Corporations

Under Georgia law, typically an ultra vires act is enforceable, and the ultra vires nature of an act may be raised in only three circumstances:

(i) a shareholder may sue the corporation to enjoin a proposed ultra vires act; (ii) the corporation may sue an officer or director for damages arising from the commission of an ultra vires act authorized by the officer or director; and (iii) the state may bring an action against the corporation to have it dissolved for committing an ultra vires act.

For a shareholder to be qualified to sue derivatively, that shareholder must:

(i) be a shareholder at the beginning, during, and at the end of the lawsuit, and (ii) must have owned her shares at the time of the alleged wrong, or have received them by operation of law (e.g., by testamentary distribution, etc.) from one who was a shareholder at that time.

In discharging her duties, a director is entitled to rely on the opinions of others including:

(i) corporate officers or employees whom the director reasonably believes to be reliable and competent; (ii) legal counsel, accountants, or other persons as to matters the director reasonably believes are within such person's professional competence; or (iii) a committee of the board of which the director is not a member, if the director reasonably believes the committee merits confidence

bsent a contrary provision in the articles, the board may make the following amendments to the articles without shareholder approval:

(i) extension of the duration of corporate existence if incorporation took place at a time when the law required limited duration; (ii) deletion of the names and addresses of the incorporators, initial directors, and initial registered agent; (iii) changing each issued or each issued and unissued authorized share of an outstanding class into a greater number of whole shares, if the corporation has only shares of that class outstanding; (iv) changing or eliminating the par value of each issued and unissued share of an outstanding class if the corporation has only shares of that class outstanding; (v) changing the corporate name; and (vi) making any other change expressly permitted by the Code to be made without shareholder action

A director has a conflicting interest with respect to a transaction if the director knows that she or a related person

(i) is a party to the transaction; (ii) has a beneficial financial interest in, or is so closely linked to, the transaction that the interest would reasonably be expected to influence her judgment if she were to vote on the transaction; or (iii) is a director, partner, etc. of another entity with whom the corporation is transacting business and the transaction is of such importance to the corporation that it would in the normal course of business be brought before the board.

A proxy will be irrevocable only if

(i) the appointment form says that it is irrevocable and (ii) the appointment is given as security or is coupled with an interest. By statute, proxies are valid for 11 months unless the proxy expressly provides for a different period.

The basic procedure for adopting a fundamental corporate change is:

(i) the board of directors adopts a resolution setting forth the proposed action, (ii) notice is sent to the shareholders, (iii) the change is approved by a majority of all outstanding shares entitled to vote (and by a majority of any class that the proposed action would affect substantially), and (iv) the change is formalized and filed with the secretary of state.

The articles must include:

(i) the name of the corporation; (ii) the number of shares of stock that the corporation is authorized to issue; and (iii) the names and/or street addresses of the registered agent, the registered office, each incorporator, and the corporation's principal office.

A conflicting interest transaction will not be enjoined or give rise to an award of damages due to the director's interest in the transaction if:

(i) the transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board; (ii) the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders; or (iii) the transaction was fair to the corporation

Nevertheless, such a conflicting interest transaction will not be enjoined or give rise to an award of damages if:

(i) the transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board; (ii) the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders; or (iii) the transaction, judged according to circumstances at the time of commitment, was fair to the corporation.

There are three recurring situations in which the corporate veil is often pierced:

(i) when corporate formalities are ignored and injustice results; (ii) when the corporation is inadequately capitalized at the outset; and (iii) to prevent fraud.

Each case is different, but there are three recurring situations in which the corporate veil is often pierced:

(i) when corporate formalities are ignored and injustice results; (ii) when the corporation is inadequately capitalized at the outset; and (iii) to prevent fraud. Insolvency of the corporation due to poor management generally would not be a reason to pierce the veil, although insolvency that occurs soon after incorporation might indicate that there was undercapitalization at the outset.

Which of these corporations would most likely be deemed the "alter ego" of its sole shareholder for the purposes of piercing the corporate veil and holding that shareholder personally liable for the corporation's debts?

A corporation in which the sole shareholder uses the assets of the corporation to pay her personal bills, leaving the corporation unable to pay its own creditors.

A corporation formed in accordance with all applicable laws is known as:

A de jure corporation.

Which of the following transactions most likely would be considered a conflicting interest transaction that could be enjoined or give rise to an award of damages?

A director places the deciding vote that a corporation will make an interest-free loan to a start-up company that the director has formed, after fully disclosing his personal connection to the company to the other voting board members.

Which of the following qualities is generally considered a characteristic of the corporate form?

Centralized management; Limited liability for owners; Free transferability of ownership.

Absent a contrary provision in the articles, the board may make each of the following amendments to the articles of incorporation without shareholder approval

Deleting the names and addresses of the incorporators, initial directors, and initial registered agent of the corporation; Extending the duration of corporate existence if incorporation took place at a time when the law required limited duration; Substituting the word "Inc." in place of the word "Co." in the corporation's name.

To have standing to bring a derivative action, a shareholder must:

Have owned her shares at the time of the alleged wrong (or received them by operation of law from one who was a shareholder at that time).

When can a director be removed by the shareholders?

Only at a shareholder meeting called for that purpose, and the notice of the meeting must state that purpose.

How much power do shareholders generally have in determining whether or not to declare the payment of a dividend?

Shareholders have very little right to compel the payment of a dividend; declaration is generally solely within the board's discretion.

What does it mean to say that shares have a preference?

Shares that have a preference are entitled to a fixed amount of money before distributions can be made with respect to nonpreferred shares.

What must a majority shareholder do to inspect the corporation's accounting records?

She must give five days' written notice of her request, stating a proper purpose for the inspection.

Preincorporation subscriptions are irrevocable for ____________________ from the date of the subscription unless otherwise provided in the terms of the subscription, or unless all subscribers consent to revocation.

Six months.

Which of these choices outlines the usual steps for adopting a fundamental corporate change?

The board adopts a resolution setting forth the proposed action; a notice describing the proposed change is sent to the shareholders; the change is approved by the shareholders; the change is formalized in articles that are filed with the secretary of state.

If a corporation includes a narrow purpose statement in its articles of incorporation:

The corporation may not undertake activities unrelated to achieving the stated business purpose and if it does so, those activities may be enjoined.

Which of the following best states the standard for a director's duty of care?

The director must exercise the same degree of care and prudence that a reasonably prudent person would exercise in a like position under similar circumstances.

Which of the following statements regarding the estoppel doctrine is true in the context of corporations?

The estoppel doctrine can be used to prevent an outsider who had dealt with an entity as if it were a valid corporation from later denying the corporation's existence.

The articles of incorporation must include all of the following information about the corporation:

The name of the corporation; The number of shares the corporation is authorized to issue; The name and address of each incorporator.

Which of these alone is an adequate reason for upholding a conflicting interest transaction?

The transaction was fair to the corporation; The transaction was approved by a majority of the votes entitled to be cast by the shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders; The transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board.

Which of the following statements best summarizes the law regarding preemptive rights for newly formed corporations in Georgia?

Unless the articles of incorporation provide otherwise, shareholders of closely held corporations have preemptive rights but shareholders of other corporations do not.

When might a court "pierce the corporate veil"?

When corporate formalities are ignored and injustice results; When the corporation was inadequately capitalized at the outset;When necessary to prevent fraud on creditors

When does corporate existence begin?

When the articles of incorporation are filed.

In which of these situations is a court least likely to pierce the corporate veil?

When the corporation becomes insolvent due to poor management.

When is a corporation liable for a pre-incorporation contract that a promoter signed on behalf of the corporation?

When the corporation expressly or impliedly adopts the contract as its own.

Can a shareholder's proxy be revoked?

Yes, a proxy is revocable at any time, unless the appointment form states that the proxy is irrevocable and the appointment is coupled with an interest.

Does a promoter who signs a contract in the name of a planned, but as of yet unformed, corporation remain personally liable on the contract once the corporation is formed?

Yes, unless the parties agree to a novation.