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Corporations

Barbri Review

QuestionAnswer
Organization Of A Corporation- What does it take to form a corporation?; People: Incorporators Must have one or more; Executes articles and deliver them to secretary of state; Can be person or entity
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation Articles are a K b/w corporation and shareholders; And, K b/w corporation and state
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Names and address Corporate name: Corp, co, incor, limited, Each incorporator, Initial director, Name registered agent (legal representative to be served)/address registered office
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Duration Presume perpetual existence if nothing is said about duration; It can last forever
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Purpose Generally, must have statement of purpose; Some states presumed and articles need not say anything
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Capital structure (stock), definitions Authorized stock: Maximum number of shares corporation can sell; Issue stock: Number of shares the corporation actually sells; Oustanding stock: Shares that have been issued and not reacquired
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Purpose, Ultra vires K Common law: ultra vires K (beyond scope of articles) voided beyond company's capacity Today: ultra vires K are valid, shareholders can seek injunction, responsible managers are liable to corporation for ultra vires loss
Organization Of A Corporation- What does it take to form a corporation?; Paper: Articles of incorporation, Information in articles- Capital structure (stock), Articles must include 1. Authorized stock, 2. Number of shares per class, and 3. Information on voting rights and preference of each class
Organization Of A Corporation- What does it take to form a corporation?; Act Incorporators have notarized articles delivered to Secretary of State and pay required fees; Once accepted then conclusive proof of valid formation
Organization Of A Corporation- What does it take to form a corporation?; Act: De jure corporation Legal corporation after AoC filed by Secretary of State
Organization Of A Corporation- What does it take to form a corporation?; Act: Organizational meeting After legal corporation created, Board of directors holds organizational meeting, where it selects officers and adopts any bylaws and conduct other appropriate business
Organization Of A Corporation- Legal significance of formation of corporation; Internal affairs of a corporation Roles/duties of directors, officers, shareholders; Governed by law of state in which corporation is formed
Organization Of A Corporation- Legal significance of formation of corporation; Corporation is separate legal person It can sue, be sued, hold property, be partner in partnership, make charitable contributions, etc.
Organization Of A Corporation- Legal significance of formation of corporation; Corporation is separate legal person: Double taxation Taxed on its profits, taxpayers are taxed on distributions
Organization Of A Corporation- Legal significance of formation of corporation; Corporation is separate legal person: S corporation Form corporation and avoid paying income tax at corporate level; No more than 100 shareholders, all of whom are human and U.S. citizens/residents; One class of stock and not publicly traded
Organization Of A Corporation- Legal significance of formation of corporation; Liability: Directors or officers NOT liable for what entity does
Organization Of A Corporation- Legal significance of formation of corporation; Liability: Shareholders (owners) NOT liable for what entity does
Organization Of A Corporation- Legal significance of formation of corporation; Limited liability Shareholders generally are liable only for price of their stock
Organization Of A Corporation- Legal significance of formation of corporation; Liability: Who is liable? The corporation itself
Organization Of A Corporation- De facto corporation and corporation by estoppel Proprietors failed to form de jure corporation, so will be personally liable for what business does; Business treated as corporation, so shareholders not liable for what business didi; Anyone asserting either doctrine must be unaware of failure to form
Organization Of A Corporation- De facto corporation and corporation by estoppel; De facto corporation: Requirements 1. There is relevant incorporation statute, 2. Parites made a goof faith, colorable attempt to comply with it, and 3. Some exercise corporate privileges (acting like have corporation)
Organization Of A Corporation- De facto corporation and corporation by estoppel; De facto corporation: Doctrine applies Business treated as corporation for all purposes, except in an action by state (quo warranto)
Organization Of A Corporation- De facto corporation and corporation by estoppel; Corporation by estoppel One who treats business as a corporation may be estopped from denying that it is a corporation
Organization Of A Corporation- De facto corporation and corporation by estoppel; Corporation by estoppel: Individual thinks corporation If think corporation and treat as corporation, they think its corporation, so if not corporation you will lose if you sue b/c estopped to deny business was corporation
Organization Of A Corporation- De facto corporation and corporation by estoppel; Corporation by estoppel: Improperly formed corporation Prevent improperly formed corporation from avoiding liability by saying it was not properly formed
