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  1. What is a corporation?
    A corporation is a legal entity separate and distinct from legal personalities of those who own and manage the corporation.
  2. What are the principal characteristics of a corporation?
    • Limited liability (shareholders and managers are ordinarily not liable for corporate indebtedness);
    • Entity powers (e.g., contract in its own name, sue or be sued, own or convey property, and be held criminally liable for crimes it committs);
    • Centralized management (in a board of directors elected by shareholders);
    • Continuity of existence (duration is perpetual unless limited in certificate);
    • Free transferrability of ownership interests; and
    • Managers' authority to act is mainly derived from statutes ("BCL"), case law, and the certificate of incorporation ot bylaws.
  3. Is a corporation a person?
    A corporation is a person entitled to due process and equal protection of law.
  4. Is a corporation a citizen?
    A corporation is not a citizen under the Privileges and Immunities Clause of the U.S. Constitution.
  5. What is a partnership?
    A partnership is not a separate entity distinct from its owners. Each partner is jointly and severally liable for debts of the partnership and has a voice in management (unless all parties agree to the contrary). Existence of partnership and ownership interests are not freely transferable. However, a partnership can hold property, contract in its own name, and sue or be sued.
  6. What is a joint stock association?
    A joint stock association can have continuity of existence, centralized management, and freely transferrable ownership interest, but owners do not have the benefit of limited liability.
  7. What is a business trust?
    Holders of shares of a beneficial interest in the trust have the advantage of limited liability provided they have no power to control the trustees in management of the trust.
  8. What may an unsuccessful attempt to form a corporation result in?
    A partnership, creditor-debtor relationship, employer-employee relationship, or trustee-beneficiary relationship.
  9. Do promotoers need to be incorporators?
    No, but they may be.
  10. What duties do promoters have before the corporation is organized?
    As between themselves, promoters have fiduciary duties of joint venturers.
  11. What duties do promoters have after the corporation is organized?
    Among themselves promoters have only rights, duties, and obligations of shareholders.
  12. Must promoters disclose and account to the corporation for their secret profits and profits from self-dealing?
    Yes, after outside investors come into the picture, unless there is consent or ratification.
  13. Must promoters account to the corporation for profits from self-dealing before outsiders came in?
    Yes, whenever issuance of additional shares to uninformed outsiders was contemplated or the public was invited to become original subscribers.

    EXCEPTION: Promoters are not accountable for profits of which outsiders had notice.
  14. When do promoters' fiduciary duties terminate?
    The fiduciary duties of the promoters to the corporation do not extend to new shareholders several years after complained-of transactions.

    However, promoters do have a fiduciary duty to the corporation both: (i) as to investors who subscribed while promoters were in control; and (ii) as to transactions that were fixed in their terms while promoters were in control, even if subscribers purchase, and the transactions are consummated, after the promoters dispose of their interests.
  15. Is a contract signed by a promoter before corporate existence begins binding on the corporation?
    No, but the corporation may become liable on the promoter's contract by adopting it.
  16. How may a corporation adopt a promoter's contract?
    Adoption may be express or implied from a knowing acceptance of the contract's benefits.
  17. Will a corporation be liable on preincorpoaration contracts when it takes over completely assets of an unincorporated predecessor and becomes the alter ego of its promoters?
  18. Is a promoter personally liable for contracts he enters into on behalf of a proposed corporation?
    Yes, unless (i) the intention of the parties was evidently to bind the corporation only or (ii) novation of contract has occured between the third party and the corporation.
  19. Is a preincorporation agreement intended for the benefit of the proposed corporation enforceable by the corporation?
    Yes, provided the corporation expressly or impliedly adopts the contract.
  20. Who may act as incorporators of a corporation?
    One or more natural persons, age 18 or older.
  21. How do incorporaters incorpoate a corporation?
    They sign the certificate of incorporation and hold an organizational meeting for adoption of bylaws and election of the first board of directors.
  22. What must the certificate of incorporation include?
    • The name of the corporation ("corporation," "incorporated," or "limited" or an abbreviation thereof must be used);
    • The purpose of the corporation (may be formed for "any lawful purpose);
    • The county in New York where the office of the corporation will be located;
    • The number of authorized shares and a description (aggregate number of shares authorized to be issued; par value or no par value; details on share classes or series; and, for corporations in existence prior to February 22, 1998, any provision limiting or denying preemptive rights);
    • Designation of the secretary of state as agent for service of process;
    • The name of the registered agent (optional and in addition to secretary of state designation);
    • The duration of the corporation (perpetual if not stated); and
    • Any limitations on directors' liability to shareholders (provided breach of duty is not found to be in bad faith or due to intentional misconduct, or resulting in financial profit nmot legally due director, or violating directors' statutory liabilities).
  23. Who must sign and acknowledge the certificate of incorporation?
    The certificate must be signed by the incorporators and acknowledged before a notary public.
  24. When does corporate existence commence?
    Upon the filing of the certificate by the department of state (unless the certificate specifies a subsequent date within 90 days of the filing). The filed certificate is conclusive evidence that a corporation has been formed.
  25. Who can attack the validity of formation?
    Only the attorney general.
  26. Is there a "minimum capital" requirement before corporation commences doing business?
  27. What are the requirements for a "de facto corporation"?
    Traditionally, there must be (i) colorable compliance with the corporation statute; (ii) good faith; and (iii) use of corporate privilege. (It is questionable whether the de facto doctrine is viable today.)
  28. Is the de facto doctrine still viable today?
    It is questionable, since the certificate of incorporation is conclusive proof of validity under the BCL.
  29. Is incorporation by estoppel recognized in New York?
    No, absent de facto existence.

    (Incorporation by estoppel = parties act as if there is a corporation; nor equirement of following statutory provisions.)
  30. Is a corporation generally treated as a separate entity?
    Yes. The law permits incorporation for the very purpose of escaping personal liability. However, a corporation may not be formed to defeat existing creditors.
  31. May a corporation be formed to defeat existing creditors?
  32. When may the corporate entity be disregarded?
    When necessary to prevent fraud or to achieve equity.

    New York courts are reluctant to actually disregard the corporate entity where there is some semblance of separation between the corporation and its shareholders. The corporate entity may be ignored if sharheolder domination is so complete and interference so obtrusive that general rules of agency make the corporation an agent of its shareholders. The corporate entity may also be ignored where shareholders are actually carrying on business in their personal capacities, or for purely personal rather than corporate ends, or where the corporation is used as a cloak for illegality.

    The corporate entity will be ignored where officers and employees of a parent corporation exercise control over the daily operations of a subsidiary and/or where a parent corporation conducts business throguh a subsidiary that exists solely to serve the parent.

