Corporations

Question 1

Promoter liablity exceptions

Answer 1

1. 3rd party knows the C doesn’t exist but promises to look to C only for liability
2. Novation w/ 3rd party

Question 2

Corporate liability for pre-incorporation agmts

Answer 2

Not liable, unless:

• Express adoption
• Implied adoption
• w/ full K of K, accepts bennies

Question 3

Lack of good faith effort to incorporate

Answer 3

You are a promoter and personalyl liable

Question 4

De Facto Corp.

Answer 4

1. Good faith effort
2. Operate as if it were a corp
3. Not know that incorp reqs failed

Question 5

Piercing the corporate veil

Answer 5

“Necessary to prevent fraud, illegality, or acheive equity”

• Excessive domination
• Personal vs corporate gain
• illegal biz or fraud
• No corporate formalities
• Inadequate capitalization

Question 6

Amending the certificate of incorp

Answer 6

Majority of SHs

Question 7

Amending by-laws

Answer 7

• SHs via majority vote
• BOD if in articles of incorp

Question 8

SHs entitled to vote on . . .

Answer 8

• directors
• Amendments to articles of incorp
• sale of all or substantially all of assets
• Mergers and consolidations
• Dissolution

Question 9

Adversely affect a class?

Answer 9

They get to vote as a class

Question 10

Revoking a proxy vote

Answer 10

• request in writing
• turning in another proxy
• attending mtg in person
• Death/Incompetence only if written notice received before proxy vote

Question 11

Irrevocable proxy

Answer 11

1. State so
2. Given to someone w/ a coupled interest

Question 12

Inspection of records

Answer 12

• During normal biz hours
• 5 days written notice
• proper purpose

NY limits records to:

• MInutes of SH mtgs
• List of SHs of record

Question 13

Demand upon bd

Answer 13

Not required if:

• Futile
• self interest or otherwise harming the corp

Question 14

Removing a director

Answer 14

• For cause by SH
• self- dealing
• waste
• usurping corp opps
• W/o cause by SH
• if allowed in articles or SH approved by-law
• Directors for cause
• if allowed in SH by laws

Question 15

Fidiciary Duties

Answer 15

1. DUty of care
2. Duty of loyalty

• self-dealing
• usurpation
• entrenchment

Question 16

NY Interested director cleansing statute

Answer 16

1. Conflict disclosed and approved (via normal process) by bd w/o counting interested Ds
2. Conflict disclosed and disinterested Ds approved unanimously
3. Conflict disclosed to SHs, and they approve by majority

Question 17

Saving an interested Director deal

Answer 17

1. NY saving statute
2. Otherwise fair and reasonable
   - look to see if corp received something of comparable value

Question 18

Usupration of corp opp

Answer 18

1. Tangible expectancy test
   - existing interest
   - expectancy
   - actively seeking
2. Line of business test
   - broader
   - w/n current/expected line of business

Question 19

Director indemnification

Answer 19

1. Mandatory
   - successful defense
   - ct ordered
2. Permissive -
   - good faith
   - no reasonable belief that conduct was unlawful
3. Probited -

SH derivative suit

Question 20

Procedure for merger

Answer 20

1. Boards of each corp must approve
2. SHs of each corp must approve
3. certificate of merger delivered to NY Dept of State

Question 21

SH approval for merger/asset sale

Answer 21

• Before 2/22/1998 –> 2/3 of shares
• After 2/22/98 –> majority

Question 22

Short form merger

Answer 22

If parent owns 90% or more –> merger w/o approval of subsidiary

Question 23

When a buyer becomes liable for seller corp’s liabilities

Answer 23

Four situations:

• Expressly assumes
• when asset sale = de facto merger
• mere continuation
• designed to defraud seller’s creditors

Question 24

Dissenting SH right of appraisal

Answer 24

Three situations:

• Dissent in merger/consolidation
• Sale of all or sub all of assets
• Amendment to article where such amend materially and adversely affects SH

Question 25

Voluntary Corporate Termination

Answer 25

* SH authorization - Corp formed B4 2/22/98 --\> 2/3 SJ vote - formed after 2/22/98 --\> majority of SH * Occurence of event w/n articles

Question 26

Involuntary Corporate Dissolution

Answer 26

* State * SHs * Directors

Question 27

Involuntary corp termination by state

Answer 27

* formation was based on fraud * engages in illegal or fraudulent business * abuse of corp power * fails to pay fees/taxes

Question 28

SH involuntary termination of corporation

Answer 28

* Insufficient assets * Beneficial action * Deadlock * Requires at least 50% * Oppressive conduct * closely-held corp * minority SH owns at least 20% * "substantially defeats the reasonable expectations of the minority SH * Controlling SHs may "buy out" minority at reasonable price

Question 29

Director involuntary termination of corp

Answer 29

* Insufficient assets * Beneficial action

Question 30

Types of stock

Answer 30

1. Common 2. Preferred (only if articles authorize)

Question 31

Preferred stock liquadation preference

Answer 31

valid only after all creditors of corp (employee wages have priority over outside creditors)

Question 32

SH preemptive rights

Answer 32

Before 2/22/98 --\> yes After --\> No

Question 33

Distribution of dividends

Answer 33

At discretion of board of directors, unless: - abuse of discretion - bad faith

Question 34

NY Legal Capital Rule

Answer 34

Before distribution of dividends: 1. Insolvency determination (unable to pay debts) 2. Surplus/Net Profits determination * Surplus? max distribution is that surplus * Zero/negative? max distribution is net profits of that year or previous year

Question 35

Close Corps

Answer 35

1. Not traded publicly 2. Directors = Officers usually 3. Alienation of shares restricted 4. 10 largest SHs = personally liable for all debts/wages owed to emps but not ICs

Question 36

Futile

Answer 36

1. when the board is comprised of a majority of interested directors, 2. controlled by an interested director, or 3. the terms of the deal are so egregious that the Board must not have made a valid inquiry into the deal in the first place.