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164 Cards in this Set
- Front
- Back
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Principal Characteristics of a Corporation |
1) Limited liability |
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What Do Corporation Incorporators Do? |
1) Execute the Certificate |
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How many Incorporators Do Corporations Need? |
1 or More |
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Who can be an incorporator? |
Adult Humans Only |
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Purpose of Certificate of Incorporation |
1) Contract between corporation and shareholders |
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Information That Goes Into the Certificate |
1) Corporate Name (Must have "corporation," "incorporated," or "limited" in the name) |
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How do we handle ultra vires acts today? |
1) Ultra Vires contracts are valid |
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What must be included in the certificate about the corporation's stock? |
1) Authorized Stocks |
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What actions must be taken to create corporation once certificate has been drawn up? |
1) Each incorporator signs certificate and acknowledges it before a notary |
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What must happen at a corporation organizational meeting? |
1) Adopt any bylaws |
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If corporation is formed in NY but only does foreign business, what law governs the internal affairs? |
NY |
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Can a corporation make political donations? |
Yes. But no more than 5K per candidate/organization per year |
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Can a corporation make charitable donations? |
Yes. And there are are no statutory limits |
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Can a corporation guaranty a loan if it is not in the furtherance of corporate business? |
Yes if it is approved by 2/3 of the shares entitled to vote |
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Are people who run the corporation liable for what the corporation does? |
No |
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Are the people who own the corporation liable for what the corporation does? |
No, they have limited liability meaning they are only liable to pay for their stock |
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Who is liable for what the corporation does? |
The corporation itself |
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What must be shown for a de facto corporation? |
1) Relevant Incorporation Statute (BCL in NY) |
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What is the status of De Facto Corporations in NY? |
Thought to be abolished by case law shows that it may be alive in very limited circumstances |
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Corporation by Estoppel |
Doesn't matter - abolished in NY |
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Can we have a corporation without bylaws? |
Yes, they are not necessary |
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If bylaws conflict with the corporate certificate, what controls? |
Certificate |
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Are bylaws of corporation filed with state? |
No. |
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Are outsiders bound by corporate bylaws? |
No |
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Who adopts initial corporation bylaws? |
The incorporators at the organizational meeting - they have the status of a shareholder bylaw |
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Who can amend or repeal bylaws or adopt new ones? |
The shareholders |
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When does the board of directors get to amend/repeal/adopt the bylaws? |
Only when the certificate or shareholder bylaws allow it |
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Is the corporation liable for pre-incorporation contracts? |
Only if it adopts the contract |
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How can adoption of pre-incorporation contracts by corporations happen? |
1) Express adoption by board action |
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Is the promoter of a corporation liable of pre-incorporation corporate contracts? |
Yes unless the contract clearly indicates otherwise until there is a novation. |
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What is a novation? |
agreement between promoter, corporation, and other contracting party that the corporation will replace the promoter under the contract. |
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Can a promoter make a secret profit from her dealings with the corporation? |
No. If she does she is liable and must account of the profit - return it to the corporation. |
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What is the definition of a foreign corporation? |
A corporation incorporated anywhere outside of NY |
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How does a foreign corporation qualify to do business in NY? |
Applying to the NY Dept. of State and designating the Secretary of State as agent for the service of process. Pay fees. |
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What kind of information does the foreign corporation give the NY Dept. of State? |
Info. from its certificate and good standing in its home state |
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What happens if a foreign corporation does business in NY without qualifying? |
It cannot assert a claim in NY until it pays taxes, fees, penalties, and interest |
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An issuance of stock occurs when... |
a corporation sells its own stock |
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What is a debenture? |
a loan, the repayment of which is not secured by corporate assets |
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What is the definition of a corporate subscription? |
A written, signed offer to buy stock from the corporation |
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Are pre-incorporation subscriptions revocable? |
No, not for 3 months unless subscription provides otherwise or all subscribers agree to let you. |
