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98 Cards in this Set
- Front
- Back
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a) SECRET PROFIT RULE?
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Promoter cannot make secret profit on dealing w/ Corp
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b) What is a subscription?
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Subscription is a written; signed offer to buy stock from Corp
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Why are subscription agreements irrevocable before formation and for how long?
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To give the corp security that the funds will be there upon formation and for 3 months.
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How long are post incorporation subscriptions valid?
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Until acceptance or revocation—whichever comes first
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i) What is subscriber fails to consummate the subscription agreement?
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Subscriber paid less than 1/2 purchase price and fails to pay rest w/in 30 days of written demand; Corp keeps the money; cancel shares and shares become authorized and unissued
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ii) What is the subscriber paid more than ½ and then decides to renege?
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Subscriber paid 1/2 or more and fails to pay rest w/in 30s of written demand; Corp must try to sell stock to someone else for cash
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Will a subscription agreement fail due to the form of consideration?
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Not generally. Money; property; labor; binding future obligations of money and binding future obligations of future services all valid consideration.
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What is Par value ?
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Initial offer price noted on stock
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Must stock have a par value?
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No the board can set any alternative
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Can the bd use par stock to buy property?
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Yes as long as the bargain is made without fraud
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Who is liable if the Bd. Sells par stock for less than par value? What is this called?
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The Bd. Is liable AND the buyer is liable (buyer charged with knowledge of par stock; this would watering
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Are 3rd parties who buy watered stock liable too
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YES unless they were BFP’s with no knowledge
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SECRET PROFIT RULE?
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Promoter cannot make secret profit on dealing w/ Corp;If Promoter does then liable; has to account for lost profits and repay Corp ;If Corp knows about profit; no liability;Promoter sells Corp property acquired before becoming promoter: profit equals price paid by Corp minus fair market value; what promoter paid irrelevant ;Promoter sells C property acquired after becoming promoter: profit equals price paid by Corp minus price paid by promoter ;
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What is a subscription?
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Subscription is a written; signed offer to buy stock from Corp;
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Why are subscription agreements irrevocable before formation and for how long?
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To give the corp security that the funds will be there upon formation and for 3 months.
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How long are post incorporation subscriptions valid?
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Until acceptance or revocation—whichever comes first
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(1) What is subscriber fails to consummate the subscription agreement?
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Subscriber paid less than 1/2 purchase price and fails to pay rest w/in 30 days of written demand; Corp keeps the money; cancel shares and shares become authorized and unissued;
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What is the subscriber paid more than ½ and then decides to renege?
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Subscriber paid 1/2 or more and fails to pay rest w/in 30s of written demand; Corp must try to sell stock to someone else for cash;If no one will pay; defaulting subscriber forfeits what he paid and shares canceled.;If someone pays more; defaulting subscriber recovers excess over agreed price;
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Will a subscription agreement fail due to the form of consideration?
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Not generally. Money; property; labor; binding future obligations of money and binding future obligations of future services all valid consideration.
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What is Par value ?
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Initial offer price noted on stock
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Must stock have a par value?
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No the board can set any alternative
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Can the bd use par stock to buy property?
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Yes as long as the bargain is made without fraud
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Who is liable if the Bd. Sells par stock for less than par value? What is this called?
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The Bd. Is liable AND the buyer is liable (buyer charged with knowledge of par stock; this would watering
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Are 3rd parties who buy watered stock liable too
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YES unless they were BFP’s with no knowledge
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T-stock?
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Reacquired and held by corp.
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Preemptive rights?
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Right not to be diluted. Existing SH may have a right to buy a proportional part of any new issue so that their proportional share of ownership does not diminish.
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Are preemptive rights guaranteed to all SH?
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NO—UNLESS corp was formed before 2/22/98(automatic); This is not required but contracted for and is usually established in the Cert if Inc and for particular class
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How is a new board established? Who need to be on the board?
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Must have 1 or more natural persons determined by;Bylaws;SH act OR;Bd; if SH bylaw allows;
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Who can remove D’s?
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SH’s by method in Cert of Inc (usu vote) or BoD but only if permitted by Cert of Inc or bylaws
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If a D is kicked off BoD; how is he replaced?
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general rule: remaining directors select person to serve remainder of term;special rule: SH selects person who will serve remainder of term in situation where director removed by SH w/out cause;
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What are the 2 ways the board can act?
