Corporations

Front 1

Promoters

Back 1

Promoters are persons acting on behalf of a corporation not yet formed.

Front 2

Liability of Corporations for actions by a Promoter

Back 2

The Corporation becomes liable on a promoter's pre-incorporation K when the corporation ADOPTS the K by:

a) EXPRESS board of directors resolution; or

b) IMPLIED adoption through knowledge of the K and acceptance of its benefits.

The Promoter remains liable on pre-incorporation Ks until there has been a NOVATION (i.e., an agreement between the promoter, the corporation, and the other contracting party that the corporation will replace the promoter under the K).

Front 3

Who is liable if the promoter enters a K and the corporation is never formed?

Back 3

The promoter alone is liable on the K.

Front 4

Who is liable if the promoter enters a pre-incorporation K, and the corporation is formed, but merely adopts the K?

Back 4

Both the corporation and the promoter are liable on this K (the promoter remains liable until novation).

Front 5

Promoter's Fiduciary Duty

Back 5

Promoters are FIDUCIARIES of each other and the corporation. Therefore, promoters cannot make a SECRET PROFIT on their dealings with the corporation.

Sale to corporation of property acquired by promoter BEFORE becoming a promoter --> profit is recoverable by the corporation ONLY IF sold for more than FMV.

Sale to corporation of property acquired by promoter AFTER becoming a promoter --> ANY profit is RECOVERABLE by the corporation.

Front 6

Subscribers

Back 6

Persons or entities who make written offers to buy stock from a corporation not yet formed.

At CL, offers to buy shares of a corporation not yet formed could be withdrawn at any time; MODERNLY, offers like these are IRREVOCABLE (must be held open) for 6 months.

Front 7

Incorporators

Back 7

An incorporator merely signs and files the articles of incorporation with the state.

Front 8

CORPORATE FORMATION

Back 8

Corporate formation is "A PAIN":

1) AUTHORIZED SHARES -- the maximum # of shares a corp is authorized to issue.

2) PURPOSE

3) AGENT and address of registered office (registered agent is the corporation's official legal representative).

4) INCORPORATORS (name and address of each)

5) NAME OF CORPORATION -- the name must contain some indicia of corporate stautus.

Front 9

CORPORATE FORMATION: Purpose

Back 9

A general purpose clause and clauses of perpetual duration are presumed VALID and will be presumed now in the absence of a specific purpose or narrower duration

Also: ULTRA VIRES acts

Front 10

CORPORATE FORMATION: Ultra Vires Acts

Back 10

Activities beyond the scope of a stated business purpose are considered to be "ultra vires." At CL, ultra vires acts were void and unenforceable. But under the RMBCA, ultra vires acts are generally ENFORCEABLE, and the ultra vires nature of an act may be raised in only 3 situations:

1) A SHAREHOLDER may sue the corp to enjoin the proposed ultra vires act;

2) THE CORPORATION may sue an officer or director for damages for approving an ultra vires act; and

3) THE STATE may bring an action to dissolve a corporation for committing an ultra vires act.

Front 11

CORPORATE FORMATION: De Facto Corporation

Back 11

A business failing to achieve DE JURE corporate status nonetheless is treated as a corporation if the organizers have made a good faith, colorable attempt to comply with the corporate formalities and have no knowledge of the lack of corporate status.

Front 12

Legal Significance of Corporate Formation

Back 12

A corporation is a separate legal person.

Generally, shareholders are not personally liable for debts of the corporation. This is the principle of limited liability, which means that the shareholder is liable only for the price of her stock.

Front 13

PIERCING THE CORPORATE VEIL

Back 13

As a general rule, shareholder is not liable for the debts of a corporation.

Except: the court will pierce the corporate veil to avoid fraud or unfairness. Courts will pierce the corporate veil for:

ALTER EGO (failure to observe sufficient corporate formalities); or

UNDER-CAPITALIZATION (failure to maintain sufficient funds to cover foreseeable liabilities).

Remember: Courts are generally more willing to PCV for a tort victim than for a K claimant.

