Texas Corporations For Texas Bar Exam

Front 1

does an organizer have to be a Texas resident?

Back 1

No

Front 2

what is an ultra vires activity?

Back 2

An act beyond the scope of the corporation's purpose in the certificate of incorporation

Front 3

if the Corporation suffers losses due to an ultra vires action, who will be liable to the corporation?

Back 3

Responsible managers

Front 4

what is the effect of the secretary of state's filing the certificate of incorporation?

Back 4

a De Jure corp. is formed

Front 5

as a general rule who is liable if the corporation incurs a debt, breaches of contract, or commits a tort action mark?

Back 5

the Corp.

Front 6

if the Bylaws conflict with certificate of formation, which takes precedence?

Back 6

The certificate, except bylaws can set number of Ds.

*Certificate takes precedence over the bylaws

Front 7

Why does a corporation issue stock?

Back 7

to raise capital

Front 8

what must a corporation receive when it issues stock?

Back 8

CONSIDERATION: "any tangible or intangible benefit to the Corporation" including money, discharge of debt, property, services already rendered for the Corporation, even notes and contracts for future services

Front 9

what does "Par" mean?

Back 9

Minimum issuance price

Front 10

what does "no par" mean?

Back 10

No minimum issuance price.

-Board can set any price

Front 11

C Corp. is selling 10,000 shares $3 par stock. It must receive at least ___.

Back 11

$30,000

-can receive more than par value, but not less.

Front 12

Treasury Stock is ____ and issued but not ____.

Back 12

Authorized; outstanding

Front 13

When will a Corporation be liable on pre-incorporation contracts?

Back 13

After the Corporation either expressly or impliedly adopts the contract

Front 14

what is an issuance?

Back 14

where the Corp. sells its own stock

Front 15

What is it called when a corp. sales its own stock?

Back 15

stock ISSUANCE

Front 16

how does a corporation get directors?

Back 16

Shareholders vote them in

Front 17

what is a classified board?

Back 17

a staggered board

Front 18

Can a Director be removed before his term expires?

Back 18

Yes, shareholders can vote them out for any reason by a vote of a majority of the shares entitled to vote

Front 19

Is notice required for regular board meetings?

Back 19

NO

Front 20

How does the board make an act?

Back 20

a) Unanimous written consent, or

b) A meeting that satisfies quorum and voting requirements.

Front 21

what if directors agree that the Corporation will do something; they agree in a series of individual conversations: without a meeting or unanimous written consent. Is that okay?

Back 21

No. –the act is void, unless ratified by a valid action.

Front 22

Shareholders elect Directors at __ __.

Back 22

annual meetings

Front 23

S owns 1000 shares C Corp. there are 5000 shares outstanding. C Corp. is planning to issue an additional 3000 shares. If S has preemptive rights, then S has the right to:

Back 23

buy 600 shares (1/5 of 3000)

Front 24

What is a pre-emptive right?

Back 24

The right to the existing shareholder of common stock to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for money (cash or to equivalent).

Front 25

if the certificate of formation silent as to whether there are preemptive rights. Are there preemptive rights?

Back 25

No

Front 26

preemptive rights exist if:

Back 26

certificate of formation provides for preemptive rights

Front 27

what are the consequences of issuing par stock for less than par value?

Back 27

Directors will be liable if they knowingly authorized the issuance below par.

Front 28

Will a person who bought stock below par be liable to the corporation?

Back 28

Yes, b/c he is charged with notice of par value

Front 29

if the person who bought the stock below par value transfers the stock to a third-party? Will that third party be liable the Corporation?

Back 29

No, unless the transferee knew the stock was issued below par.

Front 30

If C Corp. decides to resell treasury stock, must it resell the treasury stock for par value?

Back 30

No, treasury stock is always treated as no par

Front 31

What duties do the directors owe the corp?

Back 31

Duty of Care
Duty of Loyalty

Front 32

if Director is sued alleging a breach of the duty of CARE, the burden of proof is on the ___.

Back 32

plaintiff

Front 33

if Director is sued alleging a breach of the duty of LOYALTY, the burden of proof is on the ___.

Back 33

Director (∆)

Front 34

Director breaches the duty of care, what also must be shown for D to be liable?

