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- Promoters are liable until novation.
- Subscribers --> irrevocable for 6 mos
- Articles = APAIN (Authorized shares Purpose Agent Incorporators Name of corporation)
- Par value = min issuance price
- Preemptive rights --> maintain ownership percentage
- They must manage
- Business Judgment Rule
- Fiduciaries --> Care (prudence) and Loyalty (no unfair benefits unless disclosure and indep ratification)
A shareholder's derivative suit is proper only if the shareholder owns stock at the time the act complained of occurred and throughout the litigation, and the shareholder made a demand on the directors to sue, which was refused in bad faith or shown to be futile.
Only record date owner votes
Are revocable unless labeled and coupled with an interest
majority of all shares
votes in favor exceed votes against
Shares x Positions (slots)
Discretionary unless insolvency
Types of Stock
- Common stock --> paid last and evenly distributed
- Preferred Stock --> paid first
- Preferred participation --> paid first and paid with common stock (paid twice)
- Cumulative --> paid first and have the right to cumulate all previous years where no dividends were issued
Closely Held Corporation
Unanimous election + share transfer restrictions = no PPCV and possible S-Corp status
Just one professional and limited liability
- Resolution by the board at a valid meeting
- Notice of special meeting
- Majority of SHs
- Dissenter's rights
- Notice to state
- Actual Purchase or sale
No trading profits of 6 months (past and future)
Sarbanes-Oxley Act of 2002
No knowingly false filings and no benefits during falsehoods or blackout periods.
Under SEC Rule 16(b), any profit realized by a director, officer, or shareholder owning 10 percent or more of the outstanding shares of the coporation from any purchase and sale, or sale and purchase, within a period of less than six months must be returned to the corporation.
Under Rule 10b-5, it is unlawful for any person, directly or indirectly, by the use of any means of interestate commerce to 1) employ any device, scheme, or artifice to defraud, 2) make any untrue statement of a material fact or omit to state a material fact, or 3) engage in any act, practice, or course of business that would operate as a fraud in connection with the purchase or sale of any security.
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 liable under rule 10b-5 if the tip was made for any improper purpose. However, even if the tipper does not share in the profits, the tipper may be liable if he received a personal benefit, such as making a gift or enhancing his reputation.
A person who is not in a fiduciary relationship can still be found liable under rule 10b-5 under tippee liability. A tippee can be held liable only if the tipper breached a duty and the tippee knew that the tipper was breaching the duty.
Under the misappropriation doctrive, the government can prosecute a person under 10b-5 for trading on market information in breach of a duty of trust and confidence owed to the source of the informatino. A person will be deemed to owe a duty of trust and confidence when the person receives information from a parent unless the recipient can prove that he had no reason to know that the information was confidential.
Business Judgment Rule
Under the business judgment rule, directors are insulated from liability for the consequences of a business decision if they exercised due care, acted in good faith, and had a rational basis for their decision.
A shareholder may proceed by direct action for a breach of duty to the shareholder who faces immediate and direct damage.
An officer's authority to act may be actual or apparent. Express authority may be granted by statute, articles of incorporation, bylaws, resolution by the board of directors, or such power may be implied. an officer may also have teh apparent authority to act where the corporation "holds" out the officer as possessing certain authority.
Ultra Vires Acts
When a corporation exceeds its statutory powers or its purposes as stated in the articles of incorporation, it is said to be acting ultra vires.