Corp: What nec’y in articles?
- name
- number of authroized shares
- address of incorporator and registered agent
Corp: When does corp existence begin?
- When articles filed
- Promoters generally liable for pre-incorporation acts
- Liability continues even after formation (unless novation, and corp does not become liable unless it adopts the liability
Corp: What if there are defects with formation?
- Person who acted for corp knowing it hadn’t been validly formed is perosnally liable
- No liability if (i) colorable compliance with incorporation statute and (ii) exercise of corp privileges
- some states will recognize corp by estoppel, but others won’t
Corp: will court disregard corporate entity (piercing the veil)? What is liability?
- Alter ego - grounds where third party is harmed b/c:
- -owners do not treat corp as separate entity
- -commingle personal and corp funds
- -use corp assets for personal purposes
- -owners do not fulfill corp formalities (e.g., meetings)
- Inadequate Capitalization at formation
- Perpetrating a fraud with corp
- Liability only to active shareholders and only for TORTS
Corp: What consideration is permissible to buy shares?
- Historically only cash, property, or services already performed
- NOw can be any benefit to the corp
Corp: How is consideration for shares established?
By the directors using their good faith valuation of the consideration received
Corp: Can CHCs dispense with board formalities?
yes, shareholders of a CHC are permitted to dispense with board formalities and operate the business through a different scheme.
Corp: what can record holders as of record date vote on?
- elect directors
- fundamental changes to the corp
Corp: what info does corp need to provide in notice of general meetings, and special meetings? What if invalid notice?
General: date, time, location
Special: date, time, location, purpose
-Invalid notice = shareholders can nullify actions taken at mtg
Corp: how long are proxies valid for?
- 11 months, or until revoked (including by attendant or later appointment)
- Generally revocable unless they specify otherwise and are coupled with an interest
Corp: what does federal law require of proxy solicitation?
- fully and fairly disclose all material facts
- prohibit material misstatements and fraud in connection with a proxy
- Materiality = what a reasonable shareholder would consider important in deciding how to vote
Corp: what is quorum?
majority of outstanding shares entitled to vote
Corp: what is cumulative voting?
- Revised Model Business Corporations Act permits cumulative voting
- it is where you can vote all of your shares for any one director (or spread them across directors)
Corp: what is a voting trust?
- Shareholder transfers share ownership to a trustee who votes the shares as agreed
- Valid in most states for up to ten years, but also renewable
Corp: are share transfer restrictions permissible?
Yes, as long as they are reasonable
Corp: what are the two types of shareholder inspection rights?
Limited: books, papers, accounting records - must have proper purpose and give five days notice
Unqualified: articles, bylaws, minutes, directors, recent annual reports
Corp: what is required for preemptive rights? do such rights apply to all shares?
- Must be affirmatively provided for in the corp documentation
- Does not apply to shares issued (1) as comp, (2) within 6 months of incorporation, (3) for consideration other than money, (4) nonvoting shares with a distribution preference
Corp: what are the two types of shareholder suits?
Direct: to enforce a S/H’s rights - recovery goes to S/H
Derivative: to enforce right of the CORP ITSELF - recovery goes to corp. Plaintiff must be:
–owned shares at time of wrong
–maintain ownership throughout suit
–demand board to bring suit (unless futile)
Corp: what are limits on corp distributions?
- Insolvency. can’t distribute if corp unable to pay debts as they become due OR total assets are less than total liabs
- Distribution prefs (cumulative, cumulative if earned, liquidating)
- Director who votes for unlawful distribution is personally liable for excess. But Dir may seek contribution fro other Dirs or recover from S/Hs who took disty knowing it was wrong
Corp: what’s the usual duty owed by a shareholder? what’s the main exception?
- usually none - can act in own self interest
- exception if controlling S/H // can’t use that control to obtain a special advantage over minority S/Hs.
Corp: are there notice requirements for meetings of directors?
- no particular notice required for regular meetings
- special meetings typically require two-days’ notice of date/time/place (NOT purpose)
Corp: are there quorum requirements for director meetings?
Yes, need quorum for a vote. Approval of majority of present directors needed to take action by vote.
Corp: state the business judgment rule
- BJR protects directors against personal liability to the corporation/shareholders. Requirements
- Acted in good faith
- With the care that an ordinarily prudent person would have taken in a like position
- in a manner reasonably believed to be in the best interests of the corp
Corp: may articles limit personally liability of directors beyond even the BJR?
Yes, but not for circumstances where (i) director obtained an improper benefit, (ii) unlawful distributions, or (iii) intentional infliction of harms to the corp or criminal violations of law
