Texas Corporations

Front 1

Corporations: What are four advantages of corporations?

Back 1

1. Shareholders have limited liability.
2. Shareholders may freely transfer ownership rights.
3. Corp. may have perpetual life.
4. Corp. has regular form of management decisionmaking established by statute.

Front 2

Corporations: What is a certificate of formation?

Back 2

Describes the purposes and structure of a corporation. Required when organizing a corp.

Front 3

Corporations: What are bylaws?

Back 3

Contain specific statement of management procedures.

Front 4

Corporations: When is a corporation a citizen? Not a citizen?

Back 4

1. Due process, equal protection, and diversity of citizenship jurisdiction.
2. Privileges & Immunities clause.

Front 5

Corporations: What is a de jure corporation?

Back 5

A corporation formed in accordance with all applicable laws.

Front 6

Corporations: What are the elements of the de facto corporation doctrine?

Back 6

1. Colorable compliance with statutory formation requirements.
2. Business has been conducted in the corporation's name.

Front 7

Corporations: What is the corporation by estoppel doctrine?

Back 7

In a contractural situation, have the parties acted as if they were a corporation?

Front 8

Corporations: When can the veil be pierced?

Back 8

1. Corporate formalities have been ignored AND injustice has resulted.
2. The corporation was inadequately capitalized.
3. Is it necessary to prevent fraud?

Front 9

Corporations: When can a shareholder be held personally liable for corporate obligations?

Back 9

1. If there is no corporation (de jure, de facto, by estoppel).
2. If the veil can be pierced.

Front 10

Corporations: If sharehiolders are held liable, who will be held liable, and for how much?

Back 10

1. Normally, only shareholders active in management or opertaion of the business.
2. Entire amount of claim, joint and several.

Front 11

Corporations: Who may pierce the veil?

Back 11

1. Creditors, particularly with tort, not K claims.
2. S/h, but rarely.

Front 12

Corporations: For what dealings may a promoter be held liable?

Back 12

1. Breach of fiduciary duty arising from sales to corporation.
2. Fraudulent misrepresentation.
3. Securities violations (10b-5 or Texas Securities Law)

Front 13

Corporations: Is a corporation held liable on promoters contracts?

Back 13

No, unless the corporation adopts the contracts. Even if there is adoption, the promoter remains j&s liable unless there is a novation.

Front 14

Corporations: What do promoters do? How does this affect corporation liability?

Back 14

They form a new corporation. Because the corporation does not exist at time of making the contract, someone has to be liable. That would be the promoter.

Front 15

Corporations: What is a subscription agreement?

Back 15

A continuing offer that does not become an enforceable contract until accepted by the corporation.

Front 16

Corporations: When can a subscription agreement be revoked for an existing corporation? A corporation to be formed?

Back 16

1. Any time prior to acceptance.
2. Irrevocable for six months.

Front 17

Corporations: How may a corporation accept a subscription?

Back 17

Writing.

Front 18

Corporations: When are subscribers deemed to be shareholders?

Back 18

Only after paying for shares.

Front 19

Corporations: What must a corporation do when it issues stock?

Back 19

Register with the SEC.

Front 20

Corporations: What are the three major exceptions to the requirement that a corporation issuing stock register with the SEC?

Back 20

1. Intrastate offerings (ONLY to state of incorporation && operating)
2. Regulation D offerings
3. Regulation A offerings

Front 21

Corporations: What are the three limits for Regulation D offerings in a twelve month period?

Back 21

1. Up to $1M to unlimited number of investors (R504)
2. Up to $5M to an unlimited number of accredited investors + 35 or fewer nonaccredited investors (R505)
3. Any amount to unlimited accredited invstors + 35 unaccredit investors w/sufficient knowledge and experience

Front 22

Corporations: What is a Regulation A offering?

Back 22

Not exactly an exemption. Provides a simplified registration form for sales of securities up to $5M annually.

Front 23

Corporations: What consideration may be provided for shares?