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Are post-incorporation subscriptions revocable? |
Yes until accepted by the corporation. |
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Can a corporation decide to sell to only some subscribers and not to others? |
No it must be uniform within each class and series of stock |
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What happens if a corporation accepts the subscription offer and the subscriber defaults on payment? |
1) If subscriber has paid less than half of the purchase price and fails to pay the rest within 30 days from written demand, corporation can keep the money paid and cancel the shares. (Stock becomes authorized and unissued so the corporation can sell it) 2) If subscriber has paid half or more, and fails to pay the rest within 30 days of written demand, corporation must try to sell to someone else for cash - if no one will pay remaining balance then acts like section 1 |
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What happens if someone will pay more than the remaining balance on an unpaid subscription? |
Defaulting subscriber recovers any excess over what she agreed to pay (but deduct corporation's expenses) |
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What are the five permitted forms of consideration for an issuance? |
1) Money (cash or check) |
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What happens if a corporation issues stock to someone without consideration? |
All issued stock is considered unpaid stock and treated as water |
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What is the definition of par? |
Minimum issuance price for a corporate stock |
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Who sets the sale price for no par stock? |
The board unless certificate says shareholders can do it |
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What is the definition of treasury stock? |
Stock that was previously issued and had been reacquired by the corporation |
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Are directors liable for issuing stock at a price below par (called watered stock)? |
Yes if they knowingly authorized the issuance |
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Is the person who buys watered stock liable? |
Yes - charged with notice of par |
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Is a third party who buys watered stock from the original purchaser liable for the watered stock? |
No if he did not know about the watered stock. |
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What is the definition of pre-emptive rights? |
The right for an existing shareholder to maintain her percentage of ownership by buying stock whenever there is an issuance of common stock for money |
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If the certificate is silent regarding preemptive rights, do they exist? |
No, they exist only if certificate says so |
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How does the number of directors get set? |
1) Set in bylaws |
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Who elects directors after initial directors? |
Shareholders at the annual meeting |
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Does a corporation have to elect all new directors every year? |
No. Certificate or shareholder bylaws can create 2,3, or 4 classes of directors with one class elected every year. |
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Can shareholders remove a director for cause? |
Yes. |
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Can the board remove a director for cause? |
Only if the certificate or a shareholder bylaw allows |
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Can anyone remove a director without cause? |
Shareholders only and only if the certificate or bylaws allow |
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If there is a vacancy on the board who selects the person who will serve the remainder of the term? |
The board |
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What are the only two ways that the board can take a valid act on behalf of the corporation? |
1) Unanimous written consent or |
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What happens if the directors purport to act on behalf of the corporation in any way other than unanimous written approval or through a meeting? |
The act is void unless ratified |
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Is notice required for normal meetings of the board? |
No. If the time and place are set in the bylaws or by the board |
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Is notice required for special meetings of the board of a corporation? |
Yes. And it must state the time and place of the meeting. But it does not need to state the purpose. |
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What happens if the required notice for a special meeting is not given to a director? |
Any action taken at the meeting is void unless the director not given notice waives the defect. |
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How can a corporate director waive a notice defect? |
1) In a writing signed at any time |
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Can a director give a proxy for director voting? |
No. It is void - director owes non-delegable fiduciary duties to the corporation |
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Can directors enter voting agreements on how they will vote as directors? |
No. |
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What is generally required for a quorum? |
A majority of the entire board. (Majority of board if there are no vacancies) |
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Once quorum is present what is required for directors to pass an act? |
Majority vote of those present |
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Can the corporation decrease a quorum to less that a majority of directors? |
Yes. By certificate or through the bylaws but can never be less than 1/3 |
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Can a corporation decrease the requirement that a majority of present directors agree to pass a resolution? |
No. Never. |
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Can the corporation increase the requirements for a quorum? |
Yes but in the certificate only. Not in the bylaws |