Back 34

CAUSATION

-that D's breach CAUSED a loss to the corporation

Front 35

A Director is presumed to have concurred w/ Board action unless:

Back 35

the D's dissent or abstention is noted in writing in corporate records

Front 36

A Director is presumed to have concurred w/ Board action unless her dissent or abstention is noted in writing in corporate records. This done (i) having it put in the __, or (ii) sending a __ to the corporate secretary at the meeting, or (iii) sending a __ __ to the corporate secretary immediately after the meeting.

Back 36

minutes; note; registered letter

Front 37

Duty of Loyalty.

What are the three ways for a Director to breach the duty of loyalty?

Back 37

• Self Dealing (Interested Director (Transactions.

• Competing Ventures

• Usurp a Corporate Opportunity

Front 38

A Director that Self Deals, engages in a Competing Venture, or usurps a Corporate Opportunity has breached the duty of ___.

Back 38

LOYALTY

Front 39

Does the Business Judgment Rule (BJR) apply to the duty of loyalty?

Back 39

NO

-BJR cannot apply where there is a CONFLICT OF INTEREST

Front 40

LOYALTY

Interested Director Transactions are any __ b/w the Corp and one of its directors.

Back 40

deal

Front 41

LOYALTY

Does the rule against interested director transactions apply to deals b/w the Corp and a director's close relative?

Back 41

Yes

Front 42

LOYALTY

Does the rule against interested director transactions apply to deals b/w the Corp and another business of which the director is a manager or has a financial interest?

Back 42

Yes

Front 43

LOYALTY

The rule against interested director transactions apply to deals b/w the Corp and any one of its __, or director's __ __, or another business the director manages or has a financial __.

Back 43

Director; Close Relative; Interest

Front 44

an interested director transaction will be set aside UNLESS the director shows: (i) the deal was __ to the corp when approved; OR (ii) her interest and the material facts were __ or known and the deal was approved in good faith by the SHs or a majority of disinterested Ds.

Back 44

FAIR; Disclosed

Front 45

if a D is sued for a breach of the duty of loyalty, the burden of proof is on the ___.

Back 45

Defendant

Front 46

a Director owes the Corp a duty of loyalty, this means he must act in good faith and with a reasonable belief that what he does is in the Corp's __ __.

Back 46

best interest

Front 47

The duty to act in GOOD FAITH and with a reasonable belief that his acts are in the BEST INTEREST of the Corp is standard for which duty?

Back 47

Duty of Loyalty

Front 48

Role of Directors?

Back 48

• MANAGE the business of the corp

• SET POLICY

• SUPERVISE officers

• Declare distributions

• decide when to issue stock

• recommend fundamental corp changes to the SHs

Front 49

Who declares distributions?

Back 49

Directors

Front 50

What must be included in the Certificate of Formation?

Back 50

•Corporate name,
• name and address of each organizer
• number of initial organizers
• name and address of each initial director
• name and PO box of the Registered Agent
• Statement of Purpose

Front 51

What must be included in the Certificate of Formation?

Back 51

Names and Addresses of:
• each organizer,
• initial directors,
• the registered agent

A Statement of Purpose

Corporate Name

Front 52

What if the articles of incorporation says nothing about the duration of the corp?

Back 52

the duration is PERPETUAL

-TX Corps are perpetual unless the Certificate says otherwise.

Front 53

"to engage in all lawful activity" is an example of what item that must be included in the Articles?

Back 53

Purpose Statement.

-the example is standard

Front 54

The NAME of the Corp must include:

Back 54

Corporation, Company, Incorporated or any abbreviation.

Front 55

A toy company tries to incorporate in TX using the word "Bank" in its name. Can it?

Back 55

Name cannot mislead public about the purpose.

also, Banks must be formed under the special purpose statute

Front 56

if a corporation does business under a name other that in the certificate, it must file an __ __ certificate w/ the SOS and county clerk where the registered agent is located.

Back 56

assumed name

Front 57

In order to have a meeting of the board of directors, must the Ds meet together in person?

Back 57

No,

- a conference call (simultaneous oral communication so each other can hear all others) count as a meeting?

Front 58

Failure to give proper notice of a special board meeting VOIDS whatever was done at the meeting, unless:

Back 58

the defect is WAIVED BY THE PERSON NOT NOTIFIED--either in writing anytime or by attending w/out objection

Front 59

improper notice of a special board of directors meeting will not void all acts done if __ by the person not notified.

