Term
| Shareholders (rights & duties) |
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Definition
1. Generally, do not run corps on day-to-day basis (but can choose to in a close corp)
2. Indirectly control by electing board of directors, amending bylaws & approving fundamental changes
3. Inspection Rights (unqualified & limited - books, papers, accounting records, etc.)
4. Preemptive right to purchase shares
5. Not fiduciaries - may act in self-interest (except controlling shareholder cannot use control to obtain advantage at expense of minority shareholders)
6. Right to Vote (record shareholders)
7. Receive notice of meetings (annual: date, time, place; special: date, time, place, purpose)
8. May remove directors without cause |
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Term
| Quorum (Shareholder Meetings) |
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Definition
| Need a majority of outstanding shares entitled to vote. If ____ present, action approved if votes cast in favor exceed votes cast against. Once present, shareholder leaving does not invalidate voting. |
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Term
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Definition
| ________authority is the authority contained within the 4 corners of the partnership agreement & any authority expressly granted by vote of partnership |
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Term
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Definition
| ______ authority that then partner reasonably believes she has a result of the actions of the partnership (ex. _____ authority to enter into Ks that are within the scope of partnership business) |
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Term
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Definition
| ______ exists if the partnership holds a partner out as possessing certain authority, thereby inducing others reasonably to believe that authority exists. 3rd party must reasonably rely on the holding out. **Binds partnership unless 3rd party knew or received notification there was no authority |
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Term
Limited Liability Partnership (LLP)
(requirements & liabilities) |
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Definition
1. Partnership must file a statement of qualification w/ Sec of State
2. Partnership becomes ____ at time of filing of statement or date specified
3. Partners are not personally liable for ___ 's obligations, but remain liable for their own wrongful acts |
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Term
Limited Partnership (LP)
(requirements & liabilities) |
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Definition
1. Must file certificate of ____ w/ Sec of State
2. Composed of one or more general partners & one or more limited partners
3. GP's are joint & severally personally liable for partnership obligations, while LP's generally do not have any liability beyond the agreed-upon contributions |
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Term
General Partnership (GP)
(requirements & liabilities) |
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Definition
| Association of 2 or more persons to carry on as co-owners of a business for profit. No requirement that parties subjectively intend to form partnership. No formalities required - courts look to intent of parties. ALL partners j/s liable for all obligations of partnership (torts: any tort committed by partners in scope of business; Ks: any Ks entered by partners with authority |
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Term
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Definition
| A relationship is created by _____ when an agent purports to act on behalf of partnership without any authority at all, but partnership subsequently validates the act & becomes bound. Partnership must know or have reason to know ALL material facts, accept transaction & have capacity |
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Term
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Definition
1. May agree to run corp in any way
2. Can dispense with Board (used in small corps)
3. Can freely transfer ownership interest (shares)
4. Agreement must be set forth in articles, bylaws, or written agreement & approved by all persons who are shareholders at time of adoption
5. Agreements valid for 10 years |
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Term
| Fundamental Corporate Change Procedure |
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Definition
1. Board Resolution
2. Notice to Shareholders
3. Shareholder approval
4. Articles of Change filed w/ State
(ex: amendments to articles, mergers, consolidations, share exchanges, dispositions of substantially all assets) |
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Term
| Board of Directors (fiduciary duties) |
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Definition
1. Duty of care - must act in GF & do what a prudent person would do w/ regard to her own business
2. Duty of loyalty - must act in GF & w/ a reasonable belief that what she does is in corp's best interest (no competing ventures, no usurping corporate opportunities)
3. Duty to disclose material corporate info to other members
4. Duty to prevent waste |
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Term
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Definition
| Where agent's actual authority has terminated, he will have apparent authority to act on P's behalf as to all third parties w/ whom P knows he dealt unless & until 3rd receive actual or constructive notice of termination |
