the contract.
**Adoption may implied from knowing acceptance of the contract's benefits
What is the liability of the promoters for contracts entered into BEFORE the corporation came into existence?
Promoter is personally, jointly and severally liable for all contracts unless novation of the contract has occurred between the 3rd contract and the corp.
Will the promoter be liable for a contract if the corp is never formed?
YES, formation does not matter
Will the promoter be liable for a contract if the corp is formed and adopts the lease?
YES, liable until novation
Can the corp enforce a preincorporation contract entered into by the promoter?
Yes, provide it adopts the contract.
Who can be a incorporator?
Natural humans over age 18 - no entities. ** this is unusual b/c in most states an entity could be an incorporator.
What are the purposes of the certificate of incorporation?
1) It's a contract between the corp and SHs;
2) It's also a contract between corp and state.
What are the contents of the certificate of incorporation?
1) Name of the corp (must use corp, inc, 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.
How is the certificate executed and filed?
1) The certificate must be signed by the incorporators before a notary.
2) The corp commences existence upon the filing of the certificate by the department of state.
Is there a minimum capital requirement before the corp commences business?
No
Is corporation by estoppel allowed in NY?
NO – it is abolished
What is corporation by estoppel?
Theory that one dealing with a business as a corporation, treating it as a corporation may be estopped from denying the business's corporate status (so you cannot sue the individual proprietors)
What is the de facto corporation doctrine?
Where there is defective formation, there will be a de facto corp where:
1) There is colorable compliance with the corp statute;
2) Good faith; and
3) User of corporate privilege

**It is unclear whether this doctrine is still viable.
When may the corp entity be disregarded?
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.
What are the major statutory powers of a corp?
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
What is an ultra vires act?
An act by the officers or directors, outside the corp's stated purpose.
When may ultra vires be asserted?
1) an action against an officer or director
2) In a proceeding by the attorney general to annul, dissolve, or enjoin the corp
3) Injunction action by SHs to enjoined any unauthorized act
Is ultra vires a defense to contracts?
Usually not in NY.
What is the liability for Corp ultra vires losses?
Responsible officers and directors are liable to the corp for the ultra vires losses
What rights do SHs have in management of the corp?
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
What notice must be given for SH meetings?
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.
What is the effect of failure to give meeting notice?
It renders action taken at the meeting void.
**SH may waive notice in writing or by attendance in person or by proxy, unless lack of notice is raised.
Who is eligible to vote at the SH meetings?
Each SH of record is entitled to vote for each share held by the SH, unless otherwise provided in the certificate.
When is the day of record (ie, when eligibility to vote is determined)?
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 before the next meeting
What are proxies?
Any shareholder entitled to vote at a meeting may authorize another person to act for him by proxy.
What form must a proxy take?
1) A written proxy signed by the SH or its authorized officer or agent is valid
2) A telegram or other electronic means is valid if the appointment is accompanied by some means for determining that it was authorized by the SH.
How long are proxies valid?
Proxies are valid only for 11 months from the date they are given unless otherwise provided in the proxy.
Are proxies revocable?
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
What is the effect on the proxy of death or incompetence of the SH?
Revokes the proxy only if, before the authority is exercised, the officer responsible for the SHs’ list receives written notice.
What is a quorum?
Generally, requires majority of outstanding shares entitled to vote
What is the effect of a lack of quorum?
If a quorum is not represented at the meeting, SH action is invalid absent unanimous written consent.
Can the quorum be increased or decreased by the corp?
1) Can be decreased by certificate or by laws
2) Can be increased by certificate only.
**quorum can never be less than 1/3
What number of votes are required for a SH action on an ordinary matter?
Majority of shares voted.
What number of votes are required for a SH action on a fundamental change?
2/3 of all outstanding shares entitle to vote.
How may SHs vote for directors in a cumulative system?
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)
How may SHs vote for directors in a non-cumulative system?
May not vote more than once for any director.
What is a voting trust?
An agreement by 2 or more SH to vote their shares in a particular manner.
What are the requirements for a voting trust?
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
Are voting agreements specifically enforceable?
NO, you cannot get specific performance for a voting agreement
What is a voting agreement?
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 procedure agreed upon by them
What is the difference between a voting trust and voting agreement?
1) In a trust, the SHs only retain beneficial ownership,
2) In an agreement, the SHs retain legal and beneficial ownership.
Once a quorum is established at a shareholders' meeting, can it be lost if people leave the meeting?
NO, you cannot lose your shareholder quorum
**THIS IS DIFFERENT FROM A DIRECTOR QUORUM
Can shareholders call a special meeting for the purpose of removing a particular officer?
NO, Shareholders do not remove officers, and meetings must be fore something that shareholders can vote on. MUST HAVE A VALID PURPOSE
What must the shareholder notice contain?
When and where the meeting will be
** Given for every meeting between 10 and 60 days before the meeting
What are the only two ways that shareholders can take a valid act?
1) written consent signed by the holders of all voting shares to act without a meeting
2) a meeting
When can SH action be taken without a meeting?
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
What are the fiduciary responsibilities of SHs?
Generally no responsibility, except that controlling SH must exercise utmost good faith to minority.
Who may be a director?
Must be at least 18, but the certificate or bylaws may add other qualifications.
Who manages the business of the Corp?
The BoD
What is the role of directors?
Generally, the business of the corp is managed under their direction.
When may the management authority of the directors be restricted or transfered to SHs via the certificate?
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.
What can a director inspect?
Anything, unfettered access to corporate books and records
What can a shareholder inspect?
1) minutes of shareholder proceedings and
2) Corp books and records