Back 23

Any benefit to the corporation, whether tangible or intangible. Shares may only be issued when full amount is recieved.

Front 24

Corporations: If shares are issued without full payment, who is liable and for what?

Back 24

The immediate buy of the stock is liable to pay the full amount of the corporation.

Front 25

Corporations: Who generally has the power to run the day to day affairs of a corporation?

Back 25

The Board of Directors.

Front 26

Corporations: When may shareholders run a corporation?

Back 26

To the extent that the certificate, bylaws, or shareholder agreement provides. Otherwise, power is vested in the Board, which the shareholders elect.

Front 27

Corporations: How may shareholders act?

Back 27

1. At a shareholder meeting.
2. Without a meeting with consent of ALL shareholders entitled to vote.

Front 28

Corporations: When are proxies irrevocable?

Back 28

When the proxy form conspicuously states that the proxy is irrevocable AND the proxy is coupled with an interest.

Front 29

Corporations: How many votes may a share have?

Back 29

One share, one vote, unless a class is made nonvoting by the articles.

Front 30

Corporations: What is the procedure to allow cumulative voting?

Back 30

If incorporated before September 1, 2003, may vote unless certificate provides otherwise. If after, may vote only if expressly permitted by the certificate.

Front 31

Corporations: When cumulative voting, how many votes does each share recieve?

Back 31

One per director being elected.

Front 32

Corporations: How many shares need to be represented at a meeting for a vote to be valid?

Back 32

A quorum.

Front 33

Corporations: If shareholder action involves an ordinary matter, how many votes are necessary?

Back 33

A majority of the votes cast at the meeting.

Front 34

Corporations: If shareholder action involves a fundamental change, how many votes are necessary?

Back 34

Two-thirds of all shares ENTITLED to vote (unless directors require a greater vote)

Front 35

Corporations: if shareholder action involves electing a board of directors, how many votes are necessary?

Back 35

Regardless of cumulative voting, candidates getting the most votes win.

Front 36

Corporations: Upon which amendments may a class of shares vote as a class, regardless of the articles?

Back 36

1. Changing par value shares into no par value shares.
2. Vice versa
3. Shares of any class into a different number of shares of the same class.

Front 37

Corporations: What is a voting trust?

Back 37

A written agreement that all shares owned by parties to the agreement are transferred to a trustee, who votes and distributes dividends according to the agreement. Only valid if for a proper purpose.

Front 38

Corporations: What is a pooling agreement?

Back 38

A written agreement among shareholders to vote their shares as a majority of signers direct. No formal separation of voting power and beneficial ownership.

Front 39

Corporations: What is the requirement to form a close corporation?

Back 39

The certificate must state "this corporation is a close corporation."

Front 40

Corporations: How does one terminate statues as a close corporation?

Back 40

By amending the certificate, with approval of two-thirds of each class of shares, or as provided in the articles and the filing of a termination certificate.

Front 41

Corporations: How can a close corporation be managed?

Back 41

By the board of directors, or by directors with limited powers, outsiders, or shareholders, if the certificate or shareholders agreement so provides.

Front 42

Corporations: What are the conditions on restriction of transfer of stock in Texas?

Back 42

1. Restrictions do not unrsbl restrain or prohibit transferability.
2. Existence of restricions is conspicously disclosed on stock certificates.
3. Restrictions are set forth in certificate of formation, bylaws, or shareholder's agreement.

Front 43

Corporations: When is a restriction on transfer of stock effective against a third party?

Back 43

1. If restiction was known to third party.
2. If restriction is conspicously noted on the certificate of stock.

Front 44

Corporations: Which shareholders have a right to examine the corporations books and records upon written demand?

Back 44

1. Shareholders of record for more than six months.
2. Shareholders who own more than 5%

Front 45

Corporations: What are preemptive rights?

Back 45

Shareholder's rights to purhcase newly issued shares to maintain proportional voting stock. Only default if corporation incorporated before September 1, 2003.

Front 46

Corporations: How may distributions be paid?

