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NY Bar Exam - Corporations
New York's BCL
38
Law
Professional
07/20/2015

Additional Law Flashcards

 


 

Cards

Term
Promoter
Definition

someone who takes action on behalf of corporation before corporation is formed

- constitue consideration for share of corp stock.

- liable for pre-incorporation contracts unless i) party agrees to look only to corp or ii) enter novation after formation with corp.

Term
Corporation Liability for Pre-incorporation Ks
Definition

general no liablility unless

1) adoption of K's express or implied (accepting benefits)

2) promoter and corp liable until novation

Term
Incorporation Procedure
Definition

1) incorporaters (anyone over 18) prepare certificate of incorporation.

2) file cert with NY dep of state

3) hold organizational meeting to adopt initial bylaws and appoint initial directors

Term
Certificate of Incorporation
Definition

Must have

1) corporate name

2) corporate purpose (generic vs specific)

3) corporate duration (if not specified = perpetual)

4) office and registered agent for service of process

5) authorized shares = aggregate number shares to issue 

6) secretary of state designation 

 

Cannot 

have certain phrases or words

 

May have

1)corporate powers

2) exculpatory charter provision

 

Term
Defective Incorporation
Definition

a) lack of good faith effort to incorporate - if no attempt to compy with requirements considered promoter and personally liable for obligations

b) good faith effort - de facto corporation possible if make unsuccessful effort but  i) make good faith effort to comply ii) owner operate busines as if corp and iii) owner must not  knwo that incorpoartion not valid.

c) NO corp by estoppel

Term
Piercing the Corporate Veil
Definition

limited liability disregard to prevent fraud or illegality or to achieve equity.

contributing factors include:

a) excessive domination of corp by shareholders

b) shareholders business for personal gain 

c) corp used to hide illegal business/fraud

d) corporate formalities disregated (failure ot hold elections failure to issue stock etc)

e) corp inadequately fundd

Term
Ultra Vires Actions
Definition

corporation action lacks authority to engage in. enttiels shareholder or state to initiate proceeding againt corp to enjoin action. 

Term
Instruments of Governance
Definition

1) certificate of incorporation

- amendment if substnatial requires cert of amendment and majority shareholder approval

2) By-laws

- amendment by shareholders through majority vote

3) Board of Director Resolutions

 

Term
Shareholders Meetings
Definition

1) annual meeting: specified in bylaws to elect directors

2) special meeting: issues must be notified

3) Special meeting for Director Election: when failure to elect sufficien tnumber of directors

4) Action by written consent: avoi shareholder meeting requires unanimous written consent

Term
Notice of Shareholder Meetings
Definition

60-10 Rule - no more than 60 no less than 10 days before meeting date. 

- time place date meeting

- if speical meeting than purpose (limited to this purpose only)

- if shareholder didnt receive notice may legally waive notice in writing or by attending meting.

- failure to give notice renders actions at meetings void.

Term
Who is eligible to vote?
Definition

Record Date - only shareholders of record at close of business on record date enttiled to attend and vote in upcoming shareholder meeting.

- Unless: i) beneficial owner of share in publically traded corp ii) fiduciary other than trustees iii) trustees

 

Treasury shares - canot be voted not "outstanding"

Bondholders cant vote unless contract allows.

 

Each share entitles to one vote.

Term
What can shareholders vote on?
Definition

election of directors

amendments to cert of incorporation

sale of all /substnail all assets

mergers and consolidations

dissolution of corp.

Term
Quorum requirements
Definition

holders of critical mass of shares must be represented at emeting or legally void.

default - majority of outstanding shares no less than 1/3

When class or series entitled to vote separately then majority of the shares of class constitutes a quorum.

Term
Voting for Directors
Definition

elected by plurality of votes case at meeting.

1) straight voting: sharholder casts nubmer of votes for nominee as equals number of shares owns. (cant separate)

2) cumulative voting: each shareholder is enitled to case that number of votes as equals the number of shares she owns multiplied by number of open board seats. can spread out votes.

Term
Proxy Voting
Definition

sharholder apoint another person to vote.

1) expires when specified or 11 months

2) revokable at will by requesting in writing that proxy be revoked; turning in another proxy; or attending in person

- not revoked by incompetence or death of shareholder unless written notice received prior to death.

But irrevocalbe proxy  when 1) proxy on its face says irrevocable and 2) shareholder give to someone with interst in shares.

- pledgee; person agred to purchase; corp creditor; corporate officer; by agreemetn

Term
Inspection of Corporate Records
Definition

shareholder irght to copy and inspect

give corp 5 days written notice and state proper purpose for inspection.

limited to i) minutes of shareholders meetings and ii) list of shareholders of record. corporate books and note automatically entitled to balance sheet and profit loss statement preceding year.

Term
Derivative Suits
Definition

standing: may be brought by any record or beneficial shareholder with standing as holder at time action brought and at time of transaction.

Demand requirement: must filed written demand on board unless futile (get aroudn by sayin gdirectors self-interested)

Court approval to settle

Term
Board of Directors Composition
Definition

board may be one or more directors set in bylaws

each must be at least 18 years old.

Terms: 1 year unless classified board (then staggered)

Resignation at any time by written notice ot board, chair or corp itself.