    The corporate entity is ignored in professional service corporations as to actions arising from professional services, but not generally as to nonprofessional activities.
  33. What are the major statutory powers of a corporation?
    The power to transfer or mortgage all or any part of its assets, lend money, buy and sell securities, contract and borrow, compensate employees, and participate in other ventures (e.g., act as a promoter or partner). A corporation also has all powers necessary or convenient to effect any or all of the purposes for which it is formed. A corporation may also make charitable contributions irrespective of corporate benefit, but political contributions to an organization or candidate are limited to not more than $5,000 per year. A corporation also has power to give guarantees in furtherance of corporate purposes and acquire, hold, and dispose of (but not to vote) its own shares, subject to certain limitations.
  34. May a corporate engage in the practice of law?
    No, with limited exceptions (professional service corporation).
  35. Is any act or transfer of property by or to a corporation invalid by reason of the fact that the corporation was without capacity or power to perform the act?
    No, if otherwise lawful.
  36. Are directors personally liable to the corporation for any lsoses suffered form ultra vires activities?
  37. What are the three (3) situations in which ultra vires may be asserted?
    • An action against an officer or director (for damages due to unauthorized act);
    • In a proceeding by the attorney general (to annul or dissolve the corporation or to enjoin it from doing unauthorized business); and
    • In an injunction action by shareholders to enjoin any unauthorized act or transfer of property by or to a corporation (unless precluded by acquiescence or laches).
  38. Is the ultra vires doctrine very limited in New York?
    Yes. Therefore, you should not allow a corporation to get out of a contract merely because the contract is outside the corporation's stated purposes.
  39. Do shareholders have direct control over the day-to-day management of the corporation?
  40. How can shareholders exert indirect control over the management of the corporation?
    By election of directors, amendment of certificate, and approval of organizational changes.
  41. Can nonpublic ("closely held") corporations confer management power on shareholders?
  42. Can the bylaws designate reasonable procedures fo rhte calling and conduct of shareholder meetings?
  43. When must a meeting of the shareholders be held?
  44. Who can call special meetings of the shareholders, for what purpose, and when?
    The board, for election of directors if there is a failure to elect a sufficient number of directors to conduct the business of the corporation, either: (i) for a period of one month after the date fixed for the annual meeting, or (ii) for a period of 13 months after the last annual meeting.
  45. Where may meetings of shareholders be held?
    Anywhere, within or outside the state, as may be fixed by or under the bylaws.
  46. When must written notice be given to each shareholder entitled to vote?
    Not less than 10 or more than 60 days before the date of the meeting.
  47. What must notices to shareholder state?
    The place, date, and hour of the meeting. For special meetings, notice must also indicate who called the meeting and its purpose.
  48. How must written notice be given to the shareholders?
    A copy must be delivered to each shareholder entitled to vote, either personally or by mail.
  49. Can notice of a meeting be waived by a shareholder?
    Yes, in writing or by attendance in person or by proxy, without protesting lack of notice prior to the conclusion of the meeting.
  50. What is the consequence of failure to give notice of a meeting (in absence of waivers)?
    It renders action taken at the meeting void.
  51. Who is eligible to vote in a shareholder meeting?
    Every shareholder of record is entitled to one vote for each share held by the shareholder, unless otherwise provided in the certificate.
  52. What is the day as of which eligibility to vote is determined?
    The "record date," which may not be less than 10 or more than 60 days before the date of the meeting.
  53. What is the record date if no record date is fixed?
    The close of business of the day next preceding the notice day (or if no notice is given, then the day next preceding the meeting date).
  54. Other than the record holder, who may vote shares at a shareholders' meeting?
    Receivers if authorized by court, fiduciaries, and trustees (provided shares have been transferred into his name as trustee).
  55. Are "treasury" shares and shares held by subsidiaries counted in determining the total number of shares outstanding?
  56. Can any shareholder entitled to vote at a meeting authorize another person to act for him by proxy?
  57. What is the form required to appoint a proxy?
    The BCL does not specify the form required to appoint a proxy. A written proxy signed by the shareholder or its authorized officer or agent is valid, as is an appointment by telegram or through electronic means if the appointment is accompanied by some means for determining that it was authorized by the shareholder.
  58. How long are proxies valid?
    11 months from the date they are given unless otherwise provided in the proxy.
  59. Is a proxy revocable at the pleasure of the shareholder executing it?
    Yes, unless (i) it is entitled "irrevocable proxy" and states that it is irrevocable, and (ii) it is held by a pledgee, a person who has agreed to buy the shares, a creditor of the corporaiton, an officer whose employment contract calls for such proxy, or a person designated by a voting arrangement.
  60. Does death or incompetence of the shareholder revoke a proxy?
    Only if, before the authority is exercised, the officer responsible for the shareholders' list receives written notice.
  61. When does an irrevocable proxy become revocable?
    When the pledge is redeemed, corporate credit is repaid, the period of employment has ended, or the voting agreement has terminated. Irrevocable proxies are revocable by a purchaser of the shares who lacks knowledge of the proxy unless reference to existence of the irrevocable proxy is conspicuously noted on the shares.
  62. How many votes is each outstanding share entitled to?
    One vote, regardless of class, except as otherwsie limited in the certificate.
  63. What constitutes a quorum for shareholder voting?
    A majority of the votes of the voting shares.
  64. Can a lesser quorum for shareholder voting be provided by certificate or bylaws?
    Yes, but it cannot be less than one-third of the voting shares.
  65. Can a greater quorum for shareholder voting be provided for?
    Yes, but only in the certification.
  66. When a quorum is present, can it be broken by withdrawal of any of the sharehodlers?
  67. Is the election of directors made by a plurality of votes cast?
    Yes, unless the articles or bylaws provide otherwise.
  68. What can more than a majority shareholeder vote be required?
    For major corporate changes (certificate amendment, merger), or, if required, by certificate.
  69. Are cumulative voting or class voting permitted?
    Only if provided for in the certificate.
  70. If any class or series of shares or bonds is entitled to elect directs as a class, how can removal be effected?
    Only by the electing class.
  71. What must be available at the meeting?
    A list of shareholders as of the record date.
  72. What is a voting trust?
    A written agreement of shareholders under which legal ownership of their shares is transferred to a "trustee" who votes the shares per provisions of the agreement. Shareholders retain beneficial ownership.
  73. How long can voting trusts last?
    In New York, voting trusts may not exceed 10 years' duration but may be extended for another 10 years.
  74. Does the voting trustee owe fiduciary duties to beneficial owners of the shares?
  75. What is a voting agreement?
    Two or more shareholders, by a signed writing, may agree that their shares will be voted (i) as provided in the agreement, (ii) as they may agree in the future, or (iii) as determined by a procedure agreed upon by them. Such voting agreements may be supported by an exchange of irrevocable proxies.
  76. How long can voting agreements last?
    Can be perpetual.
  77. Can shareholders take action without a meeting?
    Yes, by unanimous written consent only, unless the certificate authorizes shareholder action by written consent signed by less than 100% of the shareholders entitled to vote.
  78. Does every shareholder have the right to examine for any proper purpose shareholders' minutes and the record of the shareholders?
    Yes. However, a shareholder may be required to furnish an affidavit that (i) his purpose is not other than in the interest of the corporation; and (ii) he has not within five years participated in an attempt to sell any list of shareholders. The corporation may judge the shareholder's purpose.
  79. What is a proper purpose to inspect shareholders' minutes and the record of the shareholders?
    To solicit shareholders for stock tenders or to facilitate a proxy challenge to incumbent directors.
  80. What is an improper purpose to inspect shareholders' minutes and the record of the shareholders?
    To determine alleged misuse of shareholders' assets and funds--the proper remedy here is derivative action.
  81. To whom must the corporation mail its latest annual balance sheet, profit and loss statement, and any interim statements that have ben made to the shareholders or the public?
    To any shareholder, on written request.
  82. Which shareholders have a common law right to inspect corporate books and records at a proper place and reasonable time and for a proper purpose?
    All shareholders.
  83. Do shareholders have a statutory right to inspect at the corporation's office a current list of the corporation's directors and officers.
    Yes, on two days' written demand.
  84. Do shareholders have fiduciary duty to the corporation or to their fellow shareholders?
    Generally, no.
  85. What fiduciary duty do controlling shareholders owe to minority shareholders?
    Fiduciary duty to exercise the uptmost good faith.
  86. Can a controlling shareholder sell her controlling interest at a premium?
    Yes, absent looting of corporate assets, conversion of corporate opportunity, fraud or other bad faith. Minority shareholders are not entitled to share in the premium.
  87. What results if the controlling shareholders exercise bad faith in selling their controlling interest?
    The profits of the sale will be disgorged to the corporation.
  88. Who adopts the initial bylaws?
    The incorporators.
  89. Who can adopt, amend, or repeal bylaws?
    Shareholders entitled to vote in the election of directors, when it is so provided by the: (i) certificate, or (ii) bylaw adopted by the shareholders.
  90. What are bylaws subject to and must be consistnt with?
    Law and the certificate.
  91. Do bylaws have the force and effect of a contract among the shareholders?
  92. Do outsiders have standing to complain of a violation of the bylaws?
  93. Who manages the business of the corporation?
    The board of directors.
  94. What is the requirement to be a director?
    At least 18 years old.
  95. May the certificate of bylaws prescribe other qualificaitons to be a director?
  96. When can the board's management authority be restricted or transferred to one or more shareholders or other persons?
    If (i) allowed in the certificate, (ii) all incorporators or shareholders of record have authorized such provision, (iii) all subsquent shareholders have notice of such provision, and (iv) no shares are listed on an exchagne or are regularly quoted over the county.