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Term
| "Piercing the Corporate Veil" |
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Definition
1. Alter Ego Doctrine - commingling, owners don't hold meetings, treat at sep. entity, etc.
2. Inadequate Capitalization at Inception - must have enough $ to meet liabilities
3. Perpetuating a Fraud - can't be formed to avoid existing liabilities, but can to avoid future liabilities
**Gen creditors can request ct to pierce, not shareholders |
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Term
| Quorum (Board of Directors) |
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Definition
| Must have a majority of ALL directors to do business. Requires only majority vote of those present. (Ex: If 9 Directors, must have 5 at meeting, and 3 to vote for resolution to pass) |
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Term
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Definition
1. Promoters are generally liable for preincorporation contracts entered into on behalf of the corporation
2. Liability continues even after corp formed even if corp adopts contract & benefits, absent a novation
3. Corporation does not become liable unless it expressly adopts K, or impliedly receives benefits of K |
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Term
| Requires to Form Corporation |
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Definition
1. Must file articles of corporation with Sec of State
2. Name of corp must be included
3. Number of authorized shares must be included
4. Must include name & address of incorporators & registered agent
5. *Watch for clause limiting corp's purpose - activities beyond the scope are "ultra vires" and may be enjoined, or directors held liable for authorizing such acts |
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Term
| De Facto Corporation (requirements) |
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Definition
1. Colorable compliance with the incorporation statute, and
2. Exercise of corporate privileges |
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Term
| Corporate Opportunity Doctrine |
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Definition
RULE: A director may not divert to himself a business opportunity within the corporation's line of business without first giving the corp an opportunity to act
REMEDY: Corp may recover director's profits or force director to convey the opportunity to the corp |
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Term
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Definition
Reasonable Reliance = director may defend suits with a claim of reasonable reliance on opinions, reports, etc. prepared by experts or reliable employees
Indemnification = if director is sued as director and successfully defends, corp must indemnify for expenses; if unsuccessfully defends, corp has discretion to indemnify if director complied with business judgment rule |
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Term
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Definition
| Directors have a duty to manage to the best of their ability - must discharge their duties in good faith, with the care that an ordinarily prudent person in a like position would exercise, and in a manner that directors reasonably believe to be in the best interests of the corporation. If met, not liable for decisions that turn out to be poor or erroneous. |
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Term
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Definition
1. May set own compensation (but must be reasonable)
2. May delegate authority - create & supervise committees
3. Right to inspect corporate books
4. Whether to accept/reject corp opportunity
5. Decision whether to declare distributions (subj to solvency limitations)
6. Appoint & remove officers |
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Term
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Definition
| ALL statutory requirements have been met |
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Term
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Definition
| If shares have not yet been issued or business has not yet commenced, a majority of the incorporators or initial directors may dissolve a corporation by delivering articles of dissolution to the state. After shares have been issued, corp may dissolve by a corp act approved under fundamental change procedures |
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Term
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Definition
| Atty Gen may seek ______ on the group that corp fraudulently obtained its articles of incorporation or that the corporation is exceeding or abusing its authority; Shareholders may seek _____ on grounds: (1) Directors are deadlocked in mgmt of corp affairs, irreparable injury is threatened, (2) Directors have acted or will act in illegal, oppressive, or fraudulent manner, (3) Shareholders are deadlocked in voting pwr, (4) Corp assets are being wasted |
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Term
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Definition
Makes it illegal for any person:
1. to use any means or instrumentality of interstate commerce
2. in connection with the purchase or sale of any security
3. to employ scheme to defraud, make untrue statement of material fact, or engage in fraud
4. also prohibits insider trading on securities (info not disclosed to the public that investor would think is important when deciding whether to invest) |
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Term
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Definition
| If an insider gives a tip of inside info to someone else who trades on the basis of the inside info, the tipper can be liable (if tip made for improper purpose - i.e. change for $$, kickback, repetitional benefit) |
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Term
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Definition
| A tippee can be held liable only if the tipper breached a duty and the tippee knew that the tipper was breaching the duty. |
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Term
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Definition
| Requires surrender to the corp of any profit realized by any director, officer, or shareholder owning more than 10% stock from purchase and sale or sale & purchase within 6 month period (may either be a gain or avoided loss). **Applies only to publicly held corps |
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Term
| Sarbanes-Oxley Act of 2002 ("SOX") |
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Definition
**Applies to publicly held companies
Requires companies to establish an audit committee of board members which oversees work performed and establishes internal procedures for receiving and handling complaints |
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