Organization Of A Corporation- De facto corporation and corporation by estoppel; Corporation by estoppel: Cases Applies only is K not tort cases
Organization Of A Corporation- De facto corporation and corporation by estoppel; Status Abolished in many states
Organization Of A Corporation- Bylaws Corporations are not required to have bylaws, but usually do for internal governance; NOT filed with state
Organization Of A Corporation- Bylaws; Adopting Board at organizational meeting
Organization Of A Corporation- Bylaws; Amending or repealing Shareholders; In some states, Board also can
Organization Of A Corporation- Bylaws; Conflicting with articles Bylaws internal so articles since it are K with state
Organization Of A Corporation- Pre-incoproation Ks; Promoter Person acting on behalf of corporation not yet formed; Might enter K on behalf of corporation-not-yet-formed
Organization Of A Corporation- Pre-incoproation Ks; Liability of corporation Corporation is not liable on pre-incorporaiton Ks until it adopts K
Organization Of A Corporation- Pre-incoproation Ks; Liability of corporation: Express Board takes an action adopting K
Organization Of A Corporation- Pre-incoproation Ks; Liability of corporation: Implied If corporation accepts benefit of K
Organization Of A Corporation- Pre-incoproation Ks; Liability of promoter Unless K clearly provides otherwise, the promoter is liable on pre-incorporation Ks until there is novation
Organization Of A Corporation- Pre-incoproation Ks; Liability of promoter: Novation Agreement of promoter, the corporation, and other contracting party that corporation replaces promoter under K
Organization Of A Corporation- Pre-incoproation Ks; Liability of promoter: Adoption Makes corporation liable too, but does not relieve promoter, so both liable
Organization Of A Corporation- Foreign corporations Foreign corporations transacting business in this state must qualify and pay prescribed fees
Organization Of A Corporation- Foreign corporations; Incorporated outside state = Foreign
Organization Of A Corporation- Foreign corporations; Transacting business Regular course of intrastate (not interstate) business activity; So, doesn't include occasional or sporadic activity in this state, and not simply owning property here
Organization Of A Corporation- Foreign corporations; Qualifies By getting certificate of authority from the Secretary of State; Gives info from its articles and proves good standing in home state; Must have registered agent in state and pay fees too
Organization Of A Corporation- Foreign corporations; Without qualifying 1. Civil fine, and 2. Cannot sue in this state (but can be sued and defend)
Organization Of A Corporation- Foreign corporations; Qualifies + pays back fees and fines Then can assert a claim
Issuance of Stock- What is an issuance? Corporation sells its own stock
Issuance of Stock- What is an issuance?; Raise capital Way for corporation to raise capital
Issuance of Stock- What is an issuance?; Apply Only when there is an issuance; So apply only when corporation is selling its own stock
Issuance of Stock- Subscriptions; Written offers to buy stock from corporation
Issuance of Stock- Subscriptions; Revocation of pre-incorporated Irrevocable for six months, unless it says otherwise or all subscribers agree to let you revoke
Issuance of Stock- Subscriptions; Post-incorporation subscriptions Revocable until acceptance
Issuance of Stock- Subscriptions; Corporation and subscriber obligated under subscription agreement When Board accepts the offer
Issuance of Stock- Consideration What must the corporation receive when it issues stock
Issuance of Stock- Consideration; Form of consideration: Permitted Every state agrees these are permitted- 1. Money (cash/check), 2. Tangible or intangible property, 3. Services already performed for corporation; Always good
Issuance of Stock- Consideration; Form of consideration: Split authority Some states okay, and others prohibited so using results in unpaid stock- 1. Promissory notes, 2. Future services
Issuance of Stock- Consideration; Amount of consideration: Par "Minimum issuance price"
Issuance of Stock- Consideration; Amount of consideration: No par "No minimum issuance price"; Board of directors set price
Issuance of Stock- Consideration; Amount of consideration: Treasury stock Stock company issues and then reacquired; Authority but unissued, and corporation then can resell, If does, board sets an issuance price it wants
Issuance of Stock- Consideration; Amount of consideration: Conclusive valuation Value decided by board; If made in good faith then conclusive
Issuance of Stock- Consideration; Amount of consideration: On bar- Par stock Watch for watered stock
Issuance of Stock- Pre-emptive rights Right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is new issuance of stock FOR MONEY (cash or equivalent)
Issuance of Stock- Pre-emptive rights; New issuance Include treasure stock- Split authority: Some states yes, others no
Issuance of Stock- Pre-emptive rights; Articles are silent No pre-emptive rights in most states
Directors and officers- Statutory requirements; Directors Adult natural person
Directors and officers- Statutory requirements; Directors: Number One or more
Directors and officers- Statutory requirements; Directors: Election Initial directors usually named in articles; Elected by shareholders at annual meeting; Entire board elected each year unless "staggered" board (usu set in boards)
Directors and officers- Statutory requirements; Directors: Shareholders Can removed directors before their terms expire; Vote majority of shares entitled to vote; Basis: With or without cause