    NOTE: This can be done even where such restriction or transfer would be otherwise lawful.

    NOTE: This is only available to private (closely-held) corporations.
  97. Can the bylaws restrict the directors' powers?
    Yes, as long as the restrictions are consistent with the law and the certificate and do not prevent the directors from acting with their best judgment.
  98. Can agreements other than the bylaws restrict directors' authority?
    If the certificate so provides.
  99. Is there a requirement for number of directors?
    The BCL requires a corporation only to have one director, although any number can be set in the bylaws, by the shareholders, or by the board of directors if the shareholders have adopted a bylaw giving the directors such power.
  100. What is the default number of directors if no number is set?
  101. How is the initial board of directors elected?
    By the incorporators at the organizational meeting.
  102. When are directors elected?
    At each annual meeting of shareholders, to hold office until the next annual meeting.
  103. How long does a director hold office?
    For the term for which he was elected and until his successor is elected and qualified.
  104. In lieu of an entire board's being elected annually, can the certificate of incorporation or a bylaw adopted by the shareholders divide the board into classes and provide that only one class will be elected at each annual meeting?
    Yes. This is called a "classified board." Directors may be divided into two, three, or four classes, as nearly equal in number as possible.
  105. How can vacancies on the board and newly created directorships be filled?
    By vote of the board.
  106. How can directors be replaced without case?
    By a vote of the shareholders unless the board has such power conferred in the certificate or a bylaw adopted by shareholders.
  107. If a specific class of shareholders is entitled to elect a director, how is a vacancy of that directorship filled?
    By majority vote of the directors elected by that class, unless there is no other director in office elected by the class.
  108. How can directors be removed for cause?
    By a vote of the shareholders, or by the board if pursuant to the certificate or a bylaw adopted by the shareholders.

    EXCEPTION: Directors elected by class vote or cumulative voting may never be removed by the board.
  109. How can directors be removed without cause?
    By shareholders, and then only if the certificate or bylaws so provides.
  110. What are special voting requirements for removal?
    If the corporation uses cumulative voting, no director may be removed if the votes castagainst removal would be sufficient to elect the director at election of the entire board.

    If the corporation elects directors by classes, no director may be removed except by vote of the class that elected the director.
  111. Can a director be removed for cause by judicial action?
    Yes. The attorney general or holders of 10% of the shares (voting or nonvoting) may sue for judgment removing a director for cause. The court may also bar reelection of a director so removed.
  112. Can a board take action without a formal meeting?
    Yes, by unanimous consent in writing, unless restricted by the certificate or bylaws.
  113. Can directors participate in a meeting by means of a conference telephone or similar device?
  114. Is action of a corporation binding on the corporation as against third parties despite absence of formal director action?
    Yes, if grounds exist for finding ratification or acquiescence by the directors.
  115. Can directors' meetings be held outside of New York?
  116. When can regular board meetings be held without notice?
    If the time and place thereof are fixed by the bylaws or by the board.
  117. Is notice required for special board meetings?
    Yes, although ti can be waived.
  118. How can notice for special board meetings be waived?
    By (i) a signed, written waiver before or after the meeting or (ii) attendance without protest prior to commencement of the meeting.
  119. What results where notice of the directors' meeting is required but is not given (or waived)?
    Actions taken at the meeting are invalid, absent ratification.
  120. What constitutes a quorum of the board of directors?
    A majority of the entire board, unless the certificate or bylaws provide for a lesser quorum (not less than one-third).

