Corporations

Front 1

ultra vires

Back 1

ultra vires certificates are valid and enforceable; S/H can seek an injunction; the responsible Os and Ds are liable to the C for ultra vires losses

Front 2

political contributions by corp;

Back 2

no more than $5k per candidate per year;

Front 3

loans

Back 3

can make a loan if approved by 2/3 of S/H eligible to vote

Front 4

de facto C

Back 4

if parties made a good faith, colorable attempt to comply with relevant incorporation statute and some exercise of corporate privileges

but C by estoppel is abolished in NY

Front 5

C by estoppel

Back 5

abolished in NY

Front 6

Pre-incorporation Ks

Back 6

a corp is not liable until it adopts the K by express adoption or implied adoption by knowing acceptance of a benefit of the K

promoter remains liable until novation, even after adoption

Front 7

secret profit rule

Back 7

promoter cannot make a *secret* profit by selling to the C, but can make a known profit

if secret property was acquired b/f becoming a promoter, profit-FMV; if after, then price - price

Front 8

qualifying

Back 8

foreign C's doing business in NY must qualify; if they don't, then penalty when they do and can't sue

Front 9

debenture

Back 9

a loan / bond, payment not secured by corporate assets / collateral

Front 10

subscriptions

Back 10

a written, signed offer to buy the stock from the C

a pre-incorporation subscription is not revocable by the buyer for 3 months unless all other subscribers agree

post-inc subscription is revocable until the BoD accepts the offer

Front 11

if C accepts a subscription and subscriber defaults

Back 11

if < half is paid, C can cancel and keep the money

if ≥ half is paid, and new buyer pays more, S gets the difference, less costs

Front 12

consideration for stock

Back 12

money; tangible or intangible property; labor or services already performed for the C; a binding obligation to pay or to perform services in the future

Front 13

water

Back 13

unpaid stock, like if someone pays in improper from

watered stock is stock sold for less than par; if C issues watered stock to X, C can sue for the balance

but if X buys and transfers to TP, TP is not liable if she acted in good faith

Front 14

treasury stock

Back 14

was previously issued and has been reacquired by the company; C may then sell the treasury stock

Front 15

preemptive rights

Back 15

if NEW issuance sold for MONEY, then right to buy to maintain ownership percentage

not new if treasury stock or originally authorized and sold w/in 2 years

Front 16

are there preemptive rights

Back 16

if C is formed b/f 2/22/98, yes

if on or after, then only if certificate sez so

Front 17

removal of directorfs

Back 17

S/H can remove a director for cause at any time

BoD can remove a director for cause if certificate or bylaws permit

w/o cause, S/H only may remove, and only if certif or bylaws permit

Front 18

filling vacancies

Back 18

generally, BoD chooses replacement

unless S/H remove w/o cause, then they replace

Front 19

BoD meeting reqs

Back 19

for a valid act, need (a) unanimous written consent to act w/o mtg; or mtg; or invalid act later ratified

Front 20

quorum & proxies for BoD

Back 20

no proxies; no voting agreements

quorum is a majority of entire board (so need 5 of 9, even if 2 resigned)

no business after the Q is broken

Front 21

reducing Qurom size

Back 21

can reduce in certif. or bylaws, but must be ≥ 1/3 of directors; supermajority req's a change in certificate

passing a resolution always must be a majority or more; supermajority req's change in certif.

Front 22

Duty of Care

Back 22

"A director must discharge her duties in good faith and with the degree of diligence, care and skill than an ordinary prudent person would exercise under similar circumstances in like position."

Front 23

Business Judgment Rule

Back 23

in misfeasance case, state duty of care. next,

"But a court will not second guess a business decision if it was made in good faith, reasonably informed and had a rational basis."

Front 24

Duty of Loyalty

Back 24

"a director must act in good faith and with the conscientiousness, fairness, morality and honesty that the law requires of fiduciaries"

no BJR rule b/c of the conflict of interest

Front 25

interested party transactions

Back 25

will be set aside UNLESS director shows: a) the deal was fair and reasonable when approved; or b) the material facts and her interest were disclosed and the deal was approved by S/H or board approval, not counting interested votes or unanimous vote of disinterested voters

Front 26

stock options

Back 26

must be approved by S/H if not listed on xchange

Front 27

corporate opportunity

Back 27

director cannot usurp. Unless he tells the board and waits for the board to reject it.

Front 28

corporate loans

Back 28

≤ 2/22/98, by S/H vote unless certif permits BoD to loan

> 2/22/98, BoD can do so unilaterally if it will benefit the C

Front 29

BoD - how to avoid liabilty

Back 29

register dissent in writing in the minutes; or in writing to corp secretary; or in registered letter to C, promptly after adjournment; or if absent, in writing after learning

or, good faith reliance on officers, lawyers, or committee of which he is not a member

Front 30

officers' duties

Back 30

duties of care & loyalty, like BoD

they are agents, so they can bind the C

Front 31

officer removal

Back 31

if BoD selects, they remove, unless certif permits S/H

if S/H elects them, only S/H can remove

or, the A/G or 10% of S/Hs can sue for a judgment removing an officer for cause

Front 32

indemnification of O or D

Back 32

prohibited if O or D held liable to the C

of right: if she was successful in defending the case

permissive: if she acted in good faith & with purpose reasonably believed to be in the corp's best interest

certificate cannot eliminate personal liability for seriously improper D activity

Front 33

PCV

Back 33

"S/Hs are generally not liable for the debts or acts of a corporation. But a court may pierce the corporate veil and hold S/Hs personally liable if..."