Directors and officers- Statutory requirements; Directors: Board vacancy Director resigns before term is up; Shareholders elects director for rest of term; If remove director, must select replacement
Directors and officers- Statutory requirements; Directors: Board can act 1. Unanimous agreement in writing, or 2. At meeting (which has satisfy quorum and voting requirements)- a. Individual conversation- void unless ratified by valid act, b. Conference all- valid
Directors and officers- Statutory requirements; Directors: Board can act, Notice Method of giving notice usually set in bylaws- 1. Regular meeting- no notice, 2. Special meeting- yes notice (time/place)
Directors and officers- Statutory requirements; Directors: Board can act, Failure to give notice Voids whatever happened at meeting, unless directors not notified waive notice defect; Do in writing anytime, or by attending meeting without objecting
Directors and officers- Statutory requirements; Directors: Board can act, Proxies Proxies or enter voting agreements NOT allowed- void
Directors and officers- Statutory requirements; Directors: Board can act, Quorum for meetings of board Must have majority of all directors to do business (unless different percentage is set in bylaws); If quorum present at meeting, passing resolution requires majority vote of those present; If people leave quorum can be lost, then Board cannot take act
Directors and officers- Role of directors Generally, board of directors manages business of corporation; Set policy, supervises officers, declares distributions, determines when stock will be issued, recommends fundamental corporate changes in shareholders, etc.
Directors and officers- Role of directors; Delegation Board can delegate to committee of one or more directors, but committee cannot- 1. Set director compensation, or 2. Declare dividends; But, can recommend to full board for action
Directors and officers- Duty of care Burden on P
Directors and officers- Duty of care; Standard Director owes corporation of duty of care; Must act in good faith and do what prudent person would do with regard to own business
Directors and officers- Duty of care; Standard: Nonfeasance Director does nothing; A prudent person would attend some meetings and do some work, so if not then held liable for breach only if breach caused a loss to the corporation
Directors and officers- Duty of care; Standard: Misfeasance Board does something that hurts corporation, so in these cases causation clear; Actions caused loss to corporation, but not liable if meets business judgment rule
Directors and officers- Duty of care; Standard: Misfeasance, Business judgment rule Ct will not second-guess business decision if it was made in good faith, was informed, and rational basis; Director is not guarantor of success
Directors and officers- Duty of loyalty Burden on D
Directors and officers- Duty of loyalty; Standard Director owed corporation duty of loyalty; Must act in good faith and with reasonable belief that what she does is in the corporation's best interest
Directors and officers- Duty of loyalty; Standard: No business judgment rule Never applies when there is a conflict of interest
Directors and officers- Duty of loyalty; Standard: Interested director transaction Any deal b/w corporation and one of its directors (close relative of director) or another business of director's
Directors and officers- Duty of loyalty; Standard: Interested director transaction, Liability Interested director transaction set aside (or director liable in damages) unless directors shows- 1. Deal fair to corporation when entered, or 2. Interest/relevant fact disclosed/known & deal approved by majority of- a. Directors, b. Disinterested sha
Directors and officers- Duty of loyalty; Standard: Interested director transaction, Special quorum rule In many states, interested directors count toward quorum
Directors and officers- Duty of loyalty; Standard: Interested director transaction, Approved by appropriate group Some cts also require a showing of fairness
Directors and officers- Duty of loyalty; Standard: Interested director transaction, Compensation Directors can set their own compensation ad directors/officers, but it must be reasonable and in good faith; If excessive, its waste of corporate assets, and breach of duty of loyalty
Directors and officers- Duty of loyalty; Standard: Competing ventures Director cannot compete with their corporation
Directors and officers- Duty of loyalty; Standard: Competing ventures, Remedy Constructive trust on profits of new corporation
Directors and officers- Duty of loyalty; Standard: Corporate opportunity (expectancy) Director cannot USURP a corporate opportunity; Director cannot take it until- 1. Tells board about it, and 2. Waits for board to reject opportunity
Directors and officers- Duty of loyalty; Standard: Corporate opportunity (expectancy), Test 1. Something in corporations business line, or 2. Something company has interest or expectancy in, or 2. What director found on company time on time or with company resources
Directors and officers- Duty of loyalty; Standard: Corporate opportunity (expectancy), Defenses Financial inability to pay for opportunity is probably NOT a defense
Directors and officers- Duty of loyalty; Standard: Corporate opportunity (expectancy), Remedy Must sell it to have corporation at cost; If sold at profit, corporation gets it
Directors and officers- Other state law bases of director liability; Ultra vires act Responsible officers and directors liable for ultra vires losses
Directors and officers- Other state law bases of director liability; Improper distributions ...
