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71 Cards in this Set
- Front
- Back
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What are the elements of a valid certificate of incorporation?
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1. Names and addresses
2. Statement of duration 3. Corporate purpose 4. Corporate structure (stocks) |
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What is ultra vires?
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An act outside the scope of the corporate purpose in the certificate of incorporation.
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What is the rule for ultra vires?
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Ultra vires contracts are valid but ....
1. Shareholders can seek injunction 2. Responsible officers and directors are liable for ultra vires losses |
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Define issued stock.
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Number of shares actually sold at incorporation.
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Define authorized stock
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Max number of shares that can be sold.
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Define outstanding stock.
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Shares sold and not reacquired.
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What information about stocks must be included in the certificate of incorporation?
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1. Number of authorized stock
2. Number of shares per class 3. Info on par value, rights, limitations and preferences on all classes of stock 4. Info on any series of preferred shares |
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At least one class of stocks/bonds must have unlimited ___________ and at least one must have unlimited ________ .
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1. Voting rights
2. rights to dividends |
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What is the organizational meeting?
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initial meeting of corporation where BODis first elected and then takes over management.
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What is a pre-incorporation contract?
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Person acting on behalf of a corporation not yet formed may enter into a contract on behalf of the corporation.
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What is the rule for a corporation's liability on pre-incorporation contracts?
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Corporation is only liable for those contracts which it adopts and never automatically.
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How does a corporation adopt a pre-incorporation contract?
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1. Express BOD action
2. Implied - Corp knowingly accepts the benefit of the contract |
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For how long is the promoter liable on pre-incorporation contracts?
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Unless contract says otherwise, the promoter remains liable until/unless there is a novation.
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What is a promoter's duty of loyalty to the corporation?
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Must not make secret profits. If it does, will have to account to the corporation.
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What is a subscription?
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A written, signed offer to buy stock from the corporation.
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How long must a pre-incorporation subscription remain irrevocable?
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3 months
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How long must a post-incorporation subscription remain irrevocable?
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revocable until acceptance.
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Can a corporation sell subscriptions to some and not others?
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NO
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What may a corporation accept as valid consideration for stock issuance?
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1. Money (cash/check)
2. Tangible or intangible property 3. Services already performed for corp. 4. Binding obligation to pay in the future. 5. Binding obligations for future services. (anything else is prohibited) |
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What does "par" stock mean?
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If corp issues 10,000 shares of $3 par stock, it must get at least 30k in return
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What are a shareholder's preemptive rights?
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Right of existing shareholder to maintain their percentage of ownership buy buying stock whenever their is an issuance of common stock FOR MONEY
2. Shareholder has right of first refusal if authorized in cert. |
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What stock is NOT included for the purposes of a shareholder's preemptive rights?
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1. Sale of treasury stock
2. Stock authorized y original certificate and sold within 2 years of formation 3. Stock not sold for money |
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How is the number of directors set?
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1. Bylaws
2. Shareholder action 3. BOD if shareholder bylaws allow |
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How is the board of directors elected?
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1. By incorporators at org meeting
2. Then by shareholders |
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Who can remove a director for cause?
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1. Shareholders
2. BOD - only if in certificate or bylaws |
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Who can remove a director without cause?
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1. Shareholders only and only if says so in the certificate or bylaws
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Who fills vacancies on the BOD when a director is removed?
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1. BOD fills vacancies for cause
2. Shareholders fill vacancies for without cause |
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What are the two ways in which the BOD may act?
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1. Meeting
2. Unanimous written consent |
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Notice is required for both regular and special meetings of the BOD, T/F?
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False. Only for special meetings.
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What is the consequence of failure of notice?
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Any action taken at that meeting is void unless
1. Waiver - in writing and signed 2. Attending meeting without objection |
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What the rule concerning quorums?
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Must have the majority of the entire BOD present to do business.
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If a quorum is present, how much of that quorum is needed to pass a resolution?
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A majority
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Can the BOD vote to decrease the number of directors needed for a quorum.
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1. Yes, but must amend the certificate or bylaws and
2. Can never be less than 1/3 of the BOD |
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Can the number of directors needed to pass a resolution be decreased by the BOD?
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No.
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Can the BOD vote to increase the number of directors needed for a quorum or to pass a resolution?
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Yes, but must amend the certificate (not bylaws).
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What is the standard for the duty of loyalty and when should you state it in your essay?
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"Director must act in good faith and with the conscientiousness, fairness, morality, and honesty that the law requires of fiduciaries"
State the entire standard in every duty of loyalty question. |
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Is the business judgment rule relevant for duty of loyalty purposes.
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No
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Define conflict transaction.
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1. Any deal between a corporation and one of its directors OR
2. a business of which its director r officer has a substantial financial interest |
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What is the rule for conflict transactions?
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A conflict transaction will be set aside if...
1. Deal was fair and reasonable to the corporation when approved OR 2. Material facts and interests were disclosed and deal was approved by shareholder action, majority vote of disinterested directors, or unanimous vote of disinterested directors if not enough disinterested directors for normal majority vote |
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Can the BOD set director compensation?