    NOTE: Bylaws may not provide for a greater quorum.
  121. What constitues an act of the board?
    Vote of a majority of directors present (if a quorum is present).
  122. What vote of the board is required to change the number of directors constittuting the entire board or designate committees of directors?
    A majority of the entire board (i.e., the number of directors authorized by the certificate or bylaws, if there are vacancies).
  123. Can directors vote by proxy?
  124. Can interested directors count toward a quorum?
  125. When does the director have the power to bind the corporation on extraordinary contracts?
    Only when there is actual authority to act. Actual authority generally can arise only if: (i) proper notice was given for a directors' meeting, (ii) a qhorum was present, and (iii) a majority of the directors approved the action. Authority can also arise form unanimous written consent or ratification or acquiescence by the board.
  126. Can the board designate one or more directors to constitute a committee of the board?
    Yes, if the certificate or bylaws so provide. A resolution adopted by a majority of the entire board is required.
  127. What powers does a committee have?
    All of the powers of hte board subject to limitations int he bylaws or certificate and limitations imposed by the BCL.
  128. Do directors have an absolute right to inspect the corporation's books and records?
  129. Do former directors have a right to inspect the corporation's books and records?
    Yes, but it is a qualified right limited to the period of the person's directorship.
  130. Can the corporation make loans to a director?
  131. If the corporation was formed on or before February 22, 1998, what is the process required for approving a loan from a corporation to a director?
    Both the board of directors and the shareholders must approve the loan, unless the certificate of incorporation allows the board to approve the loan on its own upon a finding that it benefits the corporation.
  132. If the corporation was formed after February 22, 1998, what is the process required for approving a loan from a corporation to a director?
    The board alone may approve the loan, upon a finding that it benefits the corporation.
  133. What officers can the board elect or appoint?
    A president, one or more vice presidents, a secretary, and a treasurer.
  134. May a person hold more than one office?
  135. Can officers be elected by shareholders instead of the board?
    Yes, if the certificate so provides.
  136. How long do officers hold office?
    Unless the certificate or bylaws otherwise provide, until: (i) the first directors' meeting after the next annual shareholders' meeting, or (ii) the next annual meeting of shareholders (if the officers are elected by the shareholders).
  137. Are there any statutory qualifications to be an officer?
  138. What determines the authority and power of officers and agents as against outsiders?
    The ordinary rules of agency (e.g., express, implied, and apparent authority).
  139. How can unauthorized acts of officers be ratified?
    By express resolution of the board or through acquiescence or acceptance of benefits of the acts with knowledge of facts.
  140. What power does the president have?
    To enter into ordinary contracts on bealf of the corporation.
  141. What power does the secretary have?
    To keep and maintain corporate records.
  142. What power does the treasurer have?
    To act in respect to finances.

    NOTE: The Treasurer has no power to indorse notes merely by virtue of his position.
  143. What power does the general manager have?
    The general power to do anything necessary to carry on the corporation's business from day to day.
  144. How can an officer elected or appointed by the board be removed?
    By the Board, with or without cause.
  145. Can an officer elected by shareholders be removed by the board?
    No, but his authority ot act may be suspended by the board for cause.
  146. How can an officer elected by shareholders be removed?
    By a vote of the shareholders, with or without cause.
  147. Who can sue for judgment removing an officer for cause?
    The attorney general or holders of 10% of votes of all outstanding shares.
  148. Does removing an officer without cause prejudice his contract rights, if any?
  149. What is the fiduciary duty of care?
    Directors and officersmust discharge their duties in good faith and with that degree of care and skill that an ordinarily prudent person would exercise under similar circumstances in like positions.
  150. Is a director or officer entitled to rely on information, opinions, reports, or statements prepared by officers or employees of the corporation, counsel, public accountants, or a committee of the board upon which she does not serve?
    Yes, if acting in good faith.
  151. What recovery may be had if a director fails to exercise her duty of care?
    Only for loss proximately caused by her negligence.
  152. Does a director need to personally benefit to be held liable for her duty of care?
  153. What is the duty of loyalty?
    Directors must act in good faith.
  154. What are the BCL's two tests for interested director transactions?
    The approval test and the fairness test. If either test is met, the transaction cannot be avoided merely because one or more directors are interested in them.
  155. When is an interested director transaction not voidable under the approval test?
    • The board approves the transaction by a sufficient vote without counting votes of interested directors;
    • The board appoves the transaction by unanimous vote of the disinterested directors, where votes of interested directors must be contined in orer to establish a quorum; or
    • Shareholders approve the transaction by vote, provided in each case that material facts as to the director's interest are disclosed or known to those voting on the approval.
  156. When is an interested transaction test not voided by the fairness test?
    The parties thereto affirmatively establish that the transaction was fair and reasonable to the corporation at the time it was approved.
  157. Does the board have authoity to fix compensation of directors in any capacity?
    Yes, unless restricted by the certificate or bylaws.

    In corporations in existence on February 22, 1998, shraeholder authorization is required for loans by the corporation to a director and shares of the borrower are not permitted to be voted. In corporations formed thereafter, loans may be approved by the directors after finding that the loans benefit the corporation.
  158. If a director will benefit from a transaction her corporation is about to enter into, must the director disclose that information to the board (or to the sharehodlers)?
    Yes. Disinterested directors (or the shareholders) must then approve the transaction. If there is no disclosure, the transaction can be set aside unless it is fair to the corporation.
  159. Can directors, officers, or controlling shareholders acquire or divert to themselves property or opportunities that the corporation needs or is seeking, or as to which it has a tangible expectancy or that they were otherwise under a duty to acquire for the corporation?
    No, under the corporate opportunity doctrine.
  160. Which acquisitions does the corporate opportunity doctrine not affect?
    • Those that the corporation has refused;
    • Those that it would not have been able to take advantage of; or
    • Those that are not appropriate or logically related to the corporation's business.
  161. Under what circumstances can a director take advantage of business opportunities that the corporation might eb interested in?
    She must present the opportunity to her corporation, disclosing all material facts, and can take advantage of the opportunity personally only if the corporation decides not to pursue it.
  162. If the corporation is not given a chacne to take advantage of a corporate opportunity, what are the coonsequences for the director who usurped the opportunity?
    He can be forced to turn over the opportunity and/or any profits derived from the opportuniy to the corporation.
  163. Can a corporation impose a covenant not to compete?
    Yes, so long as it is not unbounded by time or geography and does not deprive one of the opportunity ot earn a livelihood.
  164. Can a shareholder who is also a director or officer trade on undisclosed inside information?
    No. He has a fiduciary duty to the corporation and to noninsider shareholders.
  165. If the director or officer profits from exploiting information, must he account for such profits to the corporation?
  166. What federal laws regulate insider trading?
    Section 16(b) of the Securities Exchange Act alows corporate reovery for profits made by directors, officers, or 10% shareholders with purchases and sales (or sales and purchases) of the corporation's shares made within six months of one another.