Directors and officers- Other state law bases of director liability; Improper loans Loan that is not reasonably expected to benefit the corporation
Directors and officers- Other state law bases of director liability; Which directors are liable for all things directors be liable for?: Presumption Director presumed to concur with board action unless dissent or abstention is noted in writing in corporate records
Directors and officers- Other state law bases of director liability; Which directors are liable for all things directors be liable for?: Presumption, In writing 1. In minutes, 2. Delivered in writing to presiding officer at meetings, or 3. Written dissent to corporation immediately after meeting; Oral consent alone NOT effective
Directors and officers- Other state law bases of director liability; Which directors are liable for all things directors be liable for?: Presumption, Exceptions 1. Absent director not liable for stuff done at missed meeting, or 2. Good faith reliance on info (including financial) presented by officer/employee/committee (of which director relying not a member), or professional reasonably believed competent
Directors and officers- Other state law bases of director liability; Improper loans: Sarbanes-Oxley Act (federal law, never seen on bar) Forbids loans to executive in large, publicly-traded corporation; Require board to establish audit committee/oversee work of registered public accounting firm; Chief executive/financial officer certify accuracy/completeness of financial reports
Directors and officers- Officers Owe same duties of care and loyalty as directors
Directors and officers- Officers; Status Office are agents of corporation so bind corporation by acts for which they have authority to bind it; President inherent authority to bind corporation to Ks in ordinary course of business
Directors and officers- Officers; Traditionally President, secretary, treasurer but can have others; One person can hold all offices at once
Directors and officers- Officers; Selection and removal Officers are selected by and removed by board, which also sets officer compensation; Shareholders hire/fire directors, but board hires/fires officers
Directors and officers- Indemnification of directors and officers Someone has been sued by (or on behalf) corporation in capacity as officer or director; Incurred costs, attorney's fees, maybe even fines, judgment or settlement in litigation; Now seek indemnification (reimbursement) from corporation
Directors and officers- Indemnification of directors and officers; No indemnification allowed Corporation barred form indemnifying if held liable to corporation or received an improper personal benefit
Directors and officers- Indemnification of directors and officers; Mandatory Corporation must indemnify person if successful in defending, on merits or otherwise (win's a judgment)
Directors and officers- Indemnification of directors and officers; Permissive Corporation may indemnify
Directors and officers- Indemnification of directors and officers; Permissive: Eligibility standards Must show acted in good faith and with reasonable belief that actions were in company's best interest; Eligibility: Disinterested directors or disinterested shares or independent legal counsel
Directors and officers- Indemnification of directors and officers; Order reimbursement Ct where director/officer was sued can order reimbursement if it justified in view of all circumstances; If she held liable to corporation, this is limited to costs and attorney's fees (cannot include judgment)
Directors and officers- Indemnification of directors and officers; Eliminate director liability Articles can eliminated director liability to corporation for damages, but not for intentional misconduct, usurping corporation opportunities, unlawful distributions, or improper personal benefit
Directors and officers- Indemnification of directors and officers; Eliminate officer liability Exculpatory provisions in articles apply to officers- Some states yes, some states no
Shareholders- Do shareholders get to manage the corporation? Generally NO, since Board manages
Shareholders- Do shareholders get to manage the corporation?; Run directly Shareholders can run corporation directly in close corporation; Characteristics- 1. Few shareholders, 2. Stock not publicly traded
Shareholders- Do shareholders get to manage the corporation?; Eliminate board If corporation's stock is not traded on national exchange, shareholder can eliminate board and run corporation directly
Shareholders- Do shareholders get to manage the corporation?; Eliminate board: How? 1. In articles and approved by all shareholders, or 2. By unanimous written shareholder agreement; Either way, agreement should be conspicuously noted on front and back of stock certificates
Shareholders- Do shareholders get to manage the corporation?; Eliminate board: Duties of care/loyalty If eliminated, duties of care and loyalties to corporation owed by managing shareholders
Shareholders- Do shareholders get to manage the corporation?; Eliminate board: Fiduciary duties Shareholders might owe- not to oppress each other; Especially, controlling shareholders should not oppress minority shareholders (selling control) w/o reasonable investigation of buyer; If oppression, harmed minority shareholder then sue b/c no way out
Shareholders- Do shareholders get to manage the corporation?; Licensing professionals Lawyers, doctors, CPAs; May incorporate as "professional corporation" or "professional association"; Name must have one of phrases- PC or PA; Articles must state that presuppose is to practice in particular profession