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Can the corporation require a supermajority vote to pass a resolution? |
Yes in the certificate only. Not in the bylaws. |
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What can a committee created by the board of directors not do? |
1) Set director compensation 2) Fill a board vacancy 3) Submit fundamental change to shareholders 4) Amend bylaws (But can recommend any of these things for full board action) |
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What is the duty of care standard for a corporate director? |
A director must discharge her duties in good faith and with that degree of diligence, care and skil that an ordinarily prudent person would exercise under similar circumstances in like position. |
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What is the duty of loyalty standard for a corporate director? |
A director must act in good faith and with the conscientiousness, fairness, morality and honesty that the law requires of fiduciaries. |
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What is the definition of an interested director transaction? |
Any deal between the corporation and one of its directors (or business of which its director is also a director or officer or in which he has a substantial financial interest) |
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What happens to interest director transactions? |
It will be set aside unless the director shows either: 1) the deal was fair and reasonable to the corporation when approved OR 2) the material facts and her interest were disclosed/known and the deal was approved by any of these: a) shareholder action b) board approval by sufficient vote not counting the vote of interested directors c) unanimous vote of disinterested directors if disinterested director are insufficient to take a board action |
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Do interested directors count toward a quorum when voting on interested director transactions? |
Yes. But their vote doesn't count in the transaction vote. |
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Can the board set the compensation of the board? |
Yes but the compensation must be reasonable and in good faith. If excessive it is a waste of corporate assets. |
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Can directors directly compete with their corporation? |
No |
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What happens if a corporate director usurps a corporate opportunity? |
Director cannot take the opportunity until presenting it to the board and the board expressly rejecting the opportunity |
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What qualifies as a corporate opportunity? |
Something that the corporation needs, has an interest or tangible expectancy in, or is logically related to its business. |
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Can a corporation's board of directors vote to lend a director from corporate funds or to guarantee a director's personal obligation? |
Yes if approved by the shareholders or if the board find that it benefits the corporation. |
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What is the general rule regarding an individual director's concurrence with the board's action? |
Presumed to concur unless the director's dissent is noted in writing in corporate records. |
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How does a director get his/her dissent into writing? |
1) In the minutes 2) In writing to the secretary at the meeting 3) Registered letter to the secretary immediately after adjourned |
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Is an oral dissent effective to distance the director from the actions of the board? |
Not by itself |
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Can a director dissent if s/he voted for the resolution at the meeting? |
No |
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Is a director necessarily bound by the actions of the board if s/he was absent from the meeting? |
Not if s/he registers written dissent within a reasonable amount of time |
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What duties do officers of a corporation owe to the corporation? |
The same duties of care and loyalty as directors. |
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Can officers bind the corporation to acts they take in the corporation's behalf? |
Yes if they have the authority to do so. |
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Can one person hold more than one officer position? |
Yes |
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Who selects and removes corporate officers? |
The board, unless the certificate allows the shareholders to do it |
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How may an officer be removed by judicial action? |
The attorney general or 10 percent of all shares may sue for a judgment removing the officer for cause. Court can bar reappointment of a person so removed from office. |
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When is a director or officer barred from being reimbursed for attorney's fees, cost and fines associated with litigation regarding his/her duties as a corporate officer? |
When he/she was held liable to the corporation |
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When is the officer entitled to reimbursement for the costs associated with litigation concerning his/her duties as a corporate officer? |
When s/he won a judgment on the merits or otherwise |
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Can a director who is entitled to reimbursement of costs for a suit regarding their actions as a director sue for the costs associated with a suit to recover those fees? |
No. Director bears the risk in that case. |
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Can shareholders manage the corporation? |
Generally no becuase the board manages the corporation |
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What is the definition of a close corporation? |
A corporation with few shareholders whose stock is not publically traded |
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What do you need if you want a close corporation to be run by the shareholders and not a board of directors? |
1) Provision in the certificate restricting or transferrign board power to others 2) All incorporators or shareholders (voting or non) approve it 3) Conspicuously noted on front and back of all shares 4) All subsequent shareholders have notice AND 5) Shares are not listed on an exchange or regualrly qoted over-the-counter |