Front 14

Foreign Corporations

Back 14

A corporation incorporated outside the state that wishes to engage in regular INTRASTATE business must qualify by filing a Certificate of Authority with the Secretary of State that includes the same info required in the articles ("A PAIN").

Front 15

STOCK: Par Value

Back 15

"par value" = the minimum issuance price. This is largely a CL concept.

ANY valid consideration can be received if the board values the consideration to be worth at least par value.

MODERNLY, the RMBCA generally has eliminated the concept of par and allows corporations to issue shares for whatever consideration the directors deem appropriate.

Front 16

STOCK: NO Par Value

Back 16

"No par value" = no minimum issuance price. Therefore, any valid consideration deemed adequate by the board can be received in return for no par stock.

Front 17

STOCK: Treasury Stock

Back 17

Treasury stock is stock that was previously issued and had been reacquired by the corporation. It can then be resold. Treasury stock is deemed to be NO PAR stock.

Front 18

STOCK: Consequences of issuing par stock for less than par value

Back 18

DIRECTORS are liable for authorizing a below-par issuance.

Also, the buying SHAREHOLDER is liable for paying full consideration for shares (at least par value).

Front 19

Preemptive Rights of Shareholders

Back 19

A preemptive right is the right of an EXISTING SHAREHOLDER to maintain her percentage of ownership by buying stock whenever there is a NEW ISSUANCE of stock for CASH.

BUT, preemptive rights do not exist unless expressly granted in the articles.

Front 20

Corporate Directors

Back 20

Corporations must have a Board with at least ONE member.

Shareholders elect directors.

Shareholders can REMOVE a director before her term expires WITH or WITHOUT CAUSE.

Front 21

Corporate Meeting Requirements

Back 21

A. Unless all directors consent in writing to at without a meeting, a meeting is required.

B. NOTICE of directors' meeting can be set in the bylaws.

C. PROXIES are not allowed. Also, no voting agreements are allowed. But conference calls are generally valid.

D. QUORUM

E. VOTING

Front 22

Corporate Meeting Requirements: QUORUM

Back 22

A quorum requires that there be a majority of ALL directors to take action (unless a different percentage is required in the bylaws). A quorum basically = the majority that must attend.

So for example, if there are 9 directors, at least 5 directors must attend the meeting to constitute a quorum. If 5 directors attend, at least 3 must vote for a resolution in order for it to pass.

Front 23

Corporate Meeting Requirements: VOTING

Back 23

To pass a resolution, all that is required is a majority vote of those PRESENT.

So for example, if there are 9 directors, at least 5 directors must attend the meeting to constitute a quorum. If 5 directors attend, at least 3 must vote for a resolution in order for it to pass.

Front 24

Directors' Liability: DUTY TO MANAGE

Back 24

Directors have a DUTY TO MANAGE the corporation. Directors may delegate management functions to a committee of one or more directors that recommends action to the board.

Front 25

Directors' Liability: BUSINESS JUDGMENT RULE (BJR)

Back 25

In managing the corporation, the directors are protected from liability by the BJR. The BJR is a presumption that the directors manage the corporation in good faith and int he best interests of the corporation and its shareholders. As such, directors will not be liable for INNOCENT MISTAKES of business judgment.

Front 26

Directors' Liability: FIDUCIARY DUTY

Back 26

Despite protection presumed from the business judgment rule, directors are FIDUCIARIES who owe duties of CARE and LOYALTY.

Front 27

Directors' Liability: DUTY OF CARE

Back 27

RULE: A director owes the corporation a duty of care. She must act with the care that a PRUDENT person would use with regard to her own business, unless the Articles have limited director liability for a breach of the duty of care.

EXAM ANSWER: Directors have a duty to manage. They are protected by the BJR, but they are fiduciaries who have duties of care and loyalty. Directors must act with prudence unless the articles have limited liability or a duty of care.