Shareholders- Do shareholders get to manage the corporation?; Licensing professionals: Directors/officers/shareholders Usually must be licensed professionals
Shareholders- Do shareholders get to manage the corporation?; Licensing professionals: Malpractice Personally liable for malpractice
Shareholders- Do shareholders get to manage the corporation?; Licensing professionals: Shareholders Not liable for corporate obligations or for other professional's malpractice
Shareholders- Do shareholders get to manage the corporation?; Licensing professionals: PC Generally, governing regular corporations apply to PC
Shareholders- Can shareholders be held liable for acts or debts of corporation? NO b/c corporation is liable for what it does
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability Might be personally liable for what corporation did if court "pierces the corporate veil" (PCV)
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: What kind of corporation- Close corporations ONLY
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: PCV & hold shareholders personally liable 1. They must have abused privilege of incorporating, and 2. Fairness must require holding them liable
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: PCV standard Cts may PCV to avoid fraud or unfairness; Sloppy administration generally not enough
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: Classic fact pattern, Alter ego (identity of interests) Close corporation. X commingles funds. Using corporate credit card for personal purchases. C corp fails to pay bills.
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: Classic fact pattern, Under-capitalization No insurance, but carries and disposes nuclear waste. If truck melts down, can sue corporation?
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: Classic fact pattern Cts may be more willing to PCV for tort victim than for K claimant
Shareholders- Can shareholders be held liable for acts or debts of corporation?; Personal liability: PCV, Shareholders PCV to impose liability on shareholders for what should be corporate debt; Parent corporation forms subsidiary to avoid own obligations since another corporation can be shareholder
Shareholders- Shareholder derivative suits (shareholder as P); Derivative suit Shareholder is suing to enforce corporation's claim, not own personal claim; Case in which corporation is not pursuing its own claim, so shareholder steps in to prosecute it for corporation; Ask: Could corporation have brought this suit?
Shareholders- Shareholder derivative suits (shareholder as P); Shareholder P wins derivative suit Money from judgment goes to corporation; Shareholder P receives costs and attorney fees, usually form judgement won for corporation
Shareholders- Shareholder derivative suits (shareholder as P); Shareholder P loses derivative suit Cannot recover costs and atty fees; S liable to D for D's costs and atty fees, if sued w/o reasonable cause; Claim preclusion for other shareholder later suing same D on same transaction
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Stock ownership When claim arose and throughout suit; Person bringing suit must have owned stock at time claim arose, or got it by operation of law from someone who did have it then (inheritance/divorce decree)
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Adequate representation Corporation's interest
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Written demand Must make on corporation (usu board) that corporation bring suit; In many state must always make demand, and cannot sue until 90 days after; But others, no demand if futile (sitting directors D in suit)
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Corporation must be joined As D; Even though suit asserts corporation's claim, corporation did not do so, so it is joined initially as D
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Settle or dismiss Parties can only with court approval; Ct may give notice to shareholders and get their input on whether to dismiss or settle
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Corporation move to dismiss Upon showing independent investigation showed suit was not in corporation's best interest; Investigation must be made by independent director or ct-appointed panel
Shareholders- Shareholder derivative suits (shareholder as P); Requirements for bringing a shareholder derivative suit: Corporation move to dismiss- Ruling In ruling on motion, ct will look to see if those recommending dismissal are independent, and if so dismiss (some states, ct will also make an independent assessment of whether dismissal is in co. best interest)
Shareholders- Shareholder voters; Who: G/R The record shareholder as of the record date has right to vote
Shareholders- Shareholder voters; Who: Record shareholder Person shown as owner in corporate records
Shareholders- Shareholder voters; Who: Record date Voter eligibility cut-off
Shareholders- Shareholder voters; Exceptions: Corporation re-acquires stock Before record date, so it is owner of treasury stock as record date; Does not vote this stock
Shareholders- Shareholder voters; Exceptions: Death of shareholder Dead people cannot vote
Shareholders- Shareholder voters; Exceptions: Proxies 1. Writing (fax/email), 2. Signed by record shareholder (email identifying sender), 3. Directed to secretary of corporation, 4. Authorizing another to vote shares
Shareholders- Shareholder voters; Exceptions: Proxies, Revoking Allowed