Back 59

waived

Front 60

a Director cannot usurp a corporate opportunity. This means the D cannot take the opportunity until he:

Back 60

tells the board & waits for the board to reject the opportunity

Front 61

if a D takes a corporate opportunity w/out first giving the Board the opportunity: the D will have to sell it to the corp at his cost.

Back 61

or if the D already sold the corporate opportunity he has to give the corp his profits (constructive trust).

Front 62

Do officers owe the same duty of care and loyalty to the corporation as the directors?

Back 62

Yes,

-Officers are AGENTS of the corporation

Front 63

B/c Officers are agents of the Corp they can bind the Corp by acts w/in their __.

Back 63

authority

Front 64

The President of a corp has authority to convey corporate real property only if the __ gives her such authority.

Back 64

Board

Front 65

an Officer may have "Inherent Authority" to bind the corp to a contract entered into in the __ course of business.

Back 65

ordinary

Front 66

All corporations must which type of officers?

Back 66

President and Secretary

*can be same person

Front 67

Can an officer also be a director.

Back 67

Yes.

Front 68

Who hires and fires officers?

Back 68

the Board

Front 69

Who hires and fires directors?

Back 69

Shareholders

Front 70

someone is sued as a D or O, when is the corp required to indemnify (reimburse) them?

Back 70

if the D or O wins a judgment for the entire case.

Front 71

When is reimbursement of a D or O prohibited?

Back 71

if the D or O is held liable for willful or intentional misconduct in performing a duty to the corp.

Front 72

What is a CLOSE CORP?

Back 72

few SHs, stock not publicly traded

Front 73

In order to form a close corporation the certificate must say what?

Back 73

this is a "close corporation"

Front 74

how does a close corp change its management structure? (i.e., from Board managed to Shareholder managed)

Back 74

written agreement by ALL shareholders at the time of the structure change

Front 75

Are SHs liable for the acts or debts of the corporation?

Back 75

No,

-the corp is liable for what it does

Front 76

a court might "pierce the corporate veil" (PCV) and hold the shareholders personally liable if they have __ the corporate form and limited liability would be __.

Back 76

abused; unfair

Front 77

How to make a FUNDAMENTAL Corporate CHANGE

Back 77

1st, Board adopts a resolution of a fundamental corp. change.
2nd, Board must submit the proposal to the SHs w/ written notice.
3rd, the fundamental change must be approved by 2/3ds of shares entitled to vote.
4th, usually a document is delivered to the SOS for filing

Front 78

What is the shareholder vote requirement in order to make a fundamental change?

Back 78

2/3ds of shares entitled to vote must vote "yes"

*this doesn't mean 2/3 present

Front 79

what is a Dissenting Shareholder "right of appraisal"?

Back 79

right to force the corp to buy your stock at fair value

Front 80

When will a dissenting SH have a right of appraisal?

Actions by corp to trigger right of appraisal are:

Back 80

• merger
•sale of shares in a share exchange
• transfer of substantially all assets
• conversion

Front 81

What must a SH do in order to perfect the right of appraisal?

Back 81

i) before the vote, file w/ corp a written notice of objection and intent to demand payment;
ii) abstain or vote against the proposed change
iii) after the vote, w/in 20 days of notification by the corp, make a written demand to be bought out

Front 82

Actions by dissenting SHs to perfect right of appraisal:
i) before the vote, file w/ corp a __ notice of objection and intent to demand payment;
ii) __ or vote against the proposed change
iii) after the vote, w/in __ days of notification by the corp, make a written demand to be bought out

Back 82

written; abstain; 20

Front 83

to Amend the certificate of formation requires:

i) Board of director __, and
ii) Shareholder __

Back 83

action; approval

Front 84

How many SHs must vote "yes" in order to Amend the certificate of formation?

Back 84

2/3 of shares entitled to vote

Front 85

How many SHs must vote "yes" in order to approve a merger?

Back 85

2/3 of shares entitled to vote

Front 86

No SH approval is required if a __% owned subsidiary is merged into a parent corp.

Back 86

90

Front 87

Where a 90% owned subsidiary is merged into a parent corp, this is what type of merger?

Back 87

Short-Form Merger

*no SH vote is required

Front 88

The effect of a merger is that the surviving corp __ to all rights and __ of disappearing corp.

Back 88

succeeds; liabilities

*aka, Successor Liability

Front 89

CONVERSION:

Corp can convert into another form of business organization.

Requires board action and approval by __ of the shares entitled to vote.

Back 89

2/3