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60 Cards in this Set
- Front
- Back
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Promoter
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Person's acting on behalf of corporations not yet formed
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When is a corporation liable on a Promoter's preincorporation contract?
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Promoter is liable unless the corporation accepts contract by (i) express resolution of Board of Directors (BoDs) OR (ii) implied acceptance through knowledge of the contract and acceptance of its benefits (ratification)
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When is a Promoter absolved of liability?
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When there has been a NOVATION. Agreement between promoter, corp, and contracting party that corp will replace Promoter under the contract. (Mere acceptance by corp is NOT enough)
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What happens if a Promoter enters a contract and the corporation is never formed?
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The Promoter is liable alone on the K
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Is a Promoter a fiduciary?
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Yes, of other promoters and of the corporation
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What is a Subscriber?
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A person or entity who makes written offers to buy stock from a corporation not yet formed
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Can a Subscriber revoke an offer to buy stock in a corporation not yet formed?
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The offer is IRREVOCABLE for 6 months
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What is an Incorporator?
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The person who merely signs and files the articles of incorporation with the SCC
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What MUST be filed with the SCC to form a corporation?
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Articles of Incorporation
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What MUST the Articles of Incorporation include?
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A PAIN
A - Authorize Shares (max the Co can issue) P - Preferences of classes of stock A - Agent who is legal representative, and address of registered office I - Incorporators name(s) and address(es) N - Name of Corporation containing indicia of corporate status (inc, co, corp, etc) |
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Must the Articles include By-Laws?
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No, but the Corp MUST adopt bylaws (unless the power is in the shareholders under the Articles)
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Generally, what are shareholders liable for?
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Only for the price of their stock, unless they act in such a way that a court will Pierce the Corporate Veil
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Why would a court Pierce the Corporate Veil?
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To avoid fraud or unfairness, and to hold a shareholder liable to a third party for a corporate obligation
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How can a court Pierce the Corporate Veil?
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Alter ego - owners of stock have failed to observe sufficient formalities
Undercapitalization - the corporation has failed to maintain sufficient capital to satisfy foreseeable liabilities |
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What is par value?
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The minimum price at which a corporation can sell a share of stock
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Can there be no-par stock?
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Yes. In this case any valid consideration may be received if the Board deems the consideration to be adequate
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Can a corporation acquire property instead of cash as consideration?
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Yes. It is up to the board to value the property and decide if it is worth at least par value
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What if a corporation issues stock below par value?
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The Board of Directors will be personally liable to the Corporation for authorizing below-par issuance of stock
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Is the purchaser of below-par stock liable at all?
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Yes, he is liable to pay FULL CONSIDERATION for shares
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What are preemptive rights, with respect to stock issuance?
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Right of an EXISTING SHAREHOLDER to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for cash
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Are there preemptive rights in every corporation?
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NO. They must be EXPRESSLY GRANTED in the Articles. If not, they do not exist.
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How many board members must a VA Corporation have?
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At least 1 member
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How does one become a director?
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By election of the shareholders
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Can a director be removed before her term expires?
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Yes, by the shareholders, with or without cause
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What is required for the Board to do business/make decisions?
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A meeting after notice to all directors where there is quorum (majority of all directors, unless otherwise stated but no less than 1/3). To pass a resolution, must have majority of those present.
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What duties do directors owe to their corporation and shareholders?
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Duty to Manage
Fiduciary Duties (i) Duty of Loyalty (ii) Duty of Care |
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Under the duty of manage, how are directors protected from liability?
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Under the Business Judgment Rule (BJR) - not liable for mistakes of business judgment; subjective good faith standard
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What is the duty of care?
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A director must act with the care that a prudent person would use with regard to their own business (unless Articles limit liability for breach of duty of care, which they can in VA)
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What is the duty of loyalty?
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A director may not receive an unfair benefit to the detriment of the corporation or its shareholders unless there is material disclosure and independent ratification
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Discuss the elements of duty of loyalty.
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Self Dealing - a director who receives an unfair benefit to herself in a transaction with her corporation
Usurping - director receives an unfair benefit by usurping a corporate opportunity for herself Ratification - majority vote of independent directors/shareholders may ratify the director's contract (D no longer liable) |
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When can a director/officer NOT be indemnified?
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When the director has lost a lawsuit to his own corporation
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When MUST a corporation indemnify a direct/officer?
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When he WINS a lawsuit against any party
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When is indemnification of a director/officer permissive?
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When there is liability to third parties or a settlement with the corporation, or the director/officer shows he acted in good faith and with reasonable belief conduct was in corp's best interest
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Who decides on permissive indemnity?