Back 46

1. Cash
2. Property
3. Bonds

Front 47

Corporations: What forms may distributions be made?

Back 47

1. Dividend
2. Share purchases
3. Liquidation payment.

Front 48

Corporations: What is stated capital?

Back 48

Amount recieved for par and other amounts allocated or transfered to the account. Not allowed for distributions, but reserved for creditors.

Front 49

Corporations: When will a court enjoin payment of distributions?

Back 49

When payment
1. Discriminates between members of a same class of stock
2. Violates preferences of a preferred class of shareholders.

Front 50

Corporations: Who are preferred shareholders?

Back 50

The first shareholdres to be paid distributions.

Front 51

Corporations: What are the three cumulative provisions for stock dividends?

Back 51

1. Cumulative (if preferred not paid in a year, must make up for missed payment before common stock can recieve money)
2. Noncumulative
3. Cumulative if earned.

Front 52

Corporations: What are participation rights?

Back 52

Preferred shareholders that are participating have a right to receive additional distributions in any one year above and beyond the stated preference.

Front 53

Corporations: May a payment be made that will render a corporation insolvent?

Back 53

No.

Front 54

Corporations: For how much is a director who votes for or assents to a wrongful payment liable?

Back 54

Joint and several liability to the extent of the impermissible payment. Directors held liable are entitled to contribution from other directors who could have been held liable.

Front 55

Corporations: How is a director deemed to have assented to a payment?

Back 55

Presence at the meeting where the payment was approved, unless files a written dissent.

Front 56

Corporations: When is a director protected from liability for a wrongful distribution?

Back 56

1. In the exercise of ordinary care, relies and acts on good faith on financial statements or other information of the corporation.
2. In the exercise of ordinary care, relies and acts on good faith upon a written opinion of an attorney for the corporation.

Front 57

Corporations: When may a declared cash dividend be revoked? Stock dividends?

Back 57

1. If the declaration itself was illegal.
2. If payment would be illegal (insolvency or lack of surplus).

Stock dividends may be revoked at any time.

Front 58

Corporations: What is the standing requirement for a shareholder (derivative) suit?

Back 58

Must have been a shareholder at the time of the act or omission complained of; or become a shareholder by operation of law.

Front 59

Corporations: What must be filed with the corporation before filing a derivative suit?

Back 59

A written demand that the corp. file suit in its own right, stating particularly the nature of the claim.

Front 60

Corporations: How long may a shareholder wait after filing a demand with the corporation.

Back 60

90 days, unless the corporation rejects the demand sooner or the dela would cause irreparable injury during the waiting period.

Front 61

Corporations: What is the pleading requirement for a derivative suit after rejection by the corporation?

Back 61

Must show that the decision was not made in the corporation's best interest by a disinterested majority of the board.

Front 62

Corporations: What are the three options that a corporation has after a derivative suit is filed?

Back 62

1. Go along with the suit.
2. Seek a stay in order to investigate the matter further.
3. If determined not to be in best interests of the corporation, move to dismiss.

Front 63

Corporations: What is required for the discontinuance or settlement of a derivative suit?

Back 63

Approval of the court, and if court determines that a proposed discontinuance or settlement may substantially affect other shareholders, may require notice to those shareholders.

Front 64

Corporations: Upon what circumstances may a court order a corporation to pay the expenses for a derivative suit?

Back 64

Upon a finding that the suit substantially benefited the corporation.

Damages are awarded to the corporation.

Front 65

Corporations: If a court determines that a shareholder suit was omaintained without rsbl cause or brought for an improper purpose, what may the court do?

Back 65

Have the plaintiff pay costs.

Front 66

Corporations: Are directors liable for bad business judgment?

Back 66

No. Need fraud or illegal conduct.

Front 67

Corporations: When does actual authority arise for a director to have power to bind a corporation?

Back 67

1. Proper notice must be given for a director's meeting.
2. A quorum must be present.
3. A majority of directors must approve the action.

Front 68

Corporations: Is a formal meeting of directors always required?