Front 34

PCV situations

Back 34

alter ego; undercapitalization (S/H failed to invest enough to cover prospective liabilities); torts; wages and benefits of EEs in a close corp

Front 35

S/H derivative suits

Back 35

a S/H is suing to enforce the corp's claim, not her own (e.g. suing BoD for usurping)

generally, the C gets the recovery; S/H can get damages only if C would return the money to the bad guys

if unsuccessful, S/H will be liable to the D for costs but not attys fees

Front 36

reqs to bring derivative suit

Back 36

stock ownership when claim arose and throughout the axn; must adequately represent the interest of the C and the S/H's;

s/H must first make DEMAND that BoD bring suit unless futile

P must plead with particularity

Front 37

dismissal of derivative suit

Back 37

if independent directors find that the suit is not in C's best interests, and they are truly independent and investigation is sufficient, then dismissal

Front 38

joinder in derivative suits

Back 38

C must be joined as a D, even tho S/H is suing on its behalf

Front 39

settlement of derivative suits

Back 39

only w/ct approval

Front 40

proxies

Back 40

not for BoD, only S/H

in writing, signed by record S/H, good for 11 mos unless it sez otherwise; always revocable, even if it sez irrevocable

Front 41

voting trust

Back 41

written & signed trust agreement; copy to the corp (not secret); transfer legal title of shares to voting trustee; 10 year max

Front 42

appraisal remedy

Back 42

statutory right of corporate S/H who oppose extraordinary corporate axn to have their shares appraised and demand the corp buy back their shares at the appraised value

Front 43

S/H meeting quoum

Back 43

majority of outstanding shares

certif or bylaws can decrease, as long as ≥ 1/3

increase to supermajority only in certif

resolutions pass by majority actually voting

quorum cannot be lost (unlike BoD quorum)

Front 44

restraint on stock transfer by S/H

Back 44

restraints on transfer will be upheld "if reasonable under the circumstances and not an undue restraint on alienation"

must be conspicuously noted on stock certificate or actual knowledge

Front 45

statutory right to inspect

Back 45

any S/H on 5 days written demand can inspect minutes & record of S/Hs if purpose not other than in the interest of the C and has not tried to sell any list w/in past 5 years

also can inspect balance sheet, P/L statement, interim statements, list of Ds & Os

Front 46

c/L right to inspect

Back 46

to inspect records at a reasonable time and proper place for proper place

may be broader than statutory right

Front 47

dividends

Back 47

preferred means pay first; preferred that is participating means pay again; preferred that is cumulative means add them up (for years in which no dividend is paid)

Front 48

funds that may be distributed

Back 48

surplus = assets - liabilities - stated capital

stated capital = issued stock * par value

Front 49

unlawful distributions

Back 49

C cannot make distributions that would render it insolvent

Ds are personally liable, so are S/Hs who knew it was unlawful;

C can sue or S/H as a derivative suit; but good faith reliance

Front 50

fundamental corporate changes

Back 50

require BoD approval, then S/H approval

must notify dept of state

Front 51

to get right of appraisal

Back 51

(not if not listed on exchange)

b/f vote, S/H must file written objection and intent to demand payment and after vote, make written demand to be bought out

if no agreement on fair value, C sues to determine value

Front 52

amendment to certificate

Back 52

major changes must be approved by BoD and majority of shares ENTITLED to vote (normally just actually voting)

if amendment will strike a supermajority or quorum req for S/H voting, need BoD and 2/3 of S/H ENTITLED to vote

Front 53

mergers v. consolidation

Back 53

merger: A into B

consolidation: A & B form C

Front 54

rights of appraisal in merger

Back 54

yes for the S/H of the Corp that disappears

but in merger, not for the surviving corp

Front 55

short form merger

Back 55

parent corp owns ≥ 90% of sub and sub is merged into parent;

no S/H req'd

but rights of appraisal, even tho they didn't vote

Front 56

successor liability

Back 56

after merger, the surviving corp succeeds to all the rights and liabilities of the constituents

Front 57

transfer of all assets

Back 57

need BoD & S/H approval

rights of appraisal for SELLING company

company buying will not be liable for the torts of the company acquired (unless fraudulently escaping)

Front 58

dissolution

Back 58

voluntary - no BoD vote, just S/H vote

involuntary - (judicial) - need BoD resolution or S/H majority of ENTITLED resolution, stating C has insufficient assets or dissolution would be beenficial

Front 59

S/H petition for involuntary dissolution

Back 59

usually takes 1/2 entitled,

but 20% of voting shares may petition if real bad shit

Front 60

to avoid dissolution

Back 60

w/in 90 days of petition, the C or non-complaining s/H may buy the petitioner's shares at FMV; must be approved by ct

Front 61

controlling S/H

Back 61

generally, outside of close corp, S/Hs do not owe fiduciary duties to each other or to the corp

but a controlling S/H does

Front 62

stock sales by controlling S/H

Back 62

can sell at a premium b/c of control;

but liability if sold to looters, for selling a corporate asset, or selling a position on the board

Front 63

freeze out merger

Back 63

cashes out minority S/Hs unfairly

Front 64

insider trading

Back 64

breaches an affirmative duty to the corp

Front 65

stupid dates for preemptive rights

Back 65

rights if corp formed BEFORE 2/22/98; not if on or after

Front 66

stupid dates for loans to directors

Back 66

if certificate is silent, need S/H vote on or before 2/22/98; BoD after

Front 67

2/3, 1/3 and stupid dates

Back 67

on or before 2/22/98, need 2/3 S/H entitled;
after need 1/2 of S/H entitled to vote

to amend certificate to strike supermajority quorum or voting req for director voting;

for merger, consolidation or transfer of assts;

for voluntary dissolution