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Either:
(i) majority of independent directors (ii) committee of at least 2 independent directors (iii) majority of shares held by independent shareholders (iv) recommendation of special lawyer's opinion |
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What is a derivative suit?
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Shareholder suing to enforce corp's cause of action (ask if corp could have brought suit)
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What are the requirements to bring a shareholder derivative suit?
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(i) shareholder must have at least 1 share of stock when claim arose and thru litigation, and
(ii) shareholder must demand in writing that the corp bring the suit, and wait 90 days after demand or after rejection (in which case he must allege that director failed to review matter thoroughly) |
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What are the consequences of a successful derivative suit?
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Money goes to corporation, but shareholder can recover costs and attorney fees.
Any recovery against a director is capped at the greater of (i) $100k or (ii) director's cash compensation for the last year |
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Which shareholders can vote at a meeting?
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Record shareholders as of record date (which may be cut off no more than 70 days prior to meeting)
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How can a proxy vote for a shareholder?
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Shareholder must write to the secretary of the corporation authorizing another to vote the shares. Proxy valid for 11 months.
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Is a proxy revocable?
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Yes, unless labeled irrevocable AND the proxy has an interest (i.e. A sold shares to B after record date and makes B proxy; B has interest)
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When do shareholders vote?
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At an annual meeting where at least 1 Board seat up for vote, or special meeting on a proposal or fundamental change to the corp
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Timing of Notice for Shareholder Meetings
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10-60 days
or 25-60 prior to a meeting where a vote taken on a fundamental corporate change |
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Contents of notice to shareholders.
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Annual meeting - when and where
Special meeting - when, where and meeting's special purpose |
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Failure to give notice to all shareholders eligible to vote results in...
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Action taken is VOID unless those that didn't get notice waive their objection in writing, or show up to the meeting
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Quorum for shareholder meetings
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Majority of SHARES (proxy, in person, or electronic transmission) (unless articles state otherwise)
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What is a voting trust?
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Hard to do
Shareholders try to increase their influence by block voting, and make a formal delegation in writing of voting power to a voting trustee for up to 10 years |
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What is a voting agreement?
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Easy to do
Shareholders try to increase their influence by block voting, and make an agreement in writing to vote shares as directed by a majority of the signatories |
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What is cumulative voting?
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Used when shareholders vote directors if expressly granted in the articles.
A shareholder may multiply the number of his shares by the number of open director slots, and can use all of those votes in favor of any candidate in the pool |
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When does a shareholder have the right to examine books and records of a corporation?
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When he has standing (record shareholder for 6 months or 5% shareholder or court approval) AND makes a good faith written demand stating proper purpose
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Generally, who has priority in distribution of dividends?
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If there is preferred stock, it gets paid before common stock
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What is preferred stock that is participating?
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Get paid 2x - once as preferred, then again as common
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What is preferred stock that is cumulative?
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Have right to get paid unpaid dividends from prior year AND current year
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When can and can't dividends be issued?
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Can be issued at the board's discretion, unless the corporation is insolvent or the dividend would render it insolvent.
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Who is liable for unlawful dividends or distributions?
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The Directors, but they have defenses if they relied in good faith on a financial officer's representation
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Summary of LLCs.
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Limited Liability
Limited Life Limited Liquidity Limited Tax |
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What are some fundamental corporate changes?
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Merger, Consolidation, Share Exchange, Dissolution, Fundamental Amendment of Articles, Sale of Substantially All Assets
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Procedures for fundamental corporate change.
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(i) Resolution of board at valid meeting
(ii) Notice of special meeting (iii) Approval by more than 2/3 of all shares (no less than majority if articles have different amount) (iv) Buy-out dissenting shareholder's shares (if necessary) (v) File notice with SCC |
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How does a dissenting shareholder perfect right of appraisal (forced buy-out of her shares)?
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(i) before the vote, file written notice of objection and intent to be bought out
(ii) at vote, abstain or vote no (iii) after vote, make timely demand to be bought out at fair price (if shareholder and corp can't agree on price, court will have appraisal and fix price) |
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Who votes on amendment of Articles?
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Ministerial amendments (changing name of agent) - Board
Fundamental amendments - Shareholders No right of appraisal unless amendment adversely affects a whole class of stock then 2/3 of that class must approve (in addition to 2/3 of all shareholders) |
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Is the sale of all or substantially all of corp's assets a fundamental corporate change?
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Yes, but it only affects the SELLING corporation (not a fundamental change for buying corporation)
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