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In a close corporation run by shareholders, who owes the duties of care and loyalty? |
Managing shareholders |
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Is there a a trend towards imposing fiduciary duties on shareholder interactions with eachother in close corporations run by the shareholders? Why or why not? |
Yes. Especially controlling shareholders, in order to protect the interests of the minority shareholders and to protect their reasonable expectation of investing. |
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What are the reasonable expectations of people who invest in a close corporation? |
1) Employment in business 2) Return on investment 3) Voice in management |
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If members of a licensed profession create a professional service corporation must shareholders, officers and directors be licensed professionals? |
Yes but they can hire non-professionals as employees |
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Are professionals in a professional service corporation liable for their own malpractice? |
Yes but not for that of the others in the corporation |
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What happens if a shareholder in a professional corporation dies or is disqualified from practicing? |
The corporation must by his shares |
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Piercing the vail can only happen in what type of corporation? |
Close corporations |
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To pierce the vail and hold shareholders personally liable what must happen? |
1) The shareholders must have abused the privilege of incorporating 2) Fairness must require holding them liable |
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Why might fairness require piercing the vail? |
The shareholder exercises complete domination and control to perpetrate fraud or injustice |
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In a close corporation, the ten largest shareholders are personally liable for what? |
Wages and benefits to the corporation's employees |
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What is the definition of a shareholder derivative suit? |
When a shareholder is suing to enforce the corporation's claim, not her own personal claim. |
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Who generally gets the recovery in a successful derivative suit? |
The corporation, not the shareholder that brought the suit. |
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What does a shareholder receive after a successful derivative suit? |
Costs and attorney's fees, usually from the judgment won for the corporation. |
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When can a shareholder recover the damages directly in a derivative suit? |
If recover by the corporation would return money directly to the bad guys |
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Can a shareholder recover costs and attorney's fees from an unsuccessful derivative suit? |
No. |
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What are the requirements that a shareholder must prove in order to bring a derivative suit? |
1) Stock ownership when claim arose (must keep ownership all the way through the litigation) 2) Plaintiff must adequately represent the interests of corporations and shareholders 3) Post bond for D's costs unless shareholder own at least 5% of stock or her stock is worth more than $50,000 4) Make demand on board of directors to sue 5) Plead with particularity her efforts to get board to sue 6) Corporation must be joined as a defendant in the suit |
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Who is generally entitled to vote in shareholder voting? |
The record owner as of the record date |
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When must the record date be set before a shareholder meeting? |
No less than 10 days before meeting and no more than 60 before the meeting |
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If a shareholder dies after the record date but before the meeting can the executor vote at the meeting? |
Yes |
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What is the definition of a proxy? |
A writing, signed by the record shareholder or authorized agent, directed to the secretary of the corporation, authorizing another to vote the shares. |
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How long is a proxy agreement good for? |
11 Months unless it says otherwise |
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How can a person revoke a proxy agreement? |
Through writing to the corporate secretary or by attending the meeting and voting |
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How do you create an irrevocable proxy? |
By stating that it is irrevocable and giving the proxy-holder some interest in the stock other than voting |
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What are the requirements for a shareholder voting trust? |
1) Written trust agreement controlling how the shares will be voted 2) Copy to the corporation 3) Transfer of legal title of shares to voting trustee, and 4) Original shareholders receive voting trust certificates and retain all shareholder rights except for voting |
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Is there a time limit on voting trusts? |
Yes, 10 year maximum |
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Can shareholders enter into voting agreements? |
Yes. |
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Are voting agreements specifically enforceable? |
Apparently not |
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What is special about a proxy given subject to a voting agreement? |
It is irrevocable if it says so |
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What are the only two ways the shareholders can take a valid act? |
1) Written consent of all holders of voting shares 2) A meeting |
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What must be included in the notice of a special shareholder meeting? |
Time, place, who called it, and the purpose (must be something that shareholders can actually do) |
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How is a quorum determined for shareholder meetings? |
