Business Law - Chapter 33

Pursuant to the Model Act, under which of the following circumstances may a corporation not have any directors?

The corporation has 50 or fewer shareholders All shareholders sign an agreement that eliminates the board

All stock in a series has the same rights, and all series in a class are fundamentally the same except for minor distinctions.

True

The defendant-directors in Rodriguez v. Loudeye Corporation could only be found liable if they acted with an actual intent to do harm.

True

The first set of a corporation's directors are elected by the incorporators. All others are elected by shareholders.

True

Which of the following are features of stocks that may be defined in different ways for different classes and series?

Voting rights Redemption rights Dividend rights Preemptive rights Liquidation rights Conversion rights

Delaware's Chancery Court

is a specialized business court with judges who are experts in corporate law

Who may challenge a validity of a de facto corporation?

the state

Cumulative voting enables a shareholder with less than a majority of the company's shares to singlehandedly elect a director by allowing the shareholder

to aggregate her shares and vote them all for the same person

Which of the following are ways a corporation can adopt a contract executed by the promoter prior to the formation of the corporation?

Acting as if the corporation adopted the contract Taking a formal vote to adopt the contract

Zoom-Bot has common stock and cumulative preferred stock shareholders. The company is issuing dividends for the first time in three years. How will the dividend funds be divided by the shareholders?

All cumulative preferred shareholders will be paid for all previously unpaid dividends along with this year's and any remaining funds will go towards the payment of this year's dividend to common shareholders.

In which of the following states must a corporation pay filing fees and franchise taxes?

Any state in which it has ongoing business State of incorporation

The Resolution Trust Corp. (RTC) sued the directors of the Commonwealth Savings Corp. (CSC) seeking to recover from them personally $200 million that the bank lost in bad real estate loans. The directors approved the loans after state and federal regulatory agencies had issued reports criticizing the bank's loan practices, but the loans did not violate any laws. CSC's charter stated that the purpose of the corporation "is to engage in any lawful activity for which corporations may be organized." Under Texas law, RTC could recover for CSC directors' negligence only if their acts were ultra vires. Will RTC be able to recover from the directors?

No, because there is no indication that the board acted without authority or illegally.

Corporation by estoppel

Party has entered into a contract believing in good faith that the corporation exists.

Authorized and unissued stock

Stock that has been authorized but not yet sold

Michi Corp.'s board of directors has determined that the insolvent company will not be able recover financially and it is best to terminate the corporation. The board unanimously votes to dissolve and makes a recommendation to dissolve to the shareholders, but only 40 percent of the shareholders vote to approve dissolution. The shareholders insist that Michi is simply mismanaged and can be saved if the board appoints a new CEO. May the Michi board request a court to order dissolution of the company?

Yes, because a court may dissolve a corporation if it is insolvent or if its directors and shareholders cannot resolve a conflict over corporate management.

A corporation may include in its charter an _________________ provision, which requires the company to pay the legal fees of directors who are sued for any actions taken on behalf of the company. Corporations may also include an _____________ provision to protect directors from personal liability to the corporation or its shareholders for anything other than egregious misbehavior, such as intentional misconduct.

indemnification exculpatory

MegaCorp has five directors and 1,050 shares of voting stock. Jessica would like to purchase enough stock to elect herself to the board of directors. How many shares of MegaCorp stock will Jessica need to own to secure a place on the board of directors?

176 shares if MegaCorp uses cumulative voting and 526 shares if MegaCorp uses regular voting.

Which of the following are advantages of incorporating in Delaware?

An efficient court system An established body of law that makes outcomes predictable Flexible laws that favor management A neutral arena

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

Commingling assets Inadequate capitalization Fraud Failure to observe formalities

Hannah owns non-voting stock shares in Asset Management, Inc., but would like to vote at the next shareholders meeting. What tool could help Hannah gain the authority to vote in shareholder meetings?

Conversion Rights

The court in Rodriguez v. Loudeye Corporation applied

Delaware law, because that is where the company was incorporated

The court in Atze, Inc. v. Auto Collection, Inc. was willing to pierce the corporate veil with respect to Steven because he did which of the following?

Failed to observe corporate formalities Commingled assets Treated the company as his alter ego

A corporation cannot be involuntarily dissolved.

False

Originally, par value could be some nominal value, but now it is close to the market value because companies cannot sell the stock for less than par.

False

The promoter is the first shareholder of the corporation.

False The promoter is the person who creates the corporation

George is president of Plumbers, Inc. He signs a contract with Susan, which calls for Susan to perform some services and receive $10,000. Susan performs, but Plumbers does not pay. Which of the following, if true, will grant Susan the right to recover from George personally?

George commingled personal assets with corporate assets.

Wayne borrows money from Phyllis, who in good faith represents herself as an agent for Retail Lender, Inc. Wayne learns that Retail was never incorporated due to a significant error in Phyllis' incorporation paperwork. If Phyllis sues to recover the loan amount, can Wayne avoid liability based on the fact that Retail does not exist?

No, because Retail is a corporation by estoppel.

Marcus owns common stock in XO, an oil and energy company that is about to be liquidated. Is Marcus guaranteed to be paid in the process of dissolution?

No, unless there are assets remaining after all creditors and preferred stockholders are paid.

Which of the following information must a corporate charter include regarding the company's stock?

Par value Number of shares Classes and series

Companies can reserve names by paying a fee in Delaware and by creating a "nameholder" corporation in other states.

True

Denise was a promoter for a proposed corporation, EVR-Young Corp. As promoter, she signed a three-year lease to rent office space from Landlord. She signed her name and indicated below her signature she is signing as "promoter for EVR-Young Corp., a company yet to be incorporated." EVR-Young never files incorporation documents with the state. Is Denise personally liable for the lease?

Yes, she remains liable as the promoter on a contract for which there has been no novation.

Under the ultra vires doctrine

a corporation cannot undertake any transactions unless its charter permits it

The court in In Re Bigmar found that the directors

acted in good faith, but failed to comply with the bylaw's procedural requirements

One of the primary reasons corporations are required to have an official address in the state of incorporation is so that

anyone who wants to sue the corporation con serve the complaint in the state

Several states have amended their corporate laws to bring them more in line with those of Delaware in order to

collect more filing fees and corporate taxes

A novation

creates a new contract

Shareholders may elect directors by ____________ or by providing ____________, which is more common for a _________.

holding a meeting written consent small corporation

A promoter may be released from liability from a contract once adopted by the corporation

if the corporation and third party sign a novation or if it is clear that the parties did not intend the promoter to remain liable.

A corporation's name must

include "Corporation" or an acceptable equivalent and must be unlike any other corporation's name that already exists in the state.

The ___________ signs the charter and files it with _____________. She need not _____________ or even have a(n) _____________ with the company. She is liable if she knows that ___________ when she signs it.

incorporator the Secretary of State own stock future relationship something in the charter is untrue

The written consents and any records of actual meetings are kept in an official record of the corporation called the

minute book

A company can only incorporate under ____________ law because there is no ___________ corporation code. A company may incorporate ________ regardless of where it ____________, and must live by the laws of whichever state it chooses for ______________.

state federal in any state actually does business incorporation

A company is called a domestic corporation in the state ____________ and a _______________ everywhere else. A corporation must _____________ in any state in which it is doing business, which is any state in which it ____________ or establishes any other ______________.

was incorporated foreign corporation register opens an office ongoing business

Which of the following is required to change a provision of a corporate charter?

Shareholder vote Filing amendment with Secretary of State

Outstanding Stock

Stock that has been sold

Treasury Stock

Stock that has been sold and later bought back

Bylaws are easier to amend than a corporate charter, because the charter may permit directors to amend the bylaws, but the charter can only be amended by shareholder vote.

True

De jure corporations

Promoter has substantially complied with the requirements for incorporation, but made some minor error.

De facto corporations

Promoter made good faith effort to incorporate and has actually used the corporation to conduct business.

Which of the following generally do not count as "doing business" for a corporation?

Holding meetings Isolated transactions Opening bank account

Which of the following are typical requirements of a start-up's shareholder agreement?

If shareholder dies, his estate must offer the stock to the company or other shareholders Shareholder cannot offer stock to outsider for less than par value Shareholder looking to sell must offer the stock to the company at the same price outsider has offered

Which of the following, if true, would be most helpful to Simpson and Stamm in avoiding personal liability in GS Petroleum, Inc. v. R and S Fuel, Inc.?

On March 10, Simpson and Stamm gave all of the necessary paperwork for incorporation to their lawyer, who told them he would file it promptly and let them know if there were any issues.

Isabel, Wesley, Gina, and Lucas worked together intensively to form an environmentally conscious corporation named Icon Corp. They are the only shareholders. Is there anything the group can do to avoid having Icon shares sold to someone who does not share their vision for the environment?

Yes, they can sign a shareholder agreement.

A promoter is __________________ liable for any contract signed _____________ the corporation is formed. The _______________ is liable for contracts signed before it was formed if ___________________. The promoter remains liable until the _______________ agrees to a(n) ____________.

personally before corporation it adopts them third party novation