Front 28

Directors' Liability: DUTY OF LOYALTY

Back 28

RULE: A director owes the corporation a duty of loyalty. A director may not receive an UNFAIR benefit to the detriment of the corporation or its shareholders, UNLESS there has been material DISCLOSURE and INDEPENDENT RATIFICATION.
Types:
A. SELF-DEALING
B. USURPING CORPORATE OPPORTUNITIES
C. RATIFICATION

EXAM ANSWER: Directors have a duty to manage. They are protected by the BJR, but they are fiduciaries who have duties of care and loyalty. Directors may not receive an unfair benefit unless there has been disclosure, plus independent ratification.

Front 29

Directors' Liability: DUTY OF LOYALTY

SELF-DEALING

Back 29

Occurs where a director receives an unfair benefit to herself (or her relative, or another one of her businesses) in a transaction with her own corporation.

Front 30

Directors' Liability: DUTY OF LOYALTY

USURPING CORPORATE OPPORTUNITIES

Back 30

Director receives an unfair benefit by usurping for herself an opportunity which the corporation would have pursued.

Front 31

Directors' Liability: DUTY OF LOYALTY

RATIFICATION

Back 31

Directors may defend a claim by obtaining INDEPENDENT ratification through:

(a) a majority vote of INDEPENDENT directors,

(b) majority vote of a committee of at least 2 INDEPENDENT directors, or

(c) majority vote of shares held by INDEPENDENT shareholders.

Front 32

Corporate Officers

Back 32

Owe the same duties of care and loyalty as directors.

Are AGENTS of the corporation and bind the corporation by their authorized activities.

Corporations must have a President, Secretary, and Treasurer.

Directors have virtually unlimited power to select officers, and may remove them from office at any time -- but the corporation will be liable for breach of K damages.

Front 33

INDEMNIFICATION of Officers and Directors

Back 33

The corporation may NEVER indemnify a director who has lost a lawsuit to their own corporation.

The corporation MUST ALWAYS indemnify if the officer or director wins a lawsuit against ANY party.

The corporation MAY indemnify if:
--Liability to 3rd parties or settlement with the corporation
--director or officer shows that she acted in good faith and that she believed her conduct was in the corporation's best interest.

Front 34

INDEMNIFICATION of Officers and Directors: Who may determine whether to grant permissive indemnity?

Back 34

A. If a majority of independent directors approves it, you will get it.

B. If a majority of a committee of at least 2 independent directors could approve it, then you will get it.

C. If a majority of shares held by independent shareholders could vote for it, then you will get it; AND

D. If a special lawyer's opinion recommends it, then you will get it.

Front 35

Shareholder Derivative Suits

Back 35

In a derivative suit, a shareholder is suing to enforce the corporation's COA. (Always ask: Could the corporation have brought this suit? If so, it's a derivative suit).

Requirements of bringing a shareholder derivative suit:

a) CONTEMPORANEOUS STOCK OWNERSHIP (must have at least one share of stock when the claim arose, and in most states, throughout the entire litigation).

b) MUST GENERALLY DEMAND ON DIRECTORS that they cause their own corporation to bring suit (Demand must be made and rejected by the board OR at least 90 days must have passed since the original demand was made).

Front 36

VOTING: Who has the right to vote at an upcoming meeting where voting occurs?

Back 36

Only the record owner on the RECORD DATE has the right to vote their shares. The record date is the voter eligibility cut-off date set by the board within the 70 day period leading up to the meeting date.

Front 37

VOTING: Shareholder Voting by Proxies

Back 37

A proxy is a:

(i) writing (fax or e-mail generally valid),

(ii) signed by record shareholder,

(iii) directed to the secretary of the corporation,

(iv) authorizing another to vote shares,

(v) valid for only 11 months.

NOTE: Proxies are REVOCABLE unless a) labeled irrevocable AND b) coupled with an interest.

Front 38

Annual Meeting

Back 38

Every corporation must have an annual meeting at which at least one director slot is opened for election. The notice requires simply the time and the place for the annual meeting.

Front 39

Special Meeting

Back 39

A special meeting is a meeting to vote on a proposal or a fundamental corporate change. Notice must contain the meeting's special purpose or else action-taking is VOID.

Front 40

Meetings: QUORUM

Back 40

There must be a quorum represented at the meetings. Determination of a quorum focuses on the number of SHARES represented, not the number of shareholders. A quorum requires a majority of outstanding shares when the meeting begins, unless otherwise provided in the Articles.