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Unanimous written consent OR Meet
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What are the requirements for a meeting?
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Quorum and Notice for special meeting (Notice is not required b/c all normal meeting are set forth in advance in bylaws)
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Can a BoD increase the quorum? Decrease?
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YES but limited by Cert of Inc and or bylaws
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ROLE OF THE BD?
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Bd manages business of Corp;Sets policy; monitors and supervises officers;Declares dividends and other distributions;Decides when Corp will issue stock;Recommends fundamental Corp changes;
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Can the BoD delegate its duty to manage the corp?
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Yes. To committees but cannot delegate all resp.—this would be a breach
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DUTY OF CARE: FIDUCIARY MANTRA:;
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Director must discharge duties in good faith and w/ degree of diligence; care; and skill that an ordinarily prudent (RPP in NY) person would exercise under similar circumstances in like position.
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What is Nonfeasance? Can a D be liable for this?
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Failure to act; only liable when it can be proved the failure resulted in a loss to the corp—look for hypos where the D is absent from a meeting and is an expert on the topic at hand
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What is a defense to Misfeasance? Why?
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BJR. If D invokes the D the P will have to prove that the decision was not made in good faith; was reasonably informed and had rational basis
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When will a D be liable for misfeasance?
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Only liable if irrational OR grossly negligent ;Prudent people do appropriate HOMEWORK (eg deliberation; analysis);BUT director is NOT a guarantor of success;
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Define the Duty of Loyalty
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D must act in good faith and w/ the conscientiousness; fairness; morality and honesty the law requires of fiduciaries
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Is the BJR a valid defense to a charge of breach of loyalty?
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NO- here we are looking for conflicts of interest; NOT whether a D discharged their duty w/diligence; care or skill. This is malfeasance rather than mis or nonfeasance
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Between who is an interested director transaction?
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Between the Corp and a D as an individual; a D for another entity; or in which the D has an interest
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What if a D engages in an interested director transaction?
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IDT set aside UNLESS D (who has burden) shows either:;Deal was fair and reasonable to Corp when approved OR ;Material facts and D’s interest were disclosed or known and deal approved by;SH;Bb approval w/ sufficient votes not counting votes of interested D;Unanimous vote of disinterested D’s: if disinterested D’s are insufficient to take an act of the Bd; whenever you have so few that they could not take action; then you need unanimity ;Interested D’s count toward Bd quorum; but their vote does not count;
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Can a board set its own compensation?
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YES; Bd can set compensation of D’s; unless Cert. of Inc. or bylaws says cannot; but compensation MUST be reasonable and in good faith; if excessive; it is waste of Corp assets
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Can D’s get stock as incentive?
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Yes but that MUST be approved by SH’s
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Can D go into competition with the corp?
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NO D cannot go into competition w/ Corp—If so; Corp gets constructive trust on profits and may recover damages for harm caused to Corp—“breaching Dir. must account to the corp for the profit”;
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Can a D usurp a corp. opportunity?
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NO; D cannot take the opportunity UNTIL notifies Bd AND waits for Bd to reject it.;
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What is the remedy for usurpation?
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Remedy for usurpation is constructive trust
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What is a corp oppty?
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Something that the Corp needs; has an interest in or tangible expectancy or that is logically related to its business
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Can a board lend a D money?
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YES but only if BoD approves and determines it benefits the Corp.
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(1) How can a D dissent from a board decision?
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Dissent in writing by declaring dissent:;In minutes;In writing to Corp secretary at meeting;Deliver or send by registered mail to Corp secrectary promptly after adjournment
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What defense can a D rely on if charged with a violation of duty of care?
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Good faith reliance on info; opinions; reports or statements by consultants (accountants, lawyers, investment bankers)
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What duties does an officer have to corp?
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Same as D.
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If Bd fires an officer; against whom can the officer bring a CoA and for what?
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officer loses job BUT the Corp may be liable for breach of contract damages (look for contracts crossover essay question w/ K’s);
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Who appoints board?
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Elected or appointed pursuant to Cert of Inc by SH’s
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Who appoints the officers?
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The BoD appoints the officers
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i) If a D or O is sued in their capacity as D or O; can they get reimbursed/indemnified?