    Rule 10b-5 allows virtually anyone injured by fraud or manipulation in the sale or purchase of securities to recover from persons whose wrongs caused the injury.
  167. Must an officer or director account to the corporation for amounts received as payment for turning over his corporate office to another?
  168. When are directors jointly and severally liable to the corporation (or its creditors and shareholders)?
    If they vote for or concur in any one of the following: (i) declaring a dividend or other distribution contrary to the BCL or certificate; (ii) repurcashing by the corporation of its own shares contrary to the BCL or certificate; (iii) distributing assets after dissolution without adequately providing for known liabilities of the corporation; or (iv) making any loan to a director without the required shareholder approval. Liability is limited to the extent of the injury as a result of prohibited action.
  169. When is a director who was present at a meeting where prohibited action was taken not presumed to have concurred in the action?
    • His dissent is entered in the minutes of the meeting;
    • His written dissent is presented to the secretary of the meeting before adjoirnment thereof; or
    • His written dissent is delivered or sent by registered mail tot he secretary of the corporation promptly after adjournment.
  170. Is a director against whom a claim is asserted entitled to contribution from other directors who are liable?
    Yes. Also, shareholders who knowingly received improper distributions or payments for shares may be liable to such directors.
  171. Is a director liable if he discharged his duties in good faith and with the requisite duty of care?
  172. What actions can be brought against an officer or director?
    An action may be brought against an officer or director, unless the certificate limits such relief, for misconduct (e.g., to compel an accounting for neglect or violation of duties in management and disposition of assets, or for waste or misappropriation of corporate assets; to set aside an unlawful transfer of corporate assets; or to enjoin a proposed unlawful transfer of corporate assets.
  173. Who may bring an action against officers an ddirectors for misconduct?
    • The corporation;
    • A receiver, trustee in bankruptcy, or judgment creditor of the corporation;
    • An officer or director of the corporation; or
    • A shareholder or voting trust certificate holder, provided conditions for a derivative action are met.
  174. From what can a director's or officer's rights to indemnification be derived?
    From the BCL, the certificate of incorporation, or the bylaws.
  175. Can indemnification be had by shareholder or director resolution or an agreement providing for indemnification?
    Yes, if so provided in the bylaws or certificate.
  176. Is there a right to indemnification under the certificate or bylaws if the director or officer acted in bad faith, was dishonest in the actions that were material to the cause of action, or wrongfully personally gained?
  177. When is inndemnification for reasonable expenses in defense of suit brought by or in the right of the corporation (included derivative suits) permitted?
    Whenever, so long as the director or officer is not adjudged to be liable to the corporation. Even where there is liability, the court may find the director reasonably entitled to indemnity.
  178. When may the corporation indemnify or actions other than by or in the right of the corporation?
    • If the director or officer acted in good faith for a purpose reasonably beleived to be in the best interests of the corporation; and
    • In criminal cases, the director or officer had no reasonable cause to believe that his conduct was unlawful.
  179. When is indemnification a matter of right?
    When the director or officer successfully defends the action.

    NOTE: In any case, indemnification is prohibited if inconsistent with a provision of the certificate, bylaws, or board of shareholders resolution or agreement in effect at the time of accrual of the alleged cause of action.
  180. Who may order payment of indemnification?
    If a director or officer has been wholly successful in his defense on the merits or otherwsie, ordinary corporate action suffices to authorize payment.

    If a director or officer was not wholly successful in his defense, indemnification by corporate action requires authorization by either: (i) the board (with a quorum consisting of directors who are not parties) upon finding that the applicable standard of conduct was met; or failing this, (ii) the shareholders upon a finding that the applicable standard of conduct was met; or (iii) the board upon written opinion of independent legal counsel that indemnification is proper because the applicable standard of conduct was met.
  181. Can indemnification be awarded by a court?
    Yes, upon application in the case in question or in a separate proceeding.
  182. Can insurance be purchased by the corporation to provide indemnity for officers an directors?
    Yes, even in cases where indemnfication by the corporation is prohibited.
  183. Who may bring a derivative action?
    A record or beneficial holder of shares, or a voting trust certificate holder, provided that the plaintiff (i) is such a holder when the action is brought; and (ii) was also such a holder at and from the time of the complained-of transaction, or her shares must have developed upon her by operation of law.
  184. What must the shareholder demonstrate in order to bring a derivative action?
    That she would fairly and adequately represent interests of shareholders and the corporation.
  185. Can a derivative action proceed if a shareholder is pursuing an individual right?
    No, she must be pursing a corporate right to procure a judgment in the corporation's favor.
  186. What must the complaint set forth with particularity in a derivative action?
    The plaintiff's efforts to secure initiation of action by the board or reasons for not making such an effort.
  187. Can derivative actions be discontinued or settled without the approval of the court?
  188. Can the court award plaintiff's reasonable expenses if the plaintiff is successful in a derivative action?
  189. When will demand be considered futile and excused?
    If the complaint alleges that (i) a majority of the board of directors is interested in the transaction; (ii) the board of directors did not inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances; or (iii) the challenged transaction was so egregious that it could not have been the result of sound business judgment.
  190. Can the corporation require the plaintiff in a derivative action to give security for reasonable expenses that may be incurred by the corporation or by other defendants whom the corporation may be required to indemnify?
    Yes, unless (i) plaintiff holds, on record or beneficially, 5% or more of any class of shares; or (ii) plaintiff's shares exceed $50,000 in fair value.

