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42 Cards in this Set
- Front
- Back
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Requirements for registered VA agent
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1) member of VA bar
2) resident of VA 3) director or officer of corporation |
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Corporate Powers (8)
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1) sue or be sued
2) make and amend bylaws 3) purchase and transfer property 4) contract 5) lend money 6) elect or appoint officers 7) insure 8) pay compensation |
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Maximum lag between filing Articles of Incorporation and corporate existence
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15 days
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Difference between equity securities and debt securities?
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Equity securities are ownership in corporation that may allow voting rights. Debt securities are contractual obligations between a creditor and debtor. Debt securities (bonds) have priority over stock in liquidation/bankruptcy.
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Two types of bonds
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1) bearer negotiable: not attached to a particular name, more liquid, think Die Hard
2) registered: names of owners recorded and verifiable |
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Who must issue shares of stock?
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B.O.D.
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What are preemptive rights to shares and when do they exist?
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They allow shareholders to purchase new shares as needed to maintain a proportion any time new shares are issued. This allows existing shareholders to maintain control. Virginia corporations formed after December 31, 2005 will have these shares by default. Older corporations must amend bylaws to add them.
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What kinds of shares must be registered federally?
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Only those that are issued publicly and not only to sophisticated investors.
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What is a distribution and who authorizes?
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A distribution is property paid to shareholders (e.g., dividends, or new shares if ok under Articles of Incorp.). Must be authorized by B.O.D.
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Rule 10(b)(5) and its five requirements (SUFRD).
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Federal rule governing fraudulent purchase or sale of stock or other security. Requires:
1) plaintiff must have Sold or purchase security; 2) transaction must have Use interstate commerce; 3) defendant must have engaged in Fraudulent or deceptive conduct; 4) the plaintiff must have Relied on defendant's conduct; 5) the plaintiff must have suffered Damages as a result of reliance. |
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What is mens rea for fraud under 10(b)(5)?
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Defendant must have acted with scienter (knowingly or intentionally or recklessly);
2) |
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What is a 16(b) action and who can be liable under it?
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Federal rule governing "short-swing profits" trades. This is when corporate insiders but and sell stocks of their company within 6 months. If a profit is made, it is presumed fraudulent and damages are assessed by computing margin between highest sale prices and lowest purchase prices.
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What's a tender offer and how is it used?
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A tender offer is a standing offer to purchase shares of a company at a fixed price. These are often used in takeovers when one party is trying to buy out a certain number of shares to gain a majority or a certain voting share. Under SEC rules, a tender offer must be reported if the purchaser/offeror owns more than 5% of the company's shares.
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Shareholder meetings: types and requirements
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1) annual meetings are held annually to elect B.O.D. per bylaws.
2) special meetings may be called at any time to address a specific purpose. - Usually called by B.O.D. but may be called by a group of shareholders who own more than 20% of the shares entitled to vote (if company has under 35 shareholders). * Both types of meetings require written notice including time, place, date between 10 and 60 days prior. * Shareholders may waive notice in writing or by appearance. |
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Voting rights
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Determined by share ownership at record date (not necessarily ownership at time of meeting) not more than 70 days prior to meeting.
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When is shareholder vote required?
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B.O.D. election or any major corporate decision (e.g., merger, amendment to Articles of Incorp.)
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What is a quorum at shareholder meetings?
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50% of outstanding voting shares, by default. Articles of Incorp. can amend downward but no less than 1/3.
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What is cumulative voting and what's its purpose?
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Vote is by number of shares held multiplied by number of directors to be elected. This allows minority shareholders to elect board members.
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How long is a proxy vote valid and what does it require?
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Must be in writing and will last for 11 months.
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What's the procedure for shareholder inspection of corporate records?
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1) written notice
2) 5 days advance 3) proper purpose (for corporate good) 4) must be inspected at company HQ, during business hours. |
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What are the differences between direct shareholder lawsuits and derivative actions?
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Direct suits recover for injuries to shareholder. Damages are paid to shareholder.
Derivative actions are for injuries to corporation. Damages go to corporation. |
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When will a court allow a plaintiff to "pierce the corporate veil" and go after shareholders personally?
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When the shareholder has used the corporate structure to shield individual wrongdoing. Courts look primarily to whether the shareholder has exerted "control or domination" over the company's actions/policies, and whether the shareholder engaged in "fraudulent, wrongful, or misleading" dealings with corporate creditor. Improper record-keeping is often a big factor in veil piercing claims.
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What are the key factors to look for in veil piercing claims?
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1) Was there respect for corporate formalities?
2) Was the corporate structure used to promote fraud or injustice? |
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Role of B.O.D.?
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To appoint officers and high-level employees and to direct large-scale trajectory of corporation.
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B.O.D. compositions?
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Ok to have a B.O.D. of only one; Articles of Incorp. specify proper numbers and terms. Terms are usually one year and may not exceed three.
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Rules for B.O.D. meetings?
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1) quorum required to act, which means majority of all directors in office (unless otherwise established by Articles or bylaws.
2) Action by majority vote |
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What must a director do to protect himself from liability for B.O.D. actions?
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Must dissent from decision by:
1) promptly objecting to meeting, and 2) voting against or abstaining from vote. |
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For what purposes may director committees not be formed?
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1) declaring dividends/distributions;
2) recommending actions requiring shareholder approval; 3) filling vacancies on B.O.D.; 4) adopting or amending bylaws. |
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Duties of directors?
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1) Duty of loyalty
2) Duty of care |
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What is director duty of care?
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Not to act recklessly or grossly negligent. Business judgment rule applies. Must gather information to make an informed decision, but judgment calls will not be second-guessed by courts.
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What is director duty of loyalty?
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Director may not transact business with corporation if the transaction would not be done by an impartial third party. Directors cannot profit unfairly from corporation. Must behave unselfishly and not profit at the firm's expense.
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What is the Virginia test for fair-dealing?
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1) Would the transaction have been approved by a disinterested director?
2) Would the same result have occurred if parties were of equal bargaining power? |
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When can a director seek indemnification from the firm?
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If he successfully defends the claim against him (indemnification is mandatory).
He cannot be indemnified for liability stemming from receipt of improper financial benefit. In an unsuccessful defense, the director may be indemnified when he acted in good faith, thinking he was acting in the corp's best interests, and did not have reason to believe his actions were criminal. |
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What are the three types of mergers?
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1) statutory
2) asset purchase 3) stock acquisitions |
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What is required procedure for statutory merger?
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1) Vote by both Boards
2) 25-60 day notice that includes merger plan. 3) 2/3 of shareholders vote for merger |
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What is an asset purchase and what does it require?
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When a company purchases the assets of another company to take it over. This requires 25-60 day notice and shareholder approval unless it's in the normal course of the company's business.
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What is a stock acquisition merger?
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When a company purchases a majority of shares of another company either through public exchanges, tender offers.
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what are appraisal rights and when are they asserted?
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When a minority shareholder objects to a merger, he may assert appraisal rights to have his shares assessed and purchased at a judicially determined fair price. If the shares are readily saleable on a public exchange, the court will insist on that course.
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What is required to assert appraisal rights?
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Shareholder must not have voted in favor of the corporate action.
Must make a written demand. |
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What are 5 types of business entities?
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1) sole proprietorships
2) partnerships 3) S corporations 4) C corporations 5) LLCs |
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What are features of LLCs?
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1) pass-through taxation
2) limited liability |
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How is an LLC formed?
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1) articles of organization
2) certificate of organization from State Corp Commission 3) statement of purpose (any lawful) 4) |