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Reimbursement prohibited if D or O held liable to Corp;Reimbursement as of right – Corp must reimburse D or O if successful in defending case on the merits or otherwise;Reimbursement permissive – Corp may reimburse D or O but D or O must prove acted in good faith and for a purpose reasonably believed to be in Corp best interest
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If reimbursement is of right; and a D&O sues to get reimbursement and is found to have been due indemnification; who pays for the suit?
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The D&O must pay for suit; the corp will pay for the underlying suit. However a court may order the court to pay if it deems the D&O entitled.
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What can a D7O do to indemnify themselves?
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Corp may advance expenses; but must be repaid if not entitled to reimbursement; OR;Corp can buy D and O insurance;
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Can the cert of Inc provide for indemnification?
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Certificate may provide for elimination of D liability to Corp or SH for damages for breach of duty EXCEPT when D (always put this in essay when D or O being sued);Acted in bad faith OR;Acted w/ intentional misconduct OR;Received an improper financial benefit OR;Approved an unlawful distribution or loan;
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Who manages a closely held corp.
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As usual; it is determined by the Cert of Inc. It can be run by SH’s under the Cert of Inc If: ;Unanimous vote of incorporators or SH approve;Conspicuously noted on front and back of all shares;All subsequent shareholders have notice;Shares are not listed on an exchange;
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Is there any additional duty owed in a close corp?
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YES—majority SH owe the duty of utmost care to minority SH; minorities can bring a CoA for oppression
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What are 4 common qualities of PC’s
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SH; D and O must ALL be licensed professionals;Professionals liable for own malpractice; but NOT for malpractice of others;Professionals not liable for contracts entered into by entity; entity liable;If SH dies or is disqualified from practice; P.C. must purchase shares;;
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Requirements to bring suit for derivative suits:; (6)
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(1) Stock ownership when claim arose.; (2) Must adequately represent the interests of the corp and the Shs. ;(3) Post a bond. No bond needed if Sh owns 5% or more of the stock or Sh’s stock is worth more then $50K. ;(4) Must make a DEMAND to dirs that the corp sue.; (5) Pleading: P must plead w/ particularity efforts to get bd to sue or why the demand is excused. ;(6) The corp must be joined as a D.;
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Does a SH need to own stock he bought in order to bring a derivative suit?
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NO; Owned stock (or held a voting trust certificate); OR;Gotten it by operation of law from someone who owned the stock when the claim arose (inheritance or divorce decree).;Also; must own the stock when the action is brought and through entry of judgment.;
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When is a SH not required to make a demand on the BoD in order to bring a derivative suit? (3)
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No demand on the Board if demand would be futile. It would be futile if: ;majority of bd is interested or under the control of interested dirs.;bd did not inform itself of the transaction to the extent reasonable under the circumstances.;transaction so egregious on its face that it could not be the result of sound bus judgment. ;
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What will ct look at to determine whether BoD adequately responsed to demand
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First; Independence of the investigation and second sufficiency of the investigation
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When can a D or O sue another?
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Whenever A D or O can sue another D or O to compel her to account for violation of duties or misappropriation of corporate assets—you do not need to show the derivative requirements and can be brought in their own name.
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Are proxies for voting revocable?
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Yes Sh can revoke proxy even if it says “irrevocable”.;Proxy coupled with an interest is truly irrevocable: says irrevocable and proxy-holder has some interest in the shares other than voting. ;
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Can or must an O or D bring a derivative suit?
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Neither. An O or D can sue another O or D to compel her to account for her violation of duties.;This P would not have to meet the requirements of a derivative suit. ;Sue in her own name w/o alleging representative capacity.;
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What is a record owner?
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The owner of the stock who is listed in corporate records as the owner and may vote the shares assuming they are owned no fewer than 10 and no more than 60 days before the meeting; as determined by certificate or bylaws.
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What is a proxy? (5 characteristics)
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Proxy is:;writing (fax or email ok);signed by record Sh or authorized agent;;directed to sec of corp;;authorizing another to vote the shares.;Good for 11 months unless stated otherwise.;
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When are proxies not revocable?
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When they state NOTrevocable AND proxy-holder has some interest in the shares other then voting
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What is a Voting Trust and what is required to implement one?
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Written trust agreement controlling how shares will be voted;;Copy to the corp (cannot be secret);;Transfer legal title of shares to voting trustee;;Original SHs receive trust certificates and retain all SH rights except for voting.;10 year time limit (but can be extended for another 10 years if extension is made w/in 6 months of expiration of first 10 years). ;
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What is a voting agreement? Who can NEVER use one?