    RATIONALE: To deter strike suits.
  191. When is dismissal on the merits of a derivative action res judicata?
    • The first action was neither collusive nor fraudulent;
    • The second shareholder was not excluded from participation in the first action; and
    • Both actions arose out of the same transactions or series of transactions.
  192. Does dissolution of the corporation deprive the shareholders of their derivative remedy?
  193. Can the authorized number of shares and classes of shares in a corporation be modified by amendment of the certificate?
  194. Can the certificate deny or limit voting rights and dividend or liquidation rights of any class?
    Yes, provided (i) one or more classes of shares or bonds, singly or in aggregate, has unlimited voting rights; and (ii) one or more classes of shares, singly or in aggregate, has unlimited dividend rights.
  195. What are preferred shares?
    Shares entitled to a preference in distribution of either dividends or assets.
  196. What are the requirements for a subscription for shares?
    It must be in writing and signed by the subscriber to be enforcement.
  197. Is a subscription for shares irrevocable?
    It is irrevocable for three months from its date unless (i) the subscription agreement provides otherwsie, or (ii) all other subscribers consent to revocation.
  198. Must calls for payment be uniform as to holders of the same class of shares?
  199. How may a corporation proceed if a subscriber default on payment?
    As in collecting any other debt. Or the board can declare a forfeiture (30 days after written demand is made for payment).
  200. What is valid consideration for shares?
    Money or other property (tangible or intangible), labor or services received by or performed for the corporation, a binding obligation to pay the purchase price in cash or property in the future, or a binding obligation to perform for the corporation in the future services having an agreed value.
  201. Can the board fix consideration for shares with a par value?
    Yes, but cannot be less than par value.
  202. Can the board fix consideration for no par shares?
    Yes, unless the certificate reserves such right to shareholder.
  203. Is judgment of the board or shareholders as to value of consideration for shares conclusive?
    Yes, in absence of fraud in the transaction.
  204. May expenses for formation, reorganization, and sale of shares be paid out of consideration received for shares?
  205. What is stated capital?
    The sum, in dollars, of (i) consideration received for par value, in aggregate, of par shares (excess consideration over par value goes to surplus); (ii) consideration received, in aggregate, for no par shares (except the board may allocate part, but not all, to surplus within 60 days after issue); and (iii) amounts transferred by the board (all of part of surplus may be transferred) to stated capital.
  206. How can the board reduce stated capital?
    • By eliminating amounts previously transferred from surplus;
    • By reducing or eliminating any amount of stated capital represented by issued shares having a par value exceeding the aggregate par value of such shares;
    • By reducing the amount of stated capital represented by issued shares without par value; or
    • By applying to an otherwise authorized purchase, redemption, conversion or exchange of outstanding shares some or all of the stated capital represented by the shares being purchased, redeemed, etc.
  207. When can share certificates be issued?
    After (i) the consideration that will be allocated to stated capital has been paid in the form of cash, property, or services rendered; and (ii) the consideration for the balance (i.e., sums not going to stated capital), if any, ahs been provided.

    NOTE: Even though shares issued in exchange for future obligations may be fully paid and nonassessable, the corporation may place such shares into escrow until the obligation has been performed, or make other arrangements to restrict their transfer.
  208. How must share certificates be signed?
    By two officers are follows: (i) either chairman (or vice chairman) of board, or president or a vice president; and (ii) either secretary or an assistant secretary or treasurer or an assistant treasurer.
  209. Will purchasers without knowledge be bound by an irrevocable proxy or any transfer restrictions?
    Only if the share certificates conspicuously note the existence of these restrictions.
  210. Can the corporation issue fractional shares giving the holder fractional voting, dividend, and liquidation rights?
    Yes, but it is not obligated to.
  211. Can the corporation issue scrip exchangeable into full shares but not carrying any rights as a shareholder until exchanged?
    Yes. In the alternative, the corporation may pay fair value of fractions in cash.
  212. What is the sole obligation of a shareholder or subscriber?
    To pay any unpaid portion of his subscription.
  213. Does a transfer of shares or assignment of subscription reliev the transferor/assignor of liability as a shareholder or subscriber?
    No, unless, at the time, the corporation's property has sufficient fair value to pay its debts and inability to pay debts is not imminent.
  214. Is the assignee of a subscription or transferee of shares in good faith and without knowledge of notice that full consideration has not been paid personally liable for any unpaid portion?
  215. Are fiduciares personally liable as shareholders?
    No, but the estate or funds held by them are subject to liability.
  216. Are persons holding shares as collateral liable?
    No. The pledgor of shares remains liable.
  217. For what are the 10 largest shareholders of a corporation whose shares are neither listed on an exchange nor regularly traded over-the-counter personally liable, jointly and severally (subject to contribution)?
    For all debts for services, wages, and the like owed by the corporation to its employees.
  218. For which corporations do the current shareholders having either undivided dividend rights after payment or preferences, or voting rights, have a preemptive right to purchase a sufficient number of shares to maintain their proportionate ownership interest in the corporation, whenever a corporation issues new shares of stock for cash?
    Those corporations formed prior to February 22, 1998, unless the certificate denies preemptive rights.
  219. Are there preemptive rights for shareholders of corporations formed on or after February 22, 1998?
  220. What is the number of securities each shareholder is entitled to purchase under preemptive rights?
    Such as would preserve her relative unlimited dividend rights and voting rights. The price may not be less favorable than the proposed issue price ot others.
  221. When are preemptive rights not applicable, absent express provision in the certificate granting them?
    • Treasury shares;
    • Shares offered for consideration other than cash;
    • Shares subject to certain options;
    • Shares authorized in the original certificate and sold or optioned within two years of filing; or
    • Reorganization shares under an act of Congress.
  222. After expiration of the time allotted for acting on preemptive rights, may the corporation sell the shares to anyone else not having preemptive rights?
    Yes, at a price not less than that offered to the preemptive rights holder. If the stock is not sold within one year, the preemptive rights reattach.
  223. Can a corporation issue bonds at par or otherwise for money, property (tangible or intangible), or services actually rendered, or for promises to pay or perform services in the future?
  224. How are corporate bondholders' rights governed?
    By contractual terms of the instrument under which the bonds are issued.
  225. Can a corporation issue shares or bonds convertible or exchangeable into shares of any other class or series, or into cash, other property, indebtedness, or other securities of the corporation or another corporation?
    Yes, unless the certificate provides otherwise.
  226. When can shares or bonds be made convertible or exchangeable?
    At the option of the holder, the corporation, or another person or upon the happening of a specified event. When shares or bonds have been converted or exchanged, they are canceled.
  227. Can the board of directors declare dividends?
    Yes, payable in cash or int he corporation's bonds, property (including stocks or bonds of other corporations).
  228. Who has discretion when and to what extent dividends will be declared?
  229. Once dividends are lawfully declared, what status do shareholders take?
    The status of creditors.
  230. To what are holders of preferred shares entitled?
    To have stipulated dividends declared on their shares before any dividends are declared on junior (usually common) shares.
  231. Must the corporation pay up preferred arrerages before declaring dividends on common shares?
  232. Can accumulated undeclared dividends be eliminated?
    Yes, by amendment to the certificate.
  233. Can the board fix in advance a record date to determine shareholders entitled to receive a dividend?
    Yes, but it must be not more than 60 days before date of payment.

    If no record date is fixed, then the close of business on date or the board's resolution to pay the dividend will be the record date.
  234. Can dividends be paid if the corporation is insolventb or payment would make it insolvent (i.e., unable to pay debts as they become due in usual course of debtor's business)?
  235. Can a dividend be paid if it is contrary to any restriction in the certificate?
  236. Can cash or property dividends be paid?
    Only out of surplus (i.e., total assets minus total liabilities and stated capital).

