Corp Law

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Corp Law
2014-07-15 18:27:51
Corp Law
Corp Law MBE
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  1. What does it take to form a corporation?
    People, paper, and an act
  2. What are the Articles of incorporation?
    A contract between the corporation and the state AND the shareholders
  3. What must be in the articles of incorporation?
    • 1. Corporate Name
    • 2. Address
    • 3. Name of each incorporator
    • 4. Name of each initial director
    • 5. Registered agent in the state
    • 6. Statement of purpose
    • 7. Capital structure
  4. Statement of purpose
    What the company will do
  5. Ultra vires action
    Activities beyond the scope of the articles
  6. Capital structure
    • 1. Authorized stock
    • 2. Number of shares per class
    • 3. Information on voting rights and preferences of each class
  7. Act; in relation to corporate formation
    • Submitting the articles of incorporation to the secretary of the state
    • This is conclusive proof of incorporation
  8. De Jure corporation
    Formation complete, followed by an organizational meeting to select officers
  9. S Corp
    No more than 100 real person shareholders that are U.S. residents
  10. De Facto Corporation
    • 1. When there is a relevant incorporation statute
    • 2. Parties have made a good faith effort to comply, AND
    • 3. Some exercise of corporate privilege
  11. Bylaws filed with who
    Nobody, articles of incorporation are filed with the state
  12. Bylaws adoption
    Done by the board at the organizational meeting
  13. Amend bylaws
    Can be done by the shareholders, in some states the board
  14. Pre incorporation contracts
    • Promoter who is contracting liable until novation and indemnification by adopting the contract, OR
    • Corporation accepts a benefit of the contract
  15. Pre-incorporation subscription to buy stock
    Irrevocable for 6 months
  16. Post incorporation subscription to buy stock
    Revocable until accepted by corporation
  17. Water stock
    Stock which the corporation did not receive adequate consideration
  18. Par
    Issuance price
  19. Who determines par
  20. Who is liable for water stock?
    • Directors if they knowingly issued it below par value
    • Buyer of stock – no defense, charged with knowledge of par value
    • Not third party if did not know about the water
  21. Preemptive rights
    Right to buy newly issued stock to maintain the shareholder percentage of the whole when stock is issued for cash
  22. Non-cash issuance of new stock
    No preemptive rights
  23. Remove board members
    • For any reason by majority of shares entitled to vote, BUT
    • Only for good cause if a staggered board
  24. Board action (two ways)
    • Unanimous agreement in writing, OR
    • A meeting that satisfies quorum requirements
  25. Special Board Meetings requirements
    Notice with time and place or everything at meeting is void
  26. Quorum
    • Majority of directors unless otherwise stated in bylaws
    • If people depart and there is no longer a quorum, all business after is void
  27. Passing a resolution at a board meeting
    If a quorum is present, majority of those present
  28. Committees
    Directors can delegate to a committee except to: Declare dividends, set director compensation or fill board vacancy.
  29. Duty of care
    Director owes corporation a duty of care. Must act in good faith and do what a prudent person would do in regards to their own business
  30. Nonfeasance – duty of care
    When a director does nothing and the company suffers
  31. Misfeasance – duty of care
    Does something that hurts the corporation
  32. Business Judgment Rule (BJR)
    The court will not interfere if it means second guessing a business decision
  33. Duty of Loyalty
    Director owes corporation a duty of loyalty and must act in good faith with a reasonable belief that their action is in the corporation’s best interest. (Conflict of Interest)
  34. Conflict of interest
    Director action will be set aside unless: The deal was fair to the corporation when entered OR interest was disclosed and approved by a majority of disinterested directors or shareholders
  35. Competing ventures
    Directors cannot compete directly with corporation
  36. Corporation opportunity
    Directors may not usurp corporation opportunity unless they tell the board AND wait for the board to reject the opportunity
  37. Ultra vires act liability
    Directors are liable for the losses associated with ultra vires acts
  38. Corporate loans to directors
    Okay only if the corporation is reasonably expected to benefit
  39. Indemnification of directors
    Not allowed if they received an improper benefit or are liable to the corporation
  40. Indemnification of directors – mandatory
    If the director was successful in defending suit on the merits
  41. Indemnification of directors – permissive
    When the case against a director is settled out of court and the director acted in good faith measured by disinterested parties
  42. Pierce corporate veil
    The shareholders must have abused the privilege of incorporation AND fairness requires holding them liable
  43. Undercapitalization
    When shareholders failed to invest enough to cover prospective liabilities
  44. Shareholder derivative suit – recovery
    Only recover costs and attorney fees when successful – if not, no recovery
  45. Shareholder standing for derivative suit
    Must have owned at the time the claim arose or acquired by operation of law (Will, divorce, etc.)
  46. Requirements for a derivative suit
    • Shareholder standing
    • Adequate presentation to the directors of the claim, unless futile
    • Corporation joined
    • Dismissal only with court approval
  47. Corporation may move to dismiss a derivative suit when
    There is a showing of an independent investigation showing the suit against the director(s) would not have been in the best interests of the corporation
  48. Proxy to vote
    • Directors cannot have a proxy
    • 1. Writing
    • 2. Signed by record shareholder
    • 3. Directed to the secretary of the corporation
    • 4. Authorizing another to vote the shares
  49. Proxy term
    11 months unless otherwise stated
  50. Voting trust
    • 10 year max
    • 1. Written trust controlling how shares will be voted,
    • 2. Copy to the corporation
    • 3. Transfer legal title to the voting trustee
    • 4. Original shareholders receive trust certificates, all rights retained except voting
  51. Pooling agreements
    Short term voting agreements Valid if signed
  52. Cumulative voting
    Votes are all calculated by pro rata to the shareholder for each seat, they can be voted as pro rata x seats being filled
  53. Shareholder quorum – shareholders leave
    Once a quorum is established the business can be continued
  54. Right to view books
    • Any shareholder with 5 days’ notice
    • Anytime for directors
  55. Stated capital
    Generated by issuing stock, cannot be used for distributions
  56. Fundamental corporate change
    • 1. Board action adopting resolution for fundamental change
    • 2. Board submits proposal to shareholders
    • 3. Shareholders vote (Majority of shares entitled to vote)
    • 4. Deliver document to Sec. of State
    • Appraisal
    • When there is a fundamental change and one shareholder wants out. Usually closely held corporation
  57. Amend the articles
    • Majority vote
    • No appraisal right
  58. Substantially all assets
    75% or more sell off
  59. Winding up
    Gathering of all assets, converting to cash, paying liabilities, distribute to shareholders in order of priority
  60. Debt securities
    Creditor makes a loan
  61. Equity securities
    Investor by stock
  62. Rule 10b-5
    Insider trading using instrumentality of interstate commerce – reputation gain is sufficient
  63. Tipper
    Passed along information and benefited from it, gain in reputation is sufficient
  64. Scienter
    Intent to deceive, manipulate or defraud. Reckless may suffice
  65. Rule 16B
    • Designed to prevent director speculation
    • If any buying or selling occurs within a SIX month period, the difference in the sell and buy price must be turned over to the corporation