Corporations

Flashcards based on lecture notes about business organizations

Does a corporation's existence begin on the date the Articles of Incorporation are properly filed with the Secretary of State, unless a delayed effective date is specified?

Yes. Filing the Articles marks the legal beginning of the corporation’s existence

Do the Articles of Incorporation control if there is a conflict with the Bylaws?

Yes. The Articles are the superior governing document over the Bylaws.

May shareholders amend or repeal bylaws?

Yes. Shareholders have the authority to adopt, amend, or repeal bylaws unless limited by the Arti

Is an LLC formed when the Articles of Organization (a.k.a. Certificate of Formation) is properly filed with the Secretary of State?

Yes. An LLC legally exists upon proper filing, regardless of business commencement.

Does the Operating Agreement govern the relations between the members and the LLC?

Yes. It is the primary contract that defines internal rules, duties, and rights.

Does a promoter remain personally liable for a pre-corporation contract even if the corporation subsequently adopts the contract?

Yes. Adoption does not relieve the promoter unless the parties expressly agree otherwise.

Is a corporation liable on a contract made by a promoter without express or implied adoption post-incorporation?

No. The corporation must adopt the contract through words or conduct to be bound.

Are shareholders generally personally liable for corporate liabilities and obligations?

No. The corporate veil shields shareholders from liability beyond their investment.

Is the failure to follow corporate formalities a ground to pierce the corporate veil?

Yes. Courts may pierce the veil if formalities are ignored and there's injustice or fraud.

Is the failure to follow formalities a ground to pierce the veil of an LLC?

No. Most states do not require LLCs to follow corporate formalities for liability protection.

Is a person always liable for their own torts, even if the court does not pierce the veil?

Yes. Personal misconduct results in personal liability, regardless of corporate form.

Do preferred shares usually have voting rights?

No. Preferred shares typically lack voting rights unless specified otherwise.

Under the RMBCA, may shares be issued for future promises of service?

Yes. Shares can be issued for consideration that includes future services.

Do shareholders have the right to compel a distribution unless such right is expressly granted in the Articles of Incorporation?

No. Distributions are at the board’s discretion unless contractually guaranteed.

Are only registered shareholders on the record date entitled to vote at the shareholders meeting?

Yes. Only those listed on the record date are legally allowed to vote.

Is a proxy valid for more than 11 months if no period is specified?

No. By default, proxies expire after 11 months unless a longer duration is stated.

Is a proxy revocable if it is coupled with an interest or legal right and states it's irrevocable?

No. A proxy coupled with an interest may be irrevocable if properly structured.

Must a corporation hold an annual meeting of the shareholders?

Yes. An annual meeting is required for electing directors and transacting necessary business.

May shareholders holding at least 10% of all votes entitled to be cast call a special meeting?

Yes. Statutes often permit shareholders with a minimum percentage to call special meetings.

Is a majority of the shares entitled to vote needed for the shareholders to take action at a meeting?

Yes. A quorum, usually a majority, must be present to transact business.

Is a majority of votes necessary to be elected as a director under plurality voting in most states?

No. Plurality voting elects the candidate with the most votes, not necessarily a majority.

May a shareholder cast all of his votes for one director nominee under cumulative voting?

Yes. Cumulative voting allows shareholders to pool votes for one nominee to increase influence.

Are binding proposals generally proper for submission as proposed resolutions at a shareholder meeting?

No. Most shareholder proposals are advisory and not binding on the board.

Is a majority of directors necessary to make a quorum for Board of Directors action?

Yes. Most statutes require a majority of authorized directors to constitute a quorum.

May the Board of Directors take action without a meeting if all directors sign a consent describing the action and deliver it to the corporation?

Yes. Unanimous written consent can substitute for formal board meetings.

May officers be removed at any time with or without cause by the Board of Directors?

Yes. Unless otherwise agreed, officers serve at the board’s discretion.

Is an LLC presumed to be member-managed?