Majority of outstanding shares must be present |
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Can the certificate or bylaws reduce a quorum for shareholders meetings to less than a majority? |
Yes but never less than 1/3 |
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How does cumulative voting work? |
It is only for director elections. Multiply the number of shares a shareholder has by the number of available director positions, this is the total number of votes the shareholder has. Can apportion them in any way they like. |
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If the certificate says nothing about cumulative voting, do the shareholders get to use it? |
No, have cumulative voting only if the certificate states it |
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What is the formula for the required percentage of votes needed for a director to be elected? |
100/(x+1) where x is the number of directors being elected |
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Can a shareholder sell his/her stock for less than par value? |
Yes. Par value only concerns issuances |
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If there are restricting on the transfer of stock, where must they exist? |
Certificate or bylaws or through some sort of agreement |
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Stock transfer restrictions are valid if... |
they are not undue restraint on alienation |
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When is a right of first refusal valid? |
When the price offered is reasonable |
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Even if a restriction is valid it cannot be enforced against the transferee unless... |
1) it is conspicuously noted on the stock certificate OR 2) the transferee had actual knowledge of the restriction |
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Who can request minutes of shareholer proceedings and the record of shareholders? |
Any shareholder on five days demand |
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If a shareholder demands the minutes of shareholder proceedings and the record of shareholders, what can the corporation demand for the shareholder? |
An affidavit that shareholder's purpose is not other than in the interest of the corporation and that shareholder has not tried to sell any list of shareholders in the last 5 years. |
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How much notice must a shareholder give to demand a list of current officers and directors? |
2 days and no affidavit is required |
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What are the three type of distributions by the corporation to shareholders? |
1) A dividend 2) Payment to repurchase shares or 3) To redeem shares (forced sale to corporation at price set in certificate) |
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When do shareholders have a right to a distribution? |
When the board declares it |
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Will a court interfere with the board's discretion and order a distribution? |
Only on a showing of bad faith or dishonest purpose |
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What is the defintion of participating stock? |
Preferred stock that also participates in the payout with the common stock |
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What is the definition of preferred stock? |
Stock that is paid before the common stock payout. Generally associated with a dividend preference. |
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What is the definition of a shareholder's right of appraisal |
Right to force the corporation to buy your stock at fair value |
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What actions by the corporation trigger the right of appraisal? |
1) Some amendments to the certificate 2) Consolidation 3) Your corporation merges into another corporation 4) Your corporation transfers substantially all of its assets OR 5) Your corporation's shares are acquired in a share exchange |
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Is there a right of appraisal if the corporation is listed on a national securities exchange? |
No |
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What actions must be taken perfect the right of appraisal? |
1) Before shareholder vote fie written objection and intent to demand payment 2) Abstain or vote against change 3) After vote make written demand to be bought out |
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If the court is required to determine fair value, is there a discount for minority shares? |
No |
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Who can make minor changes to the certificate? |
The board alone |
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How do you make major changes to the corporate certificate |
Director action and a majority vote of the sahres entitled to vote |
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If a certificate amendment will change or strike a supermajority quorum or voting requirement for shareholder voting, what is needed? |
Director action and 2/3 vote of shares entitled to vote |
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Is shareholder approval needed for a merger or consolidation if the parent corporation owns 90% of each class stock of a subsidiary that is merged? |
No - called a short-form merger |
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What action is needed for a merger or consolidation? |
Each company's board of directors adopts a plan of merger and shareholder approval (majority of shares entitled to vote) |
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Are there dissenting shareholders right of appraisal in mergers or consolidations? |
Yes for shareholders of a corporation that disappeared |
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Do dissenting shareholders of subsidiary corporations have right of appraisal in short-form merger? |
Yes even though they did not vote |
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How does a corporation voluntary dissolve? |
Majority vote of shares entitled to vote |
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What are the steps in liquidating corporate assets? |
1) Gather all assets 2) Convert to cash 3) Pay creditors (they had been given notice earlier) AND 4) Distribute remainder to shareholders, pro-rate by share unless there is a dissolution preference |