 

Term
Removal of Director
Definition

1) removal for cause

2) Removal without cause (if in cert)

3) Director elected through separate class vote only removed by that same class

4) director elected through cumulative voting: cannot be removed when votes sufficient to elect are case against removal

5) replacement or new director

Term
Director meeting requirements
Definition

NOTICE: only entitled to notice of special meeting has to object to lack of notice or waived

- not required to be physically present at a meeting so long as can hear.

- can also act by unanimous written consent to action

QUORUM: reuquired majority of directors may not vote by proxy.

 

Term
Committees
Definition

provided for in bylaws (unless closely held than not normal)

May NOT engge in i) fixing compensation for board ii) submistting any action that requires shareholder approval iii) filing vacancies iv) amending or repealing resolution of board v) changing bylaws.

Term
Director Fiduciary Duties
Definition

perform duties in good faith and with degree of care of prudent person.

1) duty of care: when making business decision obliged to act with knowledge of care of person handling own property.

- held responsible for speical knowledge actually possesses

a) reliance on info reports and opinions

b) business judgment rule preumption that satisfied fiducary duty when making business decision

Term
Business judgment Rule
Definition

legal presumption that director when making business decision has satisfied fiducairy duties. 

Unless p demonstrates conflict of interest or bad faith Ny courts will NOT second guess business judgment. 

- protected from claims about reach of duty of care

Term
Duty of Loyalty
Definition

requires director to act in manner than reasonably belives is best interst of corp

breach when

1) self dealing transactions 

2) usurpation of corporate opportunity and

3) actions that lead to directors being entrenched in office

Term
Cleansing Self Dealing Transactions
Definition

can be cleansed by interested director statue if

i) disclosed to board and board approves transaction without counting votes of intersted directors

ii)conflict disclosed and disinterstd directors aprove unanimously or

iii) conflict disclosed and shareholders vote to approve


Alternatively if fair and reasonable to corporation when approved court may not void transaction

Term
Tangible Expectancy and Line of Business test
Definition

1) Tangible expectancy: corp must have i) existing interst in opportunity ii) exepctancy in opprotuniy from existing right or iii) be actively seeking similar opportunity.

2) line of business test: opportunity fall within corps current or prosepctive line of business is corporate opportunity. director cant compete wiht corp.

Term
Indemnification of Directors
Definition

Must indemnify when costs incurred in successful defense of proceedign against director as a director.

May indemnify if director unsuccesful defense  if driector acted good faith AND if criminal director had no cause to believe unlawful.

Prohibited in other ways including in shareholders derivative lawsuit.

Term
Mergers
Definition

1) statutory mergers: merge with and into other corp. surviving corp assumes botht he assets adn liabilities of corporation.

- requires boards and shareholders of each corp approval.

- shareholders if formed before Feb 22, 1998 then need 2/3rds if after than majority.

- no approval if parent corp owns 90% or more of subsidiary

- certificate of merger delivered to NY dep of state.

Term
Asset Sales
Definition

requires sharholders approval when all or substantially all assets. same rules as mergers

Term
Rights of appraisal
Definition

shareholder may dissent and then demand appraiasl where

1) merger so long as sharehodler disents ot merger

2) sale assets unless sale is all cash followed by merger 

3) context of amendmetn to cert of incorporration if mateirally and adverely affects rights of shareholder.

Term
Termination of Corporate Status
Definition

1) voluntary dissolution

- authorization by shareholders (same as merger rules)

- certificate of dissolution signed and delivered to Dep of State. consent of Tax and finance dep with cert.

2) Involuntary

- the state if fraud, illegal business, ultra vires actions or fails to pay fees or taxes.

- shareholders if i) insufficient assets ii) beneficial action iii) director of sharholder deadlock iv) oppresive conduct (20% minority but buy out right attaches

- directors if majority if i) insuffiicent funds or ii) benefiical action

Term
Stock and Securities
Definition

1) common stock: entitle dto vote and basic owenrship rights

2) prefered stock: dividend preference and liquidation preference

3) debt securities

Term
Issuance of Stock
Definition

1) authorization from corp cert.

2) consideration (money, property, labor/services, binding obligation to pay, binding obligation to perform, or combo)

- par value: have minimum value equal to capital

-without par value:  up to board to decide what portion considered part of state capital.

3) payment of consdieration: if fails to pay is liable to corp

Term
Stock Subscriptions
Definition

investors may subscribe to purcahse stock that has not yet formed if in writing and signed by subscribeer

- irrevocable for three moneths

- nonpayment corp can collect amount or dcare forfeiture of subscription if wrrten payment demand and 30 days expire.

Term
Shareholders Preemptive rights
Definition

common law entitled shareholders to maintain percentage ownership whenever additional stock.

only for corps formed before Feb 22, 1998.

- ecept when given as compensation to emploees, exchanged for property or taken from treasury stocks.

Term
Limitations on Distributions
Definition

Legal capital rule

1) insolvency determination: distributions not made if corp insolvent or woudl be insolved as resut of payment.

2) surplus/net profits determination: if positive surplus than max aggregate distribution is equal to surplus amount. if no surplues thatn equal to net profits for current or previous fiscal year.

Term
Closely Held Corps
Definition

only a handfulof shareholders most are friends or family

shareholders also directors and officers

shares not publically trades

transferability of shares restricted

NY 10 largest shareholders in corp personally liable for all debts, wages or salaries to employees.

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