Front 41

Meetings: VOTING

Back 41

If a quorum is present, action is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal.

Front 42

Shareholders who own relatively few voting shares decide that they can increase their influence by agreeing to vote alike. How can they do so?

Back 42

VOTING TRUSTS: A formal delegation of voting power to a trustee for up to 10 years.

SHAREHOLDER VOTING AGREEMENTS: The agreement must be in writing to vote shares simply as required by that agreement itself. Agreements are valid and binding on all signers.

Front 43

Cumulative Voting

Back 43

Under traditional, straight voting, you only get one vote per share.

Under cumulative voting, you may multiply the number of shares times the number of directors to be elected.

BUT, cumulative voting does NOT exist unless expressly granted in the Articles.

Front 44

Right of Shareholder to Examine the Books and Records of the Corporation

Back 44

ANY shareholder shall have access upon NOTICE and at PROPER TIMES.

QUALIFIED RIGHT: can inspect upon 5 days written notice stating a proper purpose.

UNQUALIFIED RIGHT: the RMBCA provides that any shareholder can inspect the following records REGARDLESS OF PURPOSE: (i) the corp's articles and bylaws, (ii) board resolutions regarding classification of shares, (iii) minutes of shareholders; meetings from the past 3 years, (iv) communications sent by the corp to shareholders over the last 3 years, (v) a list of the names and business addresses of the corporation's current directors and officers, and (vi) a copy of the corp's most recent annual report.

Front 45

DIVIDENDS

Back 45

Dividends are to be declared at the Board's DISCRETION unless the corporation is INSOLVENT (in which case distributions are NOT permitted) or would be rendered insolvent by the dividend.

Board members are liable personally for unlawful distributions, but have a defense of good faith reliance on financial officer's representations regarding solvency.

Front 46

DIVIDENDS: Priority of Distribution

Back 46

COMMON STOCK: pay them LAST and pay them EQUALLY.

PREFERRED STOCK: Pay them first at preferred rate.

PARTICIPATING STOCK: Pay them twice. They get paid first at the preferred rate, and then get included in the group of common stock to get paid out a second time at that rate.

CUMULATIVE STOCK gets a right to get paid for the prior years where there have been no dividends.

Front 47

Shareholder Agreements to Eliminate Corporate Formalities (Closely-Held Corporations)

Back 47

REQUIREMENTS:

1) Unanimous shareholder election evidenced in the articles, the bylaws, or a filed agreement; AND

2) It must have some reasonable share transfer restriction.

CONSEQUENCES:

1) No piercing, even if you failed to maintain formalities;

2) Possible sub-chapter S corp status. Corp may be treated as a partnership for tax purposes if the following is true:

a) no more than 100 shareholders, and

b) only one class of stock.

Front 48

PROFESSIONAL CORPORATIONS

Back 48

Licensed professionals (i.e., lawyers, accountants, medical professionals) may incorporate as a Professional Corporation (PC).

REQUIREMENTS:

a) Organizers file Articles with name designated "Professional Corporation" or "PC"

b) The shareholders must be licensed professionals.

c) The corporation may practice only one designated profession.

CONSEQUENCES:

a) The professionals are liable personally for their own malpractice.

b) BUT, the professionals are NOT liable personally for each others' malpractice or the obligations of the corporation itself.

Front 49

Shareholder Liabilities

Back 49

As a general rule, shareholders are not liable for corporate obligations.

EXCEPT:

1) Piercing the corporate veil to render shareholder liable;

2) Controlling shareholders owe a fiduciary duty to minority shareholders; and

3) Controlling shareholders are liable for selling corporation to a party who LOOTS the corporation, unless reasonable measures were taken to investigate the buyer's reputation and plans for the corporation.

Front 50

Fundamental Corporate Changes

Back 50

(Merger, Consolidation, Dissolution, Amendment of the Articles, and Sale)

PROCEDURAL STEPS:

STEP 1: Resolution by Board at a valid meeting.