**On 5 days written demand; corp can demand an affidavit of good purpose
Where are stock transfer restrictions set?
In the Certificate, Bylaws, or by agreement
** Stock restrictions will be upheld unless there is undue restraint
When may the management authority of the directors be restricted or transfered to SHs via the bylaws or other agreements?
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
How many directors must/may there be?
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.
How many directors must be in a class?
At least 3
How are directors elected?
By shareholders at the annual meeting
What is a classified board?
The certificate or bylaws may divide the board into classes and provide that only one class will be elected at each annual meeting.
What causes a board vacancy?
When a director dies, resigns, or is removed
Who selects the person who will serve the remainder of the term when the BoD seat becomes vacant?
The remaining directors
Who selects the person who will serve the remainder of the term when a director is removed by SH's without cause?
Shareholders
Can shareholders remove a director for cause?
YES, always
Can the BoD remove a director for cause?
Only if permitted by certificate or bylaws
Can anyone remove a director without cause?
Only by Shareholders, and ONLY if the certificate or bylaws allow it
How many vote are needed to remove a director elected by cumulative voting?
No director may be removed if the votes cast against removal would be sufficient to elect the director at election of the entire board.
If the BoD all meets 1-on-1, is this a valid meeting?
NO, there is no meeting so acts are invalidated
Is a meeting by conference call OK for a valid meeting?
YES, if the directors can hear all participating directors simultaneously (unless the certificate or bylaws express otherwise)
If the BoD holds a meeting, must it be held in NY?
NO, it can be held anywhere on the planet
What are the 2 valid ways in which the BoD can take a valid act?
1) unanimous written consent to act without a meeting
2) Meeting
If a valid way of meeting by the BoD is not completed, are the acts taken binding and valid?
NO, the act taken is void unless later ratified by a valid act
Where can meetings be held?
In or outside NY, and may be by teleconference.
Is notice required for board meetings?
NO, not for regular meetings. Only for special meetings if regular meetings are fixed in time and place by the bylaws or the board
What is the effect of lack of notice?
Actions taken are invalid absent ratification.
When may notice of the board be waived?
1) By signed written notice before or after the meeting, or

2) attendance without protest prior to commencement of the meeting
Can directors enter voting agreements on how they will vote as directors?
NO, this is void against public policy
Can a director give a proxy for director voting?
NO, this is void and against public policy
What is the quorum for board meetings?
Majority of directors unless certificate or bylaws provide for less

**Not less than 1/3
If the quorum is broken by a director leaving the meeting, can the BoD continue to do business?
NO, the quorum has been broken, and you cannot do business without it
What number of votes is required for action by the board?
Generally, majority of directors present.