Shareholders- Shareholder voters; Exceptions: Proxies, Irrevocable proxy Proxy coupled with an interest then can still revoke- 1. Proxy says its irrevocable, and 2. Proxy holder has some interest in shares other than voting (ownership)
Shareholders- Shareholder voters; Voting trusts and voting agreements: Requirements for voting trust (10 yr maximum) 1. Written trust, controlling how shares will be voted, 2. Copy to corporation, 3. Transfer legal title to voting trustee, 4. Original shareholders receive trust certificates and retain all shareholder rights except for voting
Shareholders- Shareholder voters; Voting trusts and voting agreements: Requirements for voting (pooling) agreement Shareholders can enter into; Required- 1. In writing, and 2. Signed; Split- specifically enforceable- some states yes, other no
Shareholders- Shareholder voters; Where do shareholder vote? Meeting Usu. action at meeting; They can act by unanimous written consent signed by holder of all voting shares (email ok)
Shareholders- Shareholder voters; Where do shareholder vote? Meeting, Types 1. Annual: Elect directors, if none held in 15 mos a shareholder can petition ct OT order one (required), 2. Special: Called by board or President or holders of at least 10% voting shares or anyone else authorized in bylaws
Shareholders- Shareholder voters; Where do shareholder vote? Notice requirement Must be given notice (fax/email) to every shareholder entitled to vote; Delivery b/w 10-60 days before meeting
Shareholders- Shareholder voters; Where do shareholder vote? Notice requirement, Content Always must state time and place of meeting; Special= must also state purpose b/c cannot do anything else
Shareholders- Shareholder voters; Where do shareholder vote? Notice requirement, Consequences for failure Action taken at meeting is void unless those not sent notice waive notice defect
Shareholders- Shareholder voters; Where do shareholder vote? Notice requirement, Waiver of notice defect 1. Express: in writing and signed anytime, 2. Implied: attending meeting w/o objection
Shareholders- Shareholder voters; How do shareholders vote? Quorum represented at meeting; Determination of quorum focuses on number of shares represented, not number of shareholders
Shareholders- Shareholder voters; How do shareholders vote?: G/R A quorum requires a majority of outstanding shares
Shareholders- Shareholder voters; How do shareholders vote?: Shareholder quorum Is NOT lost if people leave meeting
Shareholders- Shareholder voters; How do shareholders vote?: Binding corporation Unless articles or bylaws requires higher vote; Majority means majority of votes actually cast on proposal, not necessarily majority of all shares present
Shareholders- Shareholder voters; How and when do shareholders use cumulative voting?: When Only available when shareholders elect directors, it is a device to give small shareholders a better chance of electing someone to Board; Majority- Do not have this unless articles say so
Shareholders- Shareholder voters; How and when do shareholders use cumulative voting?: How Multiple number of shares times number of directors to be elected
Shareholders- Stock transfer restrictions; Transferability of ownership interest Shareholder can sell or give stock away; Sometimes people want tot restrict, especially in close corporation to keep outsiders out
Shareholders- Stock transfer restrictions; Right of first refusal Stock transfer restrictions will be upheld provided they are reasonable under circumstances; Not an undue restraint on alienation
Shareholders- Stock transfer restrictions; Not invoked against Even if restriction is reasonable and thus valid, it cannot be invoked against transferee unless- 1. Conspicuously noted in stock certificate, 2. The transferee had actual knowledge of restriction
Shareholders- Right of shareholders (personally or by agent) to inspect (and copy) books and records of corporation; Standing Majority- Any shareholder
Shareholders- Right of shareholders (personally or by agent) to inspect (and copy) books and records of corporation; Procedure Shareholder must make written demand stating docs desire and proper purpose for inspection; Proper purpose: related to role as shareholder
Shareholders- Right of shareholders (personally or by agent) to inspect (and copy) books and records of corporation; Failure to allow proper inspection Shareholder seeks ct order; If wins, can recover costs and atty fees incurred
Shareholders- Right of shareholders (personally or by agent) to inspect (and copy) books and records of corporation; Directors Directors do not have to go through procedure to get access; Have access
Shareholders- Distributions Payments by corporation to shareholders
Shareholders- Distributions; Types 1. Dividends, 2. To repurchase shareholders stock, 3. Redemption (forced sale to corporation at price set in articles)
Shareholders- Distributions; Board discretion No right to distribution until board declares it; An action to compel declaration of distribution is direct; To win, must make VERY strong showing of abuse of discretion
Shareholders- Distributions; Which shareholders get dividends? Preferred, participating, cumulative, common
Shareholders- Distributions; Which shareholders get dividends?: Preferred Pay first
Shareholders- Distributions; Which shareholders get dividends?: Common stock Divided by cost
Shareholders- Distributions; Which shareholders get dividends?: Participating Pay again; So paid first b/c preferred, and then paid again because participating
Shareholders- Distributions; Which shareholders get dividends?: Cumulative Add them up; Accrues year-to-year