STEP 2: Notice of Special Meeting

STEP 3: Approval by a majority of all shares that are entitled to vote, and by a majority of each voting group that is adversely affected by the change (except: no shareholder approval required for "short-form" merger where a parent corp owns 90% or more of the stock in its subsidiary)

STEP 4: Possibility of dissenting shareholder right of appraisal (A shareholder who does not vote in favor of a fundamental change has the right to force the corporation to buy her shares at FMV)

STEP 5: File notice with the State (i.e., Articles of Merger).

Front 51

Fundamental Corporate Changes: Actions by shareholder to perfect the right of appraisal

Back 51

1) Before shareholder vote, file written notice of objection and intent to demand payment;

2) Do not vote in favor of the proposed change;

3) Make prompt written demand to be bought out.

If the shareholder and the corporation cannot agree on a fair value, the court has the power to appoint an expert appraiser to value the shares and the appraisal will be BINDING on the parties.

Front 52

The Williams Act

Back 52

The federal Williams Act controls tender offers (i.e., offers by a "bidder" to purchase shares from shareholders of a "target" corporation).

RULE: If a bidder makes a tender offer (a widespread public offering to purchase a substantial percentage of the target's shares), and the offer will result in the bidder obtaining more than 5% of a class of securities of the target, the bidder must file a schedule 14D containing extensive disclosure regarding:

a) The bidder's identity, source of funds, past dealings, with the target, and plans concerning the target;

b) The bidder's financial statements if the bidder is not an individual; and

c) Any arrangements made with persons in important positions to the target.

Front 53

The Williams Act: Regulation

Back 53

Under the Williams Act:

a) A tender offer must be held open for at least 20 days and must be open to all members of the class of securities sought;

b) Shareholders must be permitted to withdraw tendered shares while the offer remains open;

c) If the offer is oversubscribed, the bidder must purchase on a pro rata basis from among the shares deposited during the first 10 days of the offer; and

d) If the offer price is increased, the higher price must be paid to all tendering shareholders.

Front 54

Rule 10b-5

Back 54

Rule 10b-5 of the Securities Exchange Act of 1934 makes it illegal for any person to use any means or instrumentality of interstate commerce to employ any scheme to defraud, make an untrue statement of material fact (or omit a material fact), or engage in any practice that operates as a fraud in connection with the purchase or sale of any security.

Front 55

Rule 10b-5

Elements

Back 55

1) FRAUDULENT CONDUCT:

a) SCIENTER -- an intent to deceive;

b) DECEPTION -- an intent to defraud by:
(i) Lying (misrepresentation of a material fact or failure to disclose a material fact in breach of a fiduciary duty to disclose) or
(ii) Insider Trading (misappropriator, tipper, or tippee)

3) In connection with the ACTUAL purchase or sale of securities;

4) the fraudulent conduct involved the use of some means of INTERSTATE COMMERCE (something as simple as the use of the telephone or mail will suffice);

5) with RELIANCE and

6) LOSS CAUSATION.

Front 56

RULE 16(b)

Back 56

16(b) applies to BIG CORPORATIONS:

Reporting corporation (1) listed on a national exchange or (2) with at least 500 shareholders AND $10m in assets); and

Applies to BIG SHOT DEFENDANTS (Officer, director, or more than 10% shareholder.

Provides that a ∆ (officer, directer, or more than 10% shareholder) may NEVER buy or sell stock within a single 6 month period (short-swing trading). Fraud is not required.

All "profits" from such "short-swing trading" are recoverable by the corporation. If, within 6 months before or after any sale, there was a purchase at a lower price than the sale price, there is a profit.

Front 57

Sarbanes-Oxley Act of 2002 (SOX)

Back 57

SOX provides for the creation of the Public Company Accounting Oversight Board to register public accounting firms that prepare audit reports for companies registered under the 1934 Act. The Board establishes rules for auditing, quality control, ethics, and independence relating to preparation of audit reports.

Covers reporting corporations either (1) listed on a national exchange or (2) with at least 500 shareholders AND $10m in assets).

CEO and CFO must CERTIFY that based on the officer's KNOWLEDGE, reports filed with the SEC do not contain falsehoods.