**Votes to change the number of directors must be by majority of all directors.
What in particular is a committee used for?
Shareholder-derivative suits
What can a BoD committee NOT do?
1) Amend, repeal, or adopt bylaws
2) Submit a fundamental change to shareholders
3) Fill a board vacancy
4) Set director compensation
What are director committees?
If authorized by the certificate or the bylaws, the board may designate one or more directors to constitute a committee which has all the powers of the full board.
Who are the officers of a corp?
The board may elect or appoint a president, one or more VPs, a secretary, and a treasurer.
May a person hold more than one corp office?
Yes.
May the officers be elected by the SHs?
Yes, if the certificate or bylaws provide so.
How long do officers hold meetings?
Unless the certificate 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).
How are the powers and authority of officers determined?
Rules of agency determine the authority and power against outsiders.
How may unauthorized acts of officers be ratified?
1) by express resolution of the board
2) acquiescence or acceptance of benefits of the acts with knowledge of facts
What is generally the power of the president?
Power to enter into ordinary contracts
What is generally the power of the secretary?
The power to keep and maintain corporate records.
What is generally the power of the treasurer?
The power to handle finances.
How may an officer be removed?
Usually with or without cause by the board unless the officer was elected by SHs.
What are the fiduciary duties of directors and officers?
1) Duty of care
2) Duty of loyalty
Can a Director be liable for misfeasance (when the BoD does something that hurts the Corp)?
Not liable if meets the BJR even if causation is clear; ask if they did enough acts for a prudent person (appropriate homework, inquiry, deliberation, etc.)
Can a Director be liable for nonfeasance (when he does nothing)?
Only liable if his breach of the duty of care caused a loss to the corp
What is the duty of care for directors and officers?
Directors and officers must discharge their duties:
1) in good faith, and
2) with care a skill that a ordinarily prudent person would exercise under similar circumstances in like positions.
What is the business judgment rule?
Courts will not second guess the opinions of directors if exercised in good faith.
What is the extent of a director's liability for breach of duty of care?
Recovery may only be had for loss proximately caused by the director's negligence.
What information may a director or officer rely upon?
If acting in good faith, they may rely upon info, opinions, or reports of employees, counsel, public accountants, or a committee of the board.
What is the duty of loyalty for directors and officers?
A Dir must act in good faith and with the conscientiousness, fairness, morality, and honesty that the law requires of fiduciaries
Does the BJR apply to duty of loyalty cases?
NO, because these involve conflict of interest cases
How are interested director transaction tested for duty of loyalty violations?
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
What is a corporate opportunity?
Something the corp needs, has interest or tangible expectancy in, OR is logically related to its business
What is the duty of loyalty standard for Competing Ventures?
A dir cannot go into competition with her corp
What is the duty of loyalty standard for Corporate Opportunity?
A dir cannot usurp a corp opportunity, cannot take it until she tells the board and waits for BoD to reject it
What happens if the director goes into competition with her corporation?
The Corp gets a constructive trust on the Dir's profits and may get damages for harm caused by the competition
Do interested directors count toward a quorum of the Board?
YES, and they can participate in the meeting, but their votes do not count
What is the approval test?
A interested director transaction is not voidable if:
1) the disinterested directors approve the transaction, or
2) SHs approve the transaction by vote with awareness of all material facts.
3) Unanimous vote of disinterested directors if disinterested directors are insufficient to constitute an act of the board
What is the fairness test regarding corporate approval?
A transaction not approved above may be avoided by the corp unless the parties thereto affirmatively establish the transaction was fair/reasonable to the corp at the time of approval.
Does the board have the power to fix director compensation?
Yes unless restricted by the certificate or bylaws.
What is the duty of loyalty's corporate opportunity doctrine?
Neither directors, officers, nor controlling shareholders may acquire or divert to themselves property or opportunities that the corporation needs or is seeking.
What actions must a director or officer take regarding a corp opportunity?
Must present the opp to the corp, disclose all material facts, and take advantage only if the corp does not pursue.
When will taking of "corp opp" not violate the corp opp doctrine?
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.
May director or officer sell his corp office to another?
No, he must account to the corp for payments received as payment for turning over his office.
What is the statutory liability of directors?
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 assets after dissolution without adequately providing for known liabilities

