Organization
Define De Jure Corporation; De Facto Corporation; and Corporation by Estoppel
De Jure: Corporation formed by following all statutory provisions
De Facto: Colorable compliance with most statutory provisions and exercise of corporate privileges
Estoppel: Parties act as if there is a corporation
Vote Required for Board Approval
Affirmative vote of a majority of the directors present
Shareholders with Right to Vote
shareholders of record on the record date
Types of Fundamental Corporate Changes
- amendments to articles
- mergers
- consolidations
- share exchanges
- dispositions of substantially all assets outside of the regular course of business
Defining Characteristics
- taxed like partnerships
- limited liability
- LLC is treated as an entity distinct from its members
Articles of Incorporation Requirements
- name of corporation
- number of authorized shares
- name and address of incorporators
- name and address of registered agrnt
Duties
- act in good faith
- with the care that a person in a like position would exercise, and
- in a manner reasonably believed to be in the best interests of the corporation
Notice Required for Shareholder Meetings (annual and special)
annual: date, time, location
special: date, time, location, purpose
Procedures for Fundamental Corporate Changes
- board resolution
- notice to shareholders
- shareholder approval
- articles of the change filed with the state
How Distributions are Made (unless otherwise agreed)
Uniform Act: distributions in equal shares
Most States: on the basis of contributions
Reasons for and Effect of Piercing the Corporate Veil
Reasons: alter ego doctrine; inadequate capitalization at inception; perpetrating fraud
Effect: active shareholders may be held liable for tort obligations
A Transaction Between a Corporation and a Director Will Not be Set Aside for Self-Dealing If:
- the director disclosed all material facts, and the transaction was approved by disinterested directors or shareholders; or
- the transaction was fair to the corporation
Requirements to Bring Derivative Suit
- owned shares at the time of wrong (or obtained them through an act of law)
- maintain ownership throughout suit
- demand board to bring suit
Effect of Dissolution on Claims Asserted Against the Corporation
- claims can be asserted to the extent of the corporation's undistributed assets
- Corporation can cut short time for bringing claims by giving notice:
1) known claims --> notifying claimants of deadline
2) unknown claims --> publishing notice of dissolution in newspaper where corporation's known place of business is located
Rights to Information (member-managed and manager-managed)
member: member has right to inspect and copy any record concerning LLCs business that is material to members rights and duties
manager: manager's have same right to information and furnish information as members
Revocability of Subscription Agreements
Pre-incorporation: irrevocable for 6 months
Post-incorporation: revocable
Corporate Opportunity Doctrine (and remedy)
- a director may not divert to themselves a business opportunity within the corporation's line of business without first giving the corporation an opportunity to act
- corporation may recover director's profits or force director to convey the opportunity to the corporation
Corporation Can't Make Distributions If:
- corporation unable to pay its debts as they become due
- total assets are less than total liabilities
Dissenter's Appraisal Remedy
Shareholders who don't like a fundamental corporate change may force the corporation to purchase their shares at a fair price if they:
1) give corporation notice of intent ot demand appraisal rights before vote is taken
2) don't vote in favor of the change
3) demand payment after the change is approved
Dissolution
- agreed-upon event of dissolution
- consent of all members
- passage of 90 consecutive days during which LLC has no members
- judicial decree
- administrative dissolution by secretary of state
Promoter Liability
Promoters are personally liable for pre-incorporation contracts. Liability continues even after corporation is formed absent a novation
Authority of Officers
- actual authority as given by the board, articles, and bylaws
- apparent authority to do whatever someone in their position would normally have authority to do
Identify and Describe types of Share Preferences (3)
- cumulative: if distribution not declared or paid in a certain year, it accumulates until paid
- cumulative if earned: preference accumulates only if profits for year were sufficient to pay preference
- participating: receive stated preference and a share of the distribution made to common shareholders
Limitations on Dissenter's Appraisal Remedy
Can't use if corporation's stock is publicly traded or more than 2,000 shareholders
Duties of Members (manager-managed and member-managed)
Manager: only managers are subject to the duties of care and loyalty
Member: duties of care and loyalty to each other and LLC