Gen. Rule: No knowingly false filings and no benefits during falsehoods or blackout periods.

Can be punishable by up to 25 years imprisonment.

Front 58

C Corporation

Back 58

Generally, a corp is taxed as an entity distinct from its owners (i.e., must pay income taxes on any profits it makes and generally shareholders do not have to pay income tax on the corp's profits until the profits are distributed).

The corporate tax rate is generally lower than the personal rate, so it can be advantageous for persons who want to delay the realization of income.

The advantage comes at a price--DOUBLE TAXATION--because when the corp does make distributions to shareholders, the distributions are treated as taxable income to the shareholders even though the corp has already paid taxes on its profits.

Front 59

S Corporation

Back 59

The tax laws permit S corporations to elect to be taxed like partnerships and yet retain the other advantages of the corporate form.

Partnerships and S corps are NOT subject to double taxation--profits and losses flow directly through the owners.

However, there are a number of restrictions on S corporations (e.g., stock can be held by no more than 100 persons, generally shareholders must be individuals, and there can be only one class of stock).

Front 60

Inadequate Capitalization

Back 60

Shareholders will generally be personally liable for their corporation's obligations if AT INCORPORATION they fail to provide adequate capitalization. The shareholders must "put at risk the business of unencumbered capital reasonably adequate for its prospective abilities." Undercapitalization cannot be proved merely by showing that the corporation is now insolvent. However, if insolvency occurs soon after incorporation, it may be a primary indicator of undercapitalization.

Front 61

Watered Stock

Back 61

At CL, if par value stock was issued for less than its par value, the original purchaser and the directors who authorized the sale would be liable for the difference (known as the "water") between the par value and the amount received.

Since the RMBCA provides that stock is validly issued, fully paid, and non-assessable when the corp receives the consideration for which the board authorized the issuance, there can be no watered stock problem under the RMBCA.

However, the RMBCA does not address how to approach the problem if the corp's articles provide for a par value. Discuss both RMBCA and CL rule and hold that directors may be personally liable.

Front 62

Shareholders DIRECT Control Over Management of the Corporation

Back 62

At CL, shareholders have no right to directly control the day-to-day management of the corporation. Instead, the right to manage is vested in the board of directors, who usually delegate their day-to-day management to officers.

The RMBCA still follows this rule, but adds that shareholders may enter into agreements concerning management of the corporation, including an agreement to vest the powers that the board would ordinarily have in one or more shareholders.

Front 63

Shareholders INDIRECT Control Over Management of the Corporation

Back 63

Even absent a shareholder agreement vesting direct control of the corporation in shareholders, shareholders have indirect control over their corporation through their power to elect directors, amend the bylaws, and approve fundamental changes to the corporation.

Front 64

PROXY Solicitation

Back 64

The rules governing a proxy solicitation require that:

1) There must be full and fair disclosure of all MATERIAL facts with regard to any management-submitted proposal upon which the shareholders are to vote;

2) Material misstatements, omissions, and fraud in connection with the solicitation of proxies are prohibited; and

3) Management must include certain shareholder proposals on issues other than the election of directors and allow proponents to explain their position.

Front 65

Class Voting on Article Amendments

Back 65

Whenever an amendment to the Articles affects only one class of shares (e.g., Class A Common, preferred, etc.), that class generally has the right to vote on the amendments EVEN IF THE CLASS WOULD OTHERWISE NOT BE PERMITTED TO VOTE at a shareholders' meeting.

Typical situations where class voting may occur include:

a) A change in the designation, preferences, rights (including preemptive and dividend rights), or aggregate number of shares of a class;

b) An exchange, reclassification, or cancellation of some of the shares of the class or a change in the shares of the class into a different class; and

c) The creation of a new class having superior rights to the shares of this particular class.

Generally, it may be said that class voting should be used if a proposed amendment has any effect--adverse or advantageous--on holders of the class.

Front 66

Shareholder Management Agreements

Back 66

The shareholders may enter into an agreement among themselves regarding almost ANY ASPECT OF THE EXERCISE OF CORPORATE POWERS OR MANAGEMENT.