Yes. By default, LLCs are managed by members unless the Operating Agreement states otherwise.

Under the RMBCA, do shareholders automatically enjoy preemptive rights unless explicitly granted in the Articles of Incorporation?

No. Preemptive rights must be affirmatively granted in the Articles.

Is an absolute restraint on the transfer of shares valid?

No. Transfer restrictions must be reasonable to be enforceable.

Is a Director liable for breach of the duty of care if they discharged their duties in good faith, with the reasonable belief of acting in the best interests of the corporation, and with the care that a person in a like position would reasonably believe appropriate under like circumstances?

No. The Business Judgment Rule protects directors who act responsibly and in good faith.

Does the Business Judgment Rule apply to protect directors financially interested in a transaction?

No. Conflicted directors must show fairness and proper approval procedures to avoid liability.

Is showing that the corporation was not financially able to take an opportunity a defense to usurping a corporate opportunity?

No. Lack of funds alone does not excuse misappropriating a corporate opportunity.

Do shareholders generally owe fiduciary duties to fellow shareholders?

No. Only controlling shareholders or those in close corporations may have such duties.

May the Articles of Incorporation eliminate or limit the personal liability of a director for intentionally inflicting harm to the corporation or shareholders?

No. Exculpation clauses cannot shield intentional misconduct or bad faith.

Do members in a member-managed LLC owe the duty of care and loyalty to both the company and other members?

Yes. Fiduciary duties exist between members in member-managed LLCs.

Under RULLCA, may the Operating Agreement restrict or eliminate the duty of loyalty so long as it's not manifestly unreasonable?

Yes. The duty of loyalty may be modified if it meets the manifest reasonableness standard.

In a derivative action, is the damage award paid directly to the shareholder or member?

No. The recovery belongs to the company, not the suing individual.

Are appraisal rights available to shareholders of publicly traded companies?

No. Appraisal rights are generally not available when a market for the shares exists.

What is the duty of care owed by directors or officers in a corporation?

They must act in good faith, with the care that a reasonably prudent person would use, and in a manner they reasonably believe is in the corporation’s best interest. The Business Judgment Rule protects them if they meet these standards.

What is the duty of loyalty, and when can a conflict-of-interest transaction be upheld?

Directors/officers must avoid self-dealing and corporate opportunity usurpation. A conflict-of-interest transaction is valid if disclosed and approved by disinterested directors/shareholders or if it's fair to the corporation.

When will a court pierce the corporate veil (PCV)?

Courts may PCV when shareholders abuse the corporate form (e.g., undercapitalization, commingling, fraud, or no formalities), especially in closely held corporations, to prevent injustice.

What are the requirements for a shareholder to bring a derivative suit?

The shareholder must have standing (own shares at time of harm), make a demand on the board (unless futile), and the suit must be for harm to the corporation. Recovery goes to the corporation.

What are preemptive rights and when do they apply?

Preemptive rights allow existing shareholders to buy new stock to maintain their ownership percentage. Under the MBCA, they exist only if expressly provided in the articles of incorporation.

What procedural steps are required for fundamental corporate changes?

Board resolution, notice to shareholders, shareholder approval, and sometimes filing with the state are required for mergers, dissolutions, and major amendments.

What is the difference between a direct and derivative lawsuit?

A direct lawsuit is for personal shareholder harm (e.g., denied vote). A derivative suit is for harm to the corporation (e.g., breach of fiduciary duty).

When must or may a corporation indemnify a director?

Must indemnify if the director wins on the merits; may indemnify if the director acted in good faith and reasonably believed actions were in the company’s best interest; cannot indemnify if liable to the corporation.

What is a quorum and what vote is needed for shareholder actions?

A quorum is a majority of outstanding shares. Most actions require a majority of votes cast unless otherwise stated in the articles or bylaws.

When is a corporation bound by the actions of its agents?

When the agent has actual authority (express or implied) or apparent authority (third party’s reasonable belief based on the corporation’s conduct).