Back 68

No, unless prohibited by certificate or formation, the unanimous written consent will be allowed. Also, remote meetings are fine.

Front 69

Corporations: How may vacancies in the Board of Directors be filled? If resulting from increase in number of directors?

Back 69

1. Remaining directors, or shareholder meeting.
2. Same, but board may not fill more than two vacancies between annual meetings.

Front 70

Corporations: How may directors be removed if the certificate or bylaws don't provide otherwise?

Back 70

With or without cause by a vote of a majority of the shares entitled to vote for directors.

Front 71

Corporations: What is the duty of care required by directors? Liability?

Back 71

Ordinary care and prudence. Liable for losses resulting from officer's misconduct if the directors fail to supervise the officer.

Front 72

Corporations: If a director will benefit from a transaction, what must the director do? The corporation? ***IMPORTANT***

Back 72

1. Disclose the information to the board.
2. Disinterested directors or the shareholders must approve.

Front 73

Corporations: May a undisclosed interested director transaction be set aside? Are damages available?

Back 73

Yes, unless it is fair to the corporation.

Yes, equal to the director's profit.

Front 74

Corporations: How does a director have an interest in a transaction?

Back 74

1. If he is a party to the transaction.
2. Has a material financial state in the transaction.
3. Is an immediate family member of a party.

Front 75

Corporations: What is the first of three options for an interested director transaction to be valid?

Back 75

The material facts of the relationship must be known to the board, and the board in good faith authorizes the transaction by a vote of a majority of the disinterested directors (does not have to be a quorum)

Front 76

Corporations: What is the second of three options for a interested director transaction to be valid?

Back 76

The material facts of the relationship are disclosed to the shareholders who then by vote approve the transaction in good faith.

Front 77

Corporations: What is the third of three options for an interetsed director transaction to be valid?

Back 77

The transaction is FAIR to the corporation at the time it is authorized or ratified by the board of the shareholders.

Front 78

Corporations: What is the Corporate Opportunity Doctrine?

Back 78

A director or offier may not usurp a business opportunity in which his corporation may rsbl be interested w/o first giving the corp an opportunity to act. Failure = liabiliby for profits made & the opportunity.

Front 79

Corporations: To whom is Section 16(b) apply?

Back 79

1. Corporations with more than $10M of assets and at least 500 record holders of a class of equity securities.
2. Corporations registered on a national securities exchange.

Front 80

Corporations: What does Rule 16(b) provide?

Back 80

Any profit realized by a director, officer, or 10%+ s/h of any ale of equity security w/in 6 month period must be returned to corporation.

Front 81

Corporations: How are damages computed for violations of Section 16(b)?

Back 81

Matching the highest sales price against the lowest purchase price during any six-month period.

Front 82

Corporations: What are the three things that Rule 10b-5 makes it unlawful for any person to use interstate commerce, mails, or national security exchanges to do?

Back 82

1. Employ any device, scheme, or artifice to defraud.
2. Make any untrue statement of a material fact or omit to state a material fact.
3. Engage in any act/practice/course of business that would operate as fraud or deceit, in connection with purchase or sale of any security.

Front 83

Corporations: What is a security?

Back 83

Stock, bonds, and even notes under some circumstances.

Front 84

Corporations: To whom does Rule 10b-5 apply?

Back 84

All persons who commit fraud in connection with the purchase and sale of securities.

Front 85

Corporations: What does the class of persons to whom Rule 10b-5 apply, include?

Back 85

1. Persons who trade on the basis of inside information.
2. Persons who trade on the basis of misappropriated market information, in breach of duty of trust and confidence.

Front 86

Corporations: How can a tippee of an insider be liable under 10b-5?

Back 86

1. Only if the insider has breached his fiduciary duty by disclosing to the tippee;
2. Any the tippee knows or should know that there has been a breach.

Front 87

Corporations: Who may the government prosecute under 10b-5 via the Misappropriation Theory?

Back 87

Any person trading on the basis of market information misappropriated, no breach of duty needed.