For example, an agreement may:

(i) ELIMINATE the board of directors or RESTRICT the discretion or powers of the board;

(ii) GOVERN THE AUTHORIZATION OR MAKING OF DISTRIBUTIONS;

(iii) Establish WHO shall be directors or officers, as well as their terms and conditions of office, or the manner of selection or removal; or

(iv) TRANSFER to one or more shareholders or other persons the AUTHORITY TO EXERCISE THE CORPORATE POWERS or to manage the business and affairs of the corporation.

Front 67

Shareholders' Liabilities

Back 67

Generally, shareholders may act in their own personal interests and owe no fiduciary duty to the corporation or their fellow shareholders except concerning shareholder liability for:

1) UNPAID STOCK;

2) A PIERCED CORPORATE VEIL; and

3) Absence of de facto corporation when the shareholder KNEW that there was NO INCORPORATION.

Front 68

DIRECTORS: Delegating Authority to Committees or Officers

Back 68

Since the BOD is not expected to participate in the daily business affairs, they have the power to delegate management functions for daily business affairs to executive committees or officers. Each committee may exercise the authority granted to it by the BOD.

HOWEVER, a committee may NOT do any of the following:

1) Authorize DISTRIBUTIONS;

2) Approve or SUBMIT TO SHAREHOLDERS any action that requires shareholder approval;

3) FILL VACANCIES on the board or a committee;

4) AMEND ARTICLES of incorporation;

5) ADOPT, AMEND, OR REPEAL BYLAWS;

6) APPROVE A PLAN OF MERGER not requiring shareholder approval;

7) AUTHORIZE REACQUISITION OF SHARES, except according to a formula or method prescribed by the board; or

8) AUTHORIZE THE ISSUANCE, SALE OR K FOR SALE OF SHARES, or determine the relative rights and preferences of a class or series.

Front 69

DIRECTOR DUTY: Doctrine of WASTE

Back 69

As a part of their duty of care, directors have a duty not to waste corporate assets by overpaying for property or employment services (e.g., by paying someone an amount substantially above market value for services or property).

Front 70

BUSINESS JUDGMENT RULE: Director may rely on reports or other information to defend

Back 70

In discharging her duties, a director is entitled to rely on information, opinions, reports, or statements (including financial statements), if prepared or presented by any of the following:

(i) CORPORATE OFFICERS OR EMPLOYEES whom the director reasonably believes to be reliable and competent;

(ii) LEGAL COUNSEL, ACCOUNTANTS, OR OTHER PERSONS as to matters the director reasonably believes are within such person's professional competence; or

(iii) A COMMITTEE of the board of which the director is not a member, if the director reasonably believes the committee merits confidence.

Front 71

DIRECTOR DUTY: Duty to Disclose

Back 71

The directors also have a duty to disclose material corporate information to other members of the board (e.g., information material to a decision by the board to approve a financial statement).

Front 72

Administrative Dissolution

Back 72

The State may bring an action to administratively dissolve a corporation for any of the following reasons:

(i) Failure to pay any fees or penalties imposed by law within 60 days after their due date;

(ii) Failure to deliver the annual report to the state within 60 days after it is due;

(iii) Failure to maintain a registered agent in the state for 60 days or more;

(iv) Failure to notify the state of a change in registered agent within 60 days; or

(v) Expiration of the period of corporate duration set forth in the articles of incorporation.

Front 73

RULE 10b-5: Tippers and Tippees

Back 73

Where an insider gives a tip of inside information to someone else who trades on the basis of the inside information, the TIPPER can be held liable under 10b-5 if the tip was made for ANY IMPROPER PURPOSE.

The TIPPEE can be held liable derivatively if the tipper breached a duty AND the tippee knew that the tipper was breaching that duty.

Front 74

RULE 10b-5: Misappropriators

Back 74

Under the misappropriation doctrine, the GOVERNMENT can prosecute a person under rule 10b-5 for trading on market information in breach of a duty of trust and confidence OWED TO THE SOURCE OF THE INFORMATION; the duty need not be owed to the issuer or shareholders of the issuer.