    After a dividend, net assets must at least equal stated capital. Stated capital, plus surplus, plus total liabilities equals total assets.
  237. What is the equation for total assets?
    Stated capital + surplus + total liabilties = total assets.
  238. What are stock dividends?
    Dividends in the corporation's own authorized but unissued shares or treasury shares.
  239. How much must the corporation transfer to stated capital from surplus for distribution of newly issued shares?
    An amount equal to (i) the aggregate par value of the newly issued par value shares; or (ii) the aggregate amount of stated capital represented by the newly issued no par shares, as fixed by the board.
  240. Are transfers to stated capital required in cases of distribution of treasury shares?
  241. What happens in a stock split?
    Authorized and issued shares are divided into a greater number of shares of the same class.
  242. What happens in a combination?
    Authorized and issued shares are combined into a lesser number of shares of the same class.
  243. Is a transfer from surplus to stated capital required for a split up or combination of shares?
    Not if the split or combination does not increase the aggregate stated capital represented by the shares.
  244. If a corporation's own bonds are distributed to shareholders, what must the corporation transfer to liabities from surplus?
    An amount equal to the principal amount of the bonds, plus any accrued interest on the bonds.
  245. Does a New York corporation have the power to repurchase its own shares?
    Yes, subject to any restrictions in certificate and BCL restrictions noted below.
  246. When can a corporation not repurchase or redeem shares?
    If it is insolvent or if repurchase or redemption would cause insolvency.

    A corporation may repurchase its own stock only out of surplus.
  247. When must reacquired shares be cancelled?
    If (i) purchased, redeemed, or otherwise reacquired out of stated capital; (ii) converted into other shares; or (iii) the certificate requires such cancellation.
  248. Can reacquired shares not required to be canceled by retained as "treasury shares"?
    Yes, until resold or subsequently canceled by the board.
  249. Are treasury shares considered "assets" of the corporation?
  250. How are treasury shares treated?
    As "issued" but not "outstanding" shares.
  251. Do proceeds from resale of treasury shares increase surplus?
    Yes, but not stated capital.
  252. Do proceeds from resale of treasury shares increase stated capital?
    No. They increase surplus.
  253. Is an agreement by a corporation to repurchase its own shares enforceable by the corporation and by the shareholders?
    Yes, as long as repurchase is permissible under insolvency or surplus requirements of the BCL.
  254. Does New York law forbid unreasonable restraints on alienation of shares?
  255. Are reasonable share transfer restrictions valid?
  256. Are restrictions requiring the seller shareholder to first offer his shares to the corporation or other shareholders valid?
    Yes, if otherwise reasonable.
  257. When are restraints on alienation of shares unenforceable?
    Where the selling shareholder before sale is required to obtain consent of other shareholders or the corporation, and where consent may be withheld for any reason or no reason at all.

    EXCEPTION: Shares in professional service corporations and tenant-shareholders of cooperative apartment corporations are subject to consent-type restrictions.
  258. Does the price at which the selling shareholder must sell under a first option restriction have to be reasonable?
  259. Where can share transfer restrictions be contained?
    In the certificate of incorporation, the bylaws, or a separate agreement.
  260. Are issuer-imposed restrictions enforceable against persons not having actual knowledge of them?
    No, unless conspiciously noted on the share certificates.
  261. Who can enforce an agreement by a corporation to purchase its own sharees?
    The corporaiton or the shareholder.
  262. Should an agreement by a shareholder to purchase shares of another shareholder be enforced as an ordinary contract?
  263. What are the two (2) basic steps to effectuation of fundamental corporate changes?
    Such change must be authorized (by board, shareholders, or board and shareholders) and filed by the department of state.
  264. Can a corporation amend its certificate?
    Yes, but it may insert only provisions that would be lawful in an original certificate at the time of the amendment.
  265. Which amendments to the certificate can be made by the board without shareholder consent?
    Changes relating to office location, address for process and registered agent, establishing series of a class of preferred shares, increasing authorized shares to satisfy rights under options and convertibles, removing reacquired shares, and removing restrictions on director management authority that have become invalid.
  266. Which amendments to the certificate require authorization by the vote of the majority of the shares entitled to vote?
    • Changes in supermajority voting for shareholders (must be authorized by minimum of two-thirds of votes of shares entitled to vote);
    • Changes in supermajority voting for directors in corporations in existence on February 22, 1998 (must be authorized by minimum of two-thirds of shares entitled to vote);
    • Restrictions of directors' management authority (must be authorized by all shareholders (voting or nonvoting) or all incorporators);
    • Amendment that adds, changes, or strikes out a provision for dissolution by less than two-thirds votes of shares must be authorized by all shareholders (voting or nonvoting) or a majority of shareholders if certificate so provides;
    • Amendment adversely affecting any class or series requires, in addition to other required votes, a majority of the votes of the outstanding shares of the affected class, whether or not voting shares (and certificate may not restrict the class voting right).
  267. What is the procedure for a certificate of amendment?
    A certificate of amendment is signed, verified, and delivered to the department of state for filing and is effective when the certificate is filed by the department of state.
  268. Are adversely affected shareholders who dissent from an amendment eitlted to receive payment of fair value of their shares (i.e., appraisal rights)?
    If the amendment (i) alters or abolishes an existing preferential right (e.g., changing shares into shares of another class); (ii) makes changes concerning redemption of their shares; (iii) alters or abolishes a preemptive right of the hodlers; or (iv) limits or excludes voting rights.
  269. What must shareholders do to enforce appraisal rights?
    Give written objection to the corporation before a vote is taken (unless action is by written consent), and written election to exercise their appraisal rights after being notified by corporation that action has been taken.
  270. Can a domestic New York corporation merge or consolidate with one or more domestic or foreign corporations?
  271. What are the requirements for a merger or consolidation?
    • Board approval;
    • Shareholder approval; and
    • Filing with the department of state.
  272. What shareholder vote is required to approve a merger or consolidation?
    For corporations in existence on February 22, 1998, two-thirds of all outstanding voting shares.

    For corporations former after that date, a majority of all outstanding shares entitled to vote.

    NOTE: Nonvoting shares may vote when the terms of merger or amendment substantially affect their interest.
  273. When is the certificate of merger or consolidation effective?
    When signed, verified, and delivered to the department of state. It is effective upon filing by the department of state.

    NOTE: For a foreign constitutent corporation, there must be compliacne with the laws of its home jurisdiction.
  274. What is the legal effect of a merger or consolidation?
    The surviving or consolidated corporation has all rights, powers, immunities, properties, liabilities, and penalties of constituent corporations.
  275. What is a "short-form" merger?
    Where a parent corporation owns 90% of the outstanding shares of each class of the subsidiary, the subsidiary may be merged into parent without authorization of shareholders of either corporation.
  276. Is a shareholder of a New York corporation entitled to vote who does not assent to merger or consolidation entitled to payment of fair value of his shares?
    Yes, except (i) in short-form merger, shareholders of the surviving corporaiton; (ii) in regular merger, shareholders of surviving corporation unless merger affects amendments to certificate that would entitle shareholder to appraisal rights; and (iii) any holder of shares listed on a national securities exchange or NASDAQ.