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Yes, if its fair and reasonable and in GF.
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What is the rule for BOD and competing ventures?
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Director cannot compete with its own corporation if it does ....
1. Corporation get a constructive trust 2. Director must account to corp |
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What is the rule for usurping corporate opportunity?
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1. Director must account
2. Corporation gets a constructive trust |
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What is the rule for loans of funds from a corporation to a director?
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Generally improper unless BOD finds that it benefits the corporation
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Director is presumed to have _______ with BOD action unless dissent is noted in writing in corporate records
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1. Concurred
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If in making its decisions, a BOD relies on info, opinions, reports and statements it __________.
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Has not breached its duty of loyalty
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Shareholders hire, fire, and set compensation for officers, T/F?
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False. The BOD does.
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Attorney general or holders of 10 percent of all shares may sue for judgment removing officer for cause and court can bar reappointment of the person removed, T/F
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True.
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When must a director NOT be indemnified by the corporation?
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If it was found liable to the corporation.
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When must a director be indemnified by the corporation?
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If the director won on the merits or for any other reason.
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When may a director be indemnified by the corporation?
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1. Director acted in good faith
2. for a purpose reasonably believed to be in the corporation's best interest |
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Who determines eligibility of a director to be permissively indemnified?
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1. BOD with a quorum
2. If no quorum, then quorum of disinterested directors 3. Shareholder approval 4. BOD pursuant to report from independent legal counsel |
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In a close corporation, shareholder management is OK if ________.
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1. Need to state in Certificate
2. All incorporators or shareholders must approve 3. Conspicuously noted on front and back of all shares 4. All subsequent S have notice AND 5. Shares are not listed on an exchange or regularly quoted over the counter (Duty of loyalty applies to major holders) |
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Under what two circumstances will the court pierce the corporate veil?
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1. Alter Ego (ID of interests, agency, excessive domination)
2. Under Capitalization |
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What does the shareholder get if it wins the derivative suit?
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1. costs and attorney's fees
2. might get damages directly if giving money to corp would return money to bad guys |
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What does the shareholder get if it loses the derivative suit?
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Nothing and probably has to pay the D's costs
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What are the requirement of a shareholder derivative suit?
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1. Own stock at time claim arose
2. Adequate representation of shareholders interests 3. Maybe post bond for D costs (but not if owns %5 of stock) 4. Demand (unless futile) 5. Special pleading requirement (tried to get BOD to act - particularity) 6. Add corp as defendant |
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A shareholder derivative suit can only be settled with __________.
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Court approval
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What is the rule for director derivative suits?
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1. Director can bring suit against other directors or accounting, violations of duty etc
2. Does not have to go through same requirements as S 3. Sues in individual capacity |
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What is the general rule for restriction shareholders from transferring stock?
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Restrictions will be upheld if they are reasonable under the circumstances and not an undue restraint on alienation.
(restriction can be in bylaws, cert, or by agreement) |
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Even if a restriction on shareholder stock transfer is otherwise valid, it cannot be invoked unless ________.
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1. Conspicuously noted on stock certificate OR
2. Transferee had actual notice of restriction |
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What is a shareholder's right to inspect shareholder meeting minutes and other shareholder records?
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1. Can demand with 5 days written notice
2. Corp can demand affidavit stating that S did not try to sell S list within last 5 years and S's interest |
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What is a shareholder's right to inspect Officer and director list?
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Shareholder can demand
1. On 2 days notice 2. No affidavit required |
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What is a shareholder's right to inspect corporation's last balance sheets, and last profit/loss statement?
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Shareholder can demand at anytime and corporation must produce.
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What is a shareholder's common law right to inspect?
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All S have a right to inspect records at a reasonable time and proper place and for proper purpose though not clear how broad this right is (in terms of documents)
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What qualifies as a fundamental corporate change and what need to happen if there is one?
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Change so fundamental that it requires
1. BOD approval 2. Majority S approval 3. Dissenting S right of appraisal |
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What is the process for a shareholder to exercise its right of appraisal?
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1. File written objection and intent to demand appraisal before the vote
2. Abstain or vote against proposed change 3. After vote make written demand to be bought out. |
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Major amendments to the certificate of incorporation must be approved by _______.
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1. BOD
2. Majority of shares (all voting shares not just voting shares at meeting) entitled to vote 3. No S approval needed if buying co owns 90 percent or more of the stock of bought company |
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Mergers and consolidations must be approved by _________.
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1. BOD of BOTH companies
2. Majority of S of BOTH companies |
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What is successor liability as it applies to mergers and consolidations?
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Successor company (one that still exists after merger) takes on all the liabilities and and rights of the former company
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Hostile Takeovers (transfer of all out standing stock to another company) must be approved by _________.
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1. BOD of both companies
2. Majority vote of S of selling company only. |
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For a valid dissolution, majority vote of _________ is required but not ________.
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1. Shareholder but not
2. BOD |