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Traditional view, Earned surplus Generated by business activity; Consists of all earnings minus all losses minimum distributions previously paid
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Traditional view, State capital Generated by issuing stock (capital surplus); When corporation issues stock, it has to allocate proceeds b/w state capital and capital surplus
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Traditional view, State capital- On par issuance Par value goes to state capital; Excess of part goes to capital surplus
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Traditional view, State capital- On no par issuance Board allocates consideration b/w stated capital and capital surplus
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Traditional view, Capital surplus Generated by issuing stock; Computed- payments in excess of par plus amounts allocated in no-par issuance
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Modern view Does not look at funds; Corporation cannot make distribution if it is insolvent or if distribution would render it insolvent
Shareholders- Distributions; For any distributions (dividend, repurchase, redemption) which funds can be used?: Modern view, Insolvent Insolvent- 1. Corporation unable to pay its debts as they come due, or 2. Total assets are less than total liabilities (and liabilities include preferential liquidation rights)
Shareholders- Distributions; Joint and several liability Directors are jointly and severally liable for improper distributions; Remember good faith reliance defense
Shareholders- Distributions; Joint and several liability: Shareholders Personally liable only if they knew distribution was improper when they received it
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Board cannot do alone, so need- 1. Board action adopting resolution of fundamental change, 2. Board submits proposal to shareholders w/written notice, 3. Shareholder approval (majority of shares entitled to vote), 4. In most of these changes, we need to deliver doc to Secretary of St
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Dissenting shareholder right of appraisal Right to force corporation to buy your stock for fair value
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Dissenting shareholder right of appraisal: When Actions by corporation to trigger right- 1. Merger or consolidation, 2. Transfer of substantially all asset not in ordinary course of business, or 3. Transfer of shares in share exchange
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Dissenting shareholder right of appraisal: Not available If stock is listed on national exchange or 2,000 or more shareholders; Makes sense b/c in such corporation there is public market for stock, so unhappy stockholder can sell on market; Right exists in close corporation
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Dissenting shareholder right of appraisal: What to do to perfect right 1. Before shareholder vote, file w/corporation written notice of objection & intent to demand payment, 2. Abstain or vote against proposed change, 3. After vote, w/in time set by corporation, make written demand to be bought out & deposit stock w/corp
Fundamental Corporate Changes- Characteristics of fundamental corporate exchange; Dissenting shareholder right of appraisal: Fair value of shares If shareholder and corporation cannot agree fair value of shares, ct may appoint appraiser; Only remedy for fundamental change except for fraud
Fundamental Corporate Changes- Amendment of articles; Board of director action and notice to shareholder Must have
Fundamental Corporate Changes- Amendment of articles; Shareholder approval Must have
Fundamental Corporate Changes- Amendment of articles; If approved Deliver amendment articles to Secretary of State
Fundamental Corporate Changes- Amendment of articles; Dissenting shareholder right of appraisal NOT allowed
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); Board and notice Need board of director action (both corporations) and notice to shareholders
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); Shareholders approval Generally both corporations; Majority of shares entitled to vote
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); Short form merger No shareholder approval required if 90% or more owned subsidiary is merged into parent corporation
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); If approved Surviving corporation delivers articles of merger or consolidation to Secretary of state
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); Right of appraisal Generally, for shareholder entitled to vote on merger or consolidation and also for shareholders of subsidiary in short former merger
Fundamental Corporate Changes- Merger (B merges into A) or consolidation (A and B form C); Effect of merger or consolidation: Successor liability Surviving corporation succeeds to all rights and liabilities of constituents
Fundamental Corporate Changes- Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange One company acquires all stock of another
Fundamental Corporate Changes- Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange; Substantially all of assets Requires transfer of at least 75% of assets; Varies state to state
Fundamental Corporate Changes- Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange; Fundamental corporate change For seller only corporation (not buyer)