4) Making any loan to a director w/o the required SH approval
What is the exception to director statutory liability?
No director is liable who has discharged his duties in good faith and with requisite duty of care.
How is it determined which directors are liable?
1) Directors are presumed to have concurred unless dissent is noted in writing in corp recs.
2) Absent directors are liable unless they register dissent w/in reasonable time.
Who may bring an action against directors or officers for misconduct?
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.
When is indemnification of Directors and officers allowed for suits is by or on behalf of the corp?
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
When is indemnification of Directors and officers allowed for suits by some other party?
It is permitted if D/O shows he acted in good faith and for a purpose reasonably believed to be in the corp's best interest.
Who may order payment of indemnification if D/O was wholly successful in defense?
If the D/O was wholly successful in defense ordinary corp action is sufficient
Who may order payment of indemnification if D/O was wholly successful in defense?
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 counsel that indemnification is proper.
What is a derivative suit?
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
What is the recovery for derivative suits?
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
What are the three basic requirements for a derivative suit?
1) Stock ownership at the time the claim arose through entry of judgment
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.
**NOTE: shareholder could be required to post a bond for costs unless P owns 5% or more of any class of stock or if it is worth more than $50,000
When will demand be deemed futile?
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.
If demand is made and refused, can S still sue via derivative suit?
ONLY if she can show the majority of BoD is interested OR its procedure was incomplete or inadequate
When may the corp have a derivative action dismissed?
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.
What must be included in the certificate about the corporation's stock?
1) Authorized stock
2) # of shares per class
3) Info on par value rights, preferences, and limitations of each class
4) Info on any series of preferred shares
What is authorized stock?
The max number of shares a corp can sell.
**May be modified by amendment of the certificate
What is par value for shares?
The minimum issuance price.

**if no par is given, board sets price unless right is reserved to SHs in the certificate
What is treasury stock?
Stock that was previously issued and then reacquired by the corp

**ALWAYS treated as no par for consideration purposes
What is water?
Watered stock is issuing par stock for less than par value
If a Director or officer engaged in market trading of corp stock based upon inside information from the corp makes a profit, what can happen?
The corp can sue to recover her profit
What are subscriptions for shares?
Written signed offers to buy stock from the corp.
When may subscription be revoked?
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.
What 5 forms of consideration may be used to pay for shares?
1) Money or Cash equivalent
2) Tangible or Intangible Property
3) Past Services already performed for the Corp
4) Binding Agreement to pay in the future in cash or property
5) Binding Agreement to provide future services having an agreed value
What side must the Corp be joined on in a derivative suit?
Joined as a D
Who can make the judgment of consideration value?
Usually the board's judgment as to the value of consideration received for shares is conclusive absent fraud.

**Shares judgment is conclusive in proper no par cases.
Who is liable in a "water stock" transaction (ie, issuing par stock for less than par)?
1) Directors if the knowing authorize the issuance – charged with notice of the par value

