Corporate Law Exam Review

Formation & Promoters

• Promoter = person acting to form corp; personally liable for pre-incorporation Ks unless a novation or 3rd party agreed to look only to corp.

• Fiduciary to future corp; must disclose profits.

• Corp not liable for promoter Ks unless it adopts them (express or implied acceptance of benefits).

• Incorporator signs/files articles; no promoter liability.

• Defective formation:

  • De jure: all statute reqs met ⇒ entity shields owners.

  • De facto / corp-by-estoppel protect good-faith actors; abolished under RMBCA.

• Piercing veil: apply totality (undercapitalization, commingling, fraud, etc.) to impose shareholder liability.

Charter & Bylaws

• Articles (charter) create corp when filed; must state name, shares, registered agent, incorporators; purpose can be broad.

• Ultra vires acts rarely void; may be enjoined by shareholder, corp vs. insiders, or state AG.

• Bylaws govern internal management; conflicts resolved in favor of articles; board or shareholders may amend (shareholders can limit board power).

Stock & Securities

• Board authorizes issuance within charter limits.

• Consideration may be \text{money}, property, or services; board’s valuation conclusive.

• Par value = minimum issue price; RMBCA ignores “watered” stock once board deems adequate.

• Pre-incorp subscriptions irrevocable 6 months absent unanimous consent.

• Preemptive rights exist only if charter grants them; exclude compensation shares, 6-month original shares, non-cash sales.

• Distributions need board approval; prohibited if insolvent (equity & balance-sheet tests).

• Director voting for unlawful distribution personally liable; contribution/recoupment possible.

Shareholders: Meetings, Voting, Suits

• Annual meeting required; special meeting by board or 10\% holders; notice 10–60 days.

• Record date ≤ 70 days before meeting determines voters.

• Quorum = majority of votes entitled unless changed.

• Cumulative voting if charter so states.

• Proxy: signed/electronic; valid 11 months; revocable unless coupled with interest.

• Voting agreements enforceable (pools, trusts, shareholder management agreements ≤ 10 yrs).

• Inspection: proper-purpose for key records; automatic for basic docs; 5-day written notice.

• Suits:

  • Direct = personal right (e.g., vote, dividend).

  • Derivative: contemporaneous ownership + demand (RMBCA always; some states futility). Recovery to corp.

Directors & Officers

• Board manages corp; can be 1 director.

• Meetings: special notice 2 days; quorum = majority of directors; action by majority present or unanimous written consent.

• Duties:

  • Care: informed, prudent person; protected by Business Judgment Rule unless bad faith, no info, conflict, etc.; charter may exculpate monetary damages for care breaches.

  • Loyalty: no self-dealing unless (i) disinterested board/shareholder approval after full disclosure or (ii) fairness; must not usurp corporate opportunities.

• Indemnification: mandatory for successful defense; prohibited for improper personal benefit; otherwise permissive if good-faith.

Distributions & Dividends

• Board discretion; equity test (debts payable when due) + balance-sheet test (assets > liabilities + superior prefs).

• Insolvent distributions recoverable from knowing shareholders.

Federal Securities Highlights

• Securities Act 1933 registration for public offers; private placements exempt.

• Rule 10b!-5: purchaser/seller, interstate commerce, scienter, material misstatement/omission, reliance (fraud-on-market), damages = out-of-pocket cap.

• Section 16(b): insiders (directors, officers, >10\%) must disgorge profits from purchase & sale within 6 months in reporting corps.

Mergers & Fundamental Changes

• Board + majority-shareholder approval, filing; short-form: parent ≥90\% subs no vote.

• Asset sale “substantially all” treated like merger for seller’s vote only.

• Share exchange allowed; dissenters get appraisal unless public-market exception.

Dissolution

• Voluntary: board + majority shares; winds up (pay creditors, pref shares, others).

• Involuntary: court for deadlock, waste, oppression, insolvency; creditors can petition if insolvent.

Limited Liability Company (LLC)

• Form by filing articles; operating agreement governs (may be oral).

• Default = member-managed; can elect manager-managed.

• Members/managers owe duty of care (gross negligence standard) & loyalty (can be modified if not manifestly unreasonable).

• Members not liable for LLC debts; veil piercing possible on equitable grounds.

• Transfer gives economic rights only; new member needs unanimous consent unless otherwise.

• Dissolution: unanimous consent, 90-day no-member gap, judicial order, or OA event; winding up pays creditors then members.

Business Entity Comparison