Fundamental Corporate Changes- Transfer of all or substantially all of the assets not in the ordinary course of business or share exchange; Liability So company that buys assets is not liable for debts of company that sold assets, unless deal says otherwise or unless company buying assets is merely continuation of selling corporation
Fundamental Corporate Changes- Dissolution; Voluntary Board of directors action and approval by majority of shares entitled to vote; File notice of intent to dissolve with Secretary of state; Corporation stays in existence to wind up; Notify creditors so they can make claims
Fundamental Corporate Changes- Dissolution; Involuntary (by ct order): Shareholder petition if 1. Director abuse, waste of assets, misconduct, 2. Director deadlock that harms corporations, 3. Shareholder failed at two consecutive annual meetings to fill vacant board position; Ct could order buy out of objecting shareholder
Fundamental Corporate Changes- Dissolution; Involuntary (by ct order): Credit petition Corporation is insolvent and- 1. Has an unsatisfied judgment, or 2. Corporation admits debt in writing
Fundamental Corporate Changes- Dissolution; Dissolution not end of corporation Beginning of process that will end corporate existence
Fundamental Corporate Changes- Dissolution; Wind-up (liquidate) 1. Gathering all assets, 2. Converting to cash, 3. Paying creditors, and 4. Distributing remainder to shareholder, pro-rata by share unless there is liquidation preference
Fundamental Corporate Changes- Dissolution; Liquidation preference Pay first
Federal Securities Law- Security are investments; Debt securities Investor lends capital to corporation, to be repaid (usu. interest), as specified in agreement
Federal Securities Law- Security are investments; Debt securities: Creditor (not owner) Debt holder's relationship to corporation- 1. Secured by corporate assets ("bond"), 2. Unsecured ("Debenture")
Federal Securities Law- Security are investments; Equity securities Investor buys stock from corporation, which generates capital for business
Federal Securities Law- Security are investments; Equity securities: Owner (not creditor) Equity holder's relationship to corporation
Federal Securities Law- Rule 10b-5; Aimed at deceit Federal law prohibits fraud or misrepresentation (or nondisclosure) in connection with purchase or sale of any security (debt or equity)
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements 1. Instrumentality of interstate commerce, 2. Types- a. Misrepresentation of material info, b. Insider trading, c. Tipping; 3. Materiality, 4. Possible Ps, 5. Possible Ds, 6. Scienter, 7. Reliance
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Instrumentality of interstate commerce Mail/telephone/trade on national exchange
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Types- Misrepresentation Of material information
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Types- Insider trading Trading securities on basis of material inside information; Someone with relationship of trust and confidence with shareholders; Insiders cannot trade on secrets
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Types- Tipping Insider passes along material inside information for a wrongful purpose
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Materiality Misrepresentation or omission must concern a "material" fact- One reasonable investor would consider important in making an investment decision
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Possible Ps 1. Securities and exchange commission, 2. Private action for damages by buyer or seller of securities
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Possible Ds Any person included entities; 1. Company issues misleading press release, 2. Buyer or seller of securities who misrepresent material info., 3. Buyer or seller of securities who trades on material inside info., 4. Tipper or tippee
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Scienter D must have intent to deceive, manipulate or defraud; Recklessness may suffice
Federal Securities Law- Rule 10b-5; Aimed at deceit: Elements, Reliance Said to be separate element, as in fraud cases, but it presumed in public misrepresentation and nondisclosure cases
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability Provides for recovery by corporation of profits gained by certain insiders from buyer and selling company's stock; Bad for market confidence to have insider buyer and selling owner company's stock
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Claim Derivative suit
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Apply 1. Reporting corporation, 2. Types of Ds, 3. Types of transactions
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Apply- Reporting corporation Listed on national exchange, or at least 500 shareholders and $10mill in assets
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Apply- Types of Ds 1. Director (bought or sold), or 2. Officer (bought or sold), or 3. Shareholders who owns more than 10% (both when bought and sold)
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Apply- Types of transaction Buyer and selling stock within a single 6 mos period (short-swing trading); No fraud or inside info needed
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, What happens All profits from such short-swing trading are recoverable by corporation; If within 6 mos before of after any sale, there was purchase at lower price there is profit
Federal Securities Law- Section 16B; Aimed at speculation by directors, officers, and 10% shareholders: Strict liability, Key to applying Focus on sale
Created by: dmoore147