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Two SH can agree to elect each other as directors. ;But; as D’s they can NEVER enter voting agmts on how they will vote as D’s. HOWEVER; it would be OK if these are the only Shs in the corp.
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How can a SH exert influence over the Corp?
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Vote at a meeting. Exception: Written consent signed by holders of all voting SH to act w/o a meeting
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What are the 2 types of meetings and what distinguishes them?
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Annual meeting: SH elect the dirs.;Special meeting: Must be called by bd if there is a failure to elect a sufficient number of directors to conduct the business of the corp. ;
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Is Notice required for an Annual Meeting? Special meeting?
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NO-it is set by the certificate of Inc.; BUT Annual meeting must be noticed 10-60 days in advance
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(i) What can be done at a special meeting?
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Must inform if the proposed action would entitle SH to appraisal rts and why (include statute about appraisal rts). ;Notice must state who called and purpose of meeting (b/c that is the only business that can be done). ;Meetings must be for a proper purpose (not removing officers). ;No notice = action taken at meeting is VOID. ;
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Who can call a special meeting?
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Anyone on BoD or as otherwise stated in Cert. or Bylaws.
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Can a SH waive notice to a special meeting?
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Yes; by Express: in writing and signed anytime; OR Implied: attend meeting w/o objection. ;
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Generally; what is necessary for a quorum of a SH meeting?
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Majority of voting shares.
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Can the Certificate or Bylaws change the quorum requirements?
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YES but never below statutory floor of 1/3.
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Can D’s leave a BoD meeting yet maintain a quorum? What about a SH meeting?
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NO- D’s cannot leave. YES SH’s can leave and maintain a quorum
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What is cumulative voting?
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If you have 100 shares and have 3 open BoD spots; you can vote 300 votes for one D. You take the 100 shares and get them converted for each spot open as though you were conducting a race for each seat then you apply all those votes but vote at-large
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When can a SH inspect the books of the corporation?
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Any SH; 5 days written demand can inspect the books; Corp can ask for affidavit that purpose is not other than in the interest of the corp and not w/in 5 years tried to shell any SH list.;
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SECRET PROFIT RULE?
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Promoter cannot make secret profit on dealing w/ Corp;If Promoter does then liable; has to account for lost profits and repay Corp ;If Corp knows about profit; no liability;Promoter sells Corp property acquired before becoming promoter: profit equals price paid by Corp minus fair market value; what promoter paid irrelevant ;Promoter sells C property acquired after becoming promoter: profit equals price paid by Corp minus price paid by promoter ;
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What is a subscription?
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Subscription is a written; signed offer to buy stock from Corp;
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Why are subscription agreements irrevocable before formation and for how long?
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To give the corp security that the funds will be there upon formation and for 3 months.
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How long are post incorporation subscriptions valid?
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Until acceptance or revocation—whichever comes first
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(1) What is subscriber fails to consummate the subscription agreement?
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Subscriber paid less than 1/2 purchase price and fails to pay rest w/in 30 days of written demand; Corp keeps the money; cancel shares and shares become authorized and unissued;
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What is the subscriber paid more than ½ and then decides to renege?
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Subscriber paid 1/2 or more and fails to pay rest w/in 30s of written demand; Corp must try to sell stock to someone else for cash;If no one will pay; defaulting subscriber forfeits what he paid and shares canceled.;If someone pays more; defaulting subscriber recovers excess over agreed price;
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Will a subscription agreement fail due to the form of consideration?
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Not generally. Money; property; labor; binding future obligations of money and binding future obligations of future services all valid consideration.
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What is Par value ?
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Initial offer price noted on stock
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Must stock have a par value?
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No the board can set any alternative
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Can the bd use par stock to buy property?
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Yes as long as the bargain is made without fraud
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Who is liable if the Bd. Sells par stock for less than par value? What is this called?
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The Bd. Is liable AND the buyer is liable (buyer charged with knowledge of par stock; this would watering
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SECRET PROFIT RULE?
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Promoter cannot make secret profit on dealing w/ Corp
If Promoter does then liable; has to account for lost profits and repay Corp If Corp knows about profit; no liability Promoter sells Corp property acquired before becoming promoter: profit equals price paid by Corp minus fair market value; what promoter paid irrelevant Promoter sells C property acquired after becoming promoter: profit equals price paid by Corp minus price paid by promoter What is a subscription? |