2) Purchasing SH

**BUT subsequent transferee not liable if he acted in good faith
What are preemptive rights?
The right of an existing SH to maintain a percentage of ownership by buying stock 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; THESE ARE NOT NEW ISSUANCES
Do preemptive rights exist if the certificate is silent regarding preemptive rights?
1) If formed on/before 2/22/98, yes for all shares with voting rights
2) If formed after 2/22/98, then no.
What form may dividends take?
1) Cash
2) Corp bonds
3) Property
4) Shares
What are SH's rights to receive dividends?
Directors have discretion when and to what extent to declare dividends, but once lawfully declared SHs take creditor status.
What are preferred shares?
Holders of preferred shares are generally entitled to have stipulated dividends declared on their shares before any dividend on junior shares
When will a dividend payment be illegal?
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 equal stated capital
Who is liable for illegal dividends?
1) Directors are personally liable (w/ possible good faith exception)
2) Shareholders are personally liable if they knew distribution was unlawful when received
What basic procedures are required to effectuate fundamental corp changes?
1) must be authorized by SHs, board, or both
2) must be filed by dept of state
Are the Professionals in a PC liable for their own malpractice?
Yes, but not for the malpractice of others
Can a corporation make political contributions?
YES, but no more than $5000 per year per candidate or organization
Can a corporation make charitable contributions?
YES, there is no statutory ceiling on charity, irrespective of corporate benefit, too.
Can a corporation guarantee a loan that is not in furtherance of corporate business?
YES, if approved by 2/3's of shares entitled to vote
Who is liable for corporate debts and obligations?
The corporation itself is liable, not the individuals
Can a de jure corporation exist without bylaws?
YES, adoption of bylaws is not a condition precedent to formation of a corporation
What do bylaws do?
They establish internal procedures and responsibilities of people like officers, set forth the types of notice required for meetings, etc.
If bylaws are inconsistent with the certificate, what document controls?
The certificate
Are bylaws filed with the state?
NO
Are outsiders bound by bylaws?
NO, it is an internal document, so outsiders are not bound
Who adopts the initial bylaws?
The incorporators at the organizational meeting; it has the status of a shareholder-adopted bylaw
Who can amend or repeal the bylaws or adopt new ones?
The shareholders
Can the BoD ever get to amend, adopt, or repeal bylaws?
Only if the certificate or a shareholder-adopted bylaw allows them to
What is a foreign corp?
One that it incorporated outside NY
What is a corp that is incorporated inside NY called?
Domestic corp
What does “doing business” mean for purposes of qualifying for foreign corps?
The regular course of intrastate business activity (conducting activity in NY, not just occasionally or sporadically)
How can a foreign corp qualify for NY doing business?
By applying to NY Department of State and designating the Secretary as agent for service of process AND paying fees to NY for privilege of doing business
Is it ok for foreign corps to do any business in NY without registering?
NO, they must qualify or else there is a penalty when the corp finally does qualify. It also cannot sue in NY although it can be sued here
What kind of information is given to the Department of State for a foreign corp?
The information from its certificate and proof of good standing from its home state
What is issuance of stock?
When a corp sells or trades its own stock (one way to raise capital)
What is debenture?
It is a loan, the repayment of which is not secured by corporate assets
What is a subscription?
A written, signed offer to buy stock from the corporation
Is a preincorporation subscription revocable?
NO, it is irrevocable for 3 months unless it says otherwise or all subscribers agree (to stop people from pulling the rug out from under the corp formers)
Are post-incorporation subscriptions revocable?
Yes, until acceptance
When do the corp and subscribers become obligated under a subscription?
When the BoD accepts the offer
Can the corp decide to sell only to some subscribers and not others?
NO, it must be uniform within each class or series of stock
Can the corp decrease a quorum to less than a majority of Dirs?
YES, by certificate or bylaws, BUT it can never be fewer than 1/3 of the Dirs
Can the Corp decrease the requirement that passing a resolution requires a majority of the Dirs present?
NO, this cannot be reduced
Can the Corp increase a quorum to greater than a majority of Dirs (like 90%)?
YES, BUT in the certificate ONLY, not in the bylaws
Can the Corp require a supermajority vote to pass a resolution?
YES, BUT in the certificate ONLY, not in the bylaws
What is the magic date?
02/22/98
A director is presumed to have concurred with a board action unless dissent is noted in writing in the corp records in what 3 ways?
1) in the minutes
2) in writing to the corp secretary at the meeting
3) registered letter to the corp, promptly after the judgment
If the Dir is sick or missed the meeting, will he still be liable if the BoD approved something wrongful?
Dir is not liable if she registers written dissent within a reasonable time after learning of that transaction
What duties do officers owe to the corp?
Same duties of care and loyalty as the Dirs
Can a person hold multiple offices simultaneously?
YES
Who hires and fires Directors?
The shareholders
Who hires and fires officers?
The directors
Do shareholders hire and fire officers?
NO
Who sets compensation for officers?
The directors
What is corp reimbursement?
When someone is sued in her capacity as officer or director by or on behalf of the corp, incurring costs, attorney fees, fines, judgment, settlement, etc.
When is reimbursement prohibited?
If the dir or off was held liable to the corp
When is reimbursement of right?
If she was successful in defending the case on the merits or otherwise (winning the judgment)
When is reimbursement permitted?
When not prohibited or of right, when she acted in good faith and for a purpose reasonably believed to be in the corp's best interest
Can Corps buy insurance to cover dir or officer liability?
YES
The certificate may provide for elimination of Dir liability to the corp or shareholders for damages for breach of duty except in what 4 ways?
1) When the Dir acted in bad faith
2) With intentional misconduct
3) Received an improper financial benefit
4) approved an unlawful distribution or loan
When can the court PCV?
To prevent fraud or achieve equity
Are shareholders liable for corp debts?
NO
Is undercapitalization enough to PCV?
Not by itself, it needs excessive domination, fraud, or illegality
In a closed corp, the 10 largest shareholders are personally liable for what?
Wages and benefits to the corp's employees
Do you expect PCV in tort or contracts cases?
Tort cases
What is a close corp?
A corp with few shareholders and the stock is not publicly traded
In a close corp run by shareholders, who owes the duties of care and loyalty?
The managing shareholders
What is a professional service corp?
Members of a licensed profession can form this kind of corp
If a shareholder dies in a PC or is disqualified, what happens?
The PC must purchase his stock
What question must you ask in determining a derivative suit?
Could the corp have brought this suit?
Can a shareholder sue the corp for wasting of corp assets or breaching a duty?
YES, this is always a derivative suit
Does the shareholder ever recover the damages from the derivative suit directly?
Maybe, if recovery by the corp would return $$ to the bad guys
Can the parties dismiss or settle a derivative suit?
Only with court approval
Who can vote in a shareholder meeting?
The record owner as of the record date has the right to vote
What are distributions?
payments to the shareholders
What is a shareholder's right of appraisal?
the right of a SH to force the corp to buy her shares at fair value
What 5 actions trigger a SH right of appraisal?
1) some amendments to the certificate
2) consolidation
3) your corp merges into another corp
4) your corp transfers substantially all of its assets
5) your corp's shares are acquired in a share exchange
What 3 actions must be taken by SH to perfect the right of appraisal?
BEFORE -> before the shareholder vote, file written objection and intent to demand payment

DURING -> abstain or vote against the proposed change

AFTER -> after the vote, make written demand to be bought out
How many shares must vote for a proposed merger?
- 2/3 of the shares entitled to vote before 2/22/98
- majority of shares entitled to vote after 2/22/98
For a merger, are there dissenting SH's rights of appraisal?
YES, for SH of a corp that disappeared in the merger
What liabilities does the merger give a corp?
The surviving corp succeeds to all rights and liabilities of the constituents
Do shareholders have fiduciary duties to each other or to the corp?
NO, outside the close corp
What happens if a controlling shareholder sells stock to looters without reasonable investigation?
The seller's profits will be disgorged, and the seller will probably be liable for all damages to the corp
What is a freeze-out merger?
A merger aimed solely at cashing out minority shareholders whereby their shares are purchased for cash so that they have no interest in a corp
What factors does the court look at for freeze-out mergers?
1) whether the deal is tainted by self-dealing or fraud
2) whether the minority shareholders are dealt with fairly
3) whether the merger has a legitimate business purpose
What are special facts?
Those a reasonable investor would consider important in making an investment
What is the rule of insider trading?
All directors and officers owe an affirmative duty not to trade on special facts in a securities transaction with a non-insider
What are the 5 things that care about 2/22/98?
1) Preemptive rights (exist before the date)
2) Loan of corp funds to directors (shareholder vote before; Board finding benefit after)
3) Amending the certificate to change or strike a supermajority quorum or voting requirement for director voting (2/3 before, majority after)
4) Merger, consolidation, or transfer of substantially all assets or share exchange
5) Voluntary Dissolution