Front 88

Corporations: What are three contexts in which 10b-5 liability is likely to be asserted?

Back 88

1. A sale or purchase of shares transaction.
2. Dissemination of misleading corporate info
3. Corp fiduciary duty or loyalty cases incidentally involving purchase or sale of a security.

Front 89

Corporations: What is materiality for 10b-5?

Back 89

Information is material if a rsbl person would attach importance to it in making an investment decision.

Front 90

Corporations: What standing is required to sue under 10b-5

Back 90

Must be a purchaser or seller.

Front 91

Corporations: What 10b-5 cases require reliance?

Back 91

Misinformation cases not involving omission.
Reliance is also presumed in fraud on the market cases.

Front 92

Corporations: What is the fraud on the market theory?

Back 92

Purchase in an impersonal market where the price is distorted by the defendant's public misrepresentation.

Front 93

Corporations: Is strict privity required for 10b-5?

Back 93

Usually not, at least in dissemination of misleading information cases.

Front 94

Corporations: Is scienter required for 10b-5?

Back 94

Yes, reckless disregard for truth usually sufficient. Negligence sufficient for anti-fraud.

Front 95

Corporations: What remedies may the SEC seek under 10b-5?

Back 95

1. Injunctive relief.
2. Civil penalties (not to exceed 3x profit gained or loss avoided)
3. Criminal penalties.
4. Private relief.

Front 96

Corporations: Who are the two required officers?

Back 96

1. President
2. Secretary

Front 97

Corporations: What powers do officers have, generally?

Back 97

Authority provided in bylaws or determined by board.

Front 98

Corporations: What must a CFO, CEO, or other top executive officer certify in a filing per Sarbanes-Oxley?

Back 98

1. Officer has reviewed the report.
2. Based upon the officer's knowledge, the report is true and does not contain material omissions.
3. Fairly presents financial position of the comiany.
4. Signing officer is responsible.

Front 99

Corporations: If a reporting company is required to restate financial reports because of misconduct in respect to the reports, what must the company's CEO and CFO do?

Back 99

Reimbures the company for any bonus or other incentive-based compensation recieved by them during the 12-month period after filing or publication, plus any profit made from sale of company securities during that period.

Front 100

Corporations: What is the standard procedure for making fundamental changes?

Back 100

1. Board resolution setting forth proposed action is adopted.
2. Notice sent not less than 21 days before shareholder meeting.
3. Action must be approved by 2/3 holders of shares entitled to vote.

Front 101

Corporations: What limitations exist on the amendment of articles?

Back 101

May amend in any way and as many respects, so long as amendment would currently be lawful in original articles.

Front 102

Corporations: What is required for a sale of all or substantially all of the assets of a corporation to be considered such?

Back 102

Corporation must not engage in business after the sale.

Front 103

Corporations: When are shareholders permitted to compel the corporation to buy their shares?

Back 103

1. When dissatisfied with the terms of a merger or share exchange.
2. The sale of all or substantially all assets.

Front 104

Corporations: When is the right of shareholders to compel the corporation to buy their assets?

Back 104

1. When listed on nat'l security exchange.
2. Listed on NASDAQ.
3. Held of record by 2000+ s/h.

Front 105

Corporations: Who may dissent from mergers and share exchanges?

Back 105

Any shareholder.

Front 106

Corporations: What is the basic procedure for shareholder's dissenting appraisal remedy?

Back 106

1. Corporation notifies shareholder.
2. Shareholder makes demand and tenders shares.
3. Corporation responds.

Front 107

Corporations: What are the requirements for a corporation to be voluntarily wound up by its organizers or directors before business commences?

Back 107

1. No shares of stock issued.
2. Corp has not commenced businees.
3. Majority of organizers or directors agree.
4. File certificate of termination with Sec Steate.

Front 108

Corporations: When may a corporation wind up by shareholder consent?

Back 108

When all s/h agree in writing.

Front 109

Corporations: What are the procedures for a corporation to wind up by corporate act?

Back 109

1. Send notice of intent to wind up to all creditors and claimants.
2. Must collect all of its assets
3. Discharge all of its obligations
3. Distribut remainder of assets, in cash or in kind, to shareholdres.
4. File certificate of termination.

Front 110

Corporations: When may a corporation revoke a voluntary decision to wind up?

Back 110

1. Any time before certificate filed; requires process similar to that of of winding up.

Front 111

Corporations: What is an affiliated shareholder?

Back 111

One who owns 20%+ of the corporation's stock.

Front 112

Corporations: What are covered corporations prohibited from doing with affiliated shareholders?

Back 112

Business combinatiosn (mergers, share exchanges, dispositions of 10%+ of assets)

Front 113

Corporations: Who are covered corporations for purposes of the business combintaion limitation?

Back 113

Issuing public corporations (100+ s/h or registered per Securities Exchange Act of 1934) that have not opted out of the law.

Front 114

Corporations: When is a business combination with an affiliated shareholder not prohibited?

Back 114

1. Approved before shareholder became affiliated.
2. Approved by 2/3 of all outstnding voting shares not owned by affiliated shareholder at meeting called at least 6 months after shareholder became affiliated.

Front 115

Corporations: Who may bring an actin to involuntarily terminate a corporation?

Back 115

1. State agency.
2. Shareholder
3. Creditor

Front 116

Corporations: What are five reasons why the AG may seek termination of a corporation?

Back 116

1. Failure to comply with condition precedent to information.
2. Fraudulent procurement of certificate of incorporation.
3. Transacting business beyond scope provided in certificate.
4. Misrepresenting any matter in any required report, application, affidavit, etc.
5. If public interst requires.

Front 117

Corporations: What are three reasons why the Secretary of State would administratively terminate a corporation?

Back 117

1. Failure to pay any required fee or tax.
2. Failure to file any required reports.
3. Failure to maintain a registered agent.

Front 118

Corporations: What happens if a corporation is administratively terminated for failure to pay franchise taxes?

Back 118

1. Corporation may not sue or defend actions in state court.
2. Each director and officer of the corporation is personally liable for each debt created on the date after the tax or tax report was due.

Front 119

Corporations: What must be first obtained before a minority shareholder may move for involuntary dissolution of a corporation?

Back 119

A reciever must be appointed.

Front 120

Corporations: What are five grounds for appointment of a receiver?

Back 120

1. Insolvency or danger of;
2. Deadlock and irreparable injury in mgmt of corp;
3. Deadlock and failure to elect directors.
4. Oppression by directors or those in control
5. Waste of corporate assets.

Front 121

Corporations: If a problem requiring receivership of a corporation is not remedied within one year, what may a court order?

Back 121

Involuntary dissolution.

Front 122

Corporations: When may a creditor seek immediate liquidation of a corporation?

Back 122

Only when it establishes irreparable damage will ensue to the unsecured creditors of the corporation.

Front 123

Corporations: What is the SoL for rights or claims existing or liability incurred prior to the termination of a corporation?

Back 123

Three years.

Front 124

Corporations: May a corporation be abandoned?

Back 124

No. Franchise taxes accrue until the corporation is termianted.

Front 125

Corporations: What power does the state have regarding foreign corporations?

Back 125

Unlimited power to exclude or reglulate, unless engaged in interstate commerce.

Front 126

Corporations: What must a foreign corporation do in order to have the right to transact business in Texas?

Back 126

Register with the Secretary of STate.

Front 127

Corporations: What does not constitute transacting business in Texas? (not exclusive)

Back 127

1. Isolated txns completed in 30 days.
2. Having bank account in TX.
3. Effecting sales through independent contractors.
4. Bringing suits or collecting debts

Front 128

Corporations: What happens if a foreign corporation fails to register in TX?

Back 128

May not bring suits in TX.

Front 129

Corporations: What must a corporation doing business in a name other than the name in its articles?

Back 129

File an assumed name certificate with the secretary of state.