    NOTE: For public companies, there are no appraisal rights in the event of a merger or consolidation.

    NOTE: Shareholders of the subsidiary in a short-form merger have appraisal rights if they file a notice of intent to dissent, and shareholders not entitled to vote with respect to a plan of merger or consolidation have appraisal rights if their shares will be canceled or exchanged for consideration other than shares of the surviving or consolidated corporation or another corporation.
  277. Can a corporation engage in any business combination with an interested shareholder within five (5) years of his acquisition of the corporation's stock?
    No, unless approved by the board of directors or majority vote of disinterested shareholders.

    Corporations may opt out of this prohibition. Where such combination is permitted, it must meet certain price, consideration, and stock conditions.
  278. What is a share exchange?
    One corporation acquires all outstanding shares of one or more classes of the subject corporation's stock.
  279. What is the procedure for a share exchange?
    • Boards of the acquiring and subject corporation adopt a plan of exchange;
    • For corporations in existence on February 22, 1998, the plan is approved by a two-thirds vote of the shares of the subject corporation entitled to vote (by a majority of the votes of all outstanding shares entitled to vote for corporations formed after that date); and
    • Unless abandoned, each corporation signs and verifies the plan and delivers it to the department of state.
  280. When is a share exchange effective?
    Upon filing of the plan of exchange by the department of state.
  281. Can a foreign corporation exchange in a share exchange?
    Yes, but only if the laws of the state of its incorporaiton permit it.
  282. Is shareholder entitled to vote who does not assent to a share exchange entitled to payment of the fair value of his shares?
    Yes, if his shares are to be acquired in the exchange.
  283. Does any sale, lease, exchange or other disposition of all or substantially all of the corporation's assets, other than in usual or regular course of business actually conducted by the corporation, require shareholder approval?
  284. What is the procedure for the sale or disposition of corporate assets?
    The board authorizes the proposed sale and directs its submission to the shareholders.

    For corporations in existence on February 22, 1998, the sale of assets must be approved by two-thirds of the vote of all outstanding voting shares. For corporations formed after that date, the sale must be approved by a majority of the votes of all outstanding shares entitled to vote. This fundamental change does not, in itself, carry any filing requirement. A shareholder entitled to vote who does not assent to a sale or other disposition of assets that requires sharehold vote is entitled to payment of the fair value of her shares, except in transactions wholly for cash where shareholder approval is conditioned on dissolution and asset distribution within one year.
  285. Is a corporation acquiring the assets of another liable for torts of its predecessor?
    No, unless (i) it expressly or impliedly assumed such liability, (ii) there was a consolidaiton or merger of seller and purchaser, (iii) the purchasing corporation was a mere continuation of the selling corporation, or (iv) the transaction is entered into fraudulently to escape such obligations.
  286. Is there a requirement of any authorization or approval by the board for a nonjudicial (voluntary) dissolution?
    No. For corporations in existence on February 22, 1998, dissolution must be approved by two-thirds of the vote of all outstanding voting shares. For corporations formed after that date, dissolution requires the approval of a majority of the votes of all outstanding shares entitled to vote.
  287. What are the procedural requirements of a nonjudicial (voluntary) dissolution?
    A certificate of dissolution must be signed, verified, and delivered for filing by department of state. Consent of the state tax commission is required. The corporation is dissolved upon filing of a certificate of dissolution.
  288. Who can bring an action for dissolution of a corporation?
    • The attorney general (based on formation through fraud, abuse of powers, ultra vires actions, illegal or fraudulent course of business, or violation of law calling for charter forfeiture); or
    • A majority of the board or a majority of the votes of all outstanding shares entitled to vote (stating that the corporation has insufficient assets to discharge its liabilities, or that dissolution will be beneficial to shareholders.
  289. Who can bring an action for dissolution if directors are too divided to manage, shareholders are too divided to elect directors, or if the magnitude of internal dissention makes dissolution beneficial to shareholders?
    Holders of one-half of the votes of all voting shares.

    Holders of more than one-third of the votes of all voting shares may bring an action if the certificate of incorporation calls for supermajority votes.
  290. Who cam bring an action for judicial dissolution if divisions among the shareholders prevented election of directors for a period encompassing two annual meeting dates?
    Any voting sharheolder.
  291. When can holders of 20% of the voting shares bring an action for dissolution?
    • The directors or those in control of the corporation have been guilty of illegal, fraudulent, or oppressive actions toward the complaining shareholders; or
    • Assets of the corporation are being looted, wasted, or diverted by directors, officers, or those in control.

    The court must consider whether liquidation is: (i) the only feasible way to achieve a fair return on the petitioners' investment; and (ii) reasonably necessary to protect the petitioners or any substantial number of shareholders.
  292. What is the effect of dissolution?
    The corporation must wind up its affairs and carry on no business except winding up, and must distribute its assets to sharheolders according to their respective rights.

    Claims of creditors are barred if not timely filed unless litigation is pending or the court allows the tardy claim.
  293. What is the basic distinction between shareholder voting on regular issues and shareholder voting on fundamental changes?
    Regular issues can be approved by a majority of the shares voted at a meeting, as long as there is a quorum.

    A fundamental corporate change generally must be approved by two-thirds of all outstanding shares entitled to vote--not just those represented at a meeting.
  294. Does New York allow professionals to incorporate their practice in order to take advantage of certain federal tax laws and to limit their personal liability?
    Yes, but professionals cannot incorporate tehir practice to limit their personal liability for malpractice.
  295. Who can form a professional services corporation by filing a certificate of incorporation with the state?
    One or more individuals licensed to practice the same profession.
  296. What are the requirements of a certificate of incorporation for a professional services corporation?
    • State the profession to be practiced by the corporation;
    • State the names and addresses of the individuals who will be directors, officers, and shareholders (all must be licensed in the profession);
    • Include copies of the license certificates of the professionals; and
    • Comply with the requirements of the BCL generally.
  297. Who supervises professional service corporations?
    The regents of the University of New York.
  298. Can a professional corporation be formed to engage in more than one profession?
  299. What are the requirements for the professional service corporation name?
    The name may contain any word that would be allowed in the name of a partnership formed to practice the profession for which the corporation is formed and cannot include a word that such a partnership could not include.
  300. Who can be shareholders, directors, or officers of a professional services corporation?
    Only persons who are licensed to practice the profession for which their professional corporation was formed.
  301. Are the shareholders, directors, and officers of a professional services corporation personally liable for the obligations of the corporation?
    Generally, no. However, each shareholder, employee, or agent of a professional corporation is personally and fully liable for any negligent or wrongful act or misconduct committed by him or by any person under his direct supervision and control while rendering professional services for the corporation.
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