CA Corporations

Stock: Pre-emptive Rights

e) Preemptive rights: Right for Shareholder to keep stock proportion. (1) Traditional rule: Shareholder has right to buy stock during new issuance to maintain proportion when the new issuance is for money. (2) Modern trend: Preemptive rights do not exist unless mentioned in articles.

Promoters: Secret Profit Rule

e) Secret profit rule: Promoter cannot make secret profit on dealings with corporation. (1) Property acquired before becoming Promoter: Promoter gives back anything received over fair market value. (2) Property acquired after becoming Promoter: Promoter gives back anything over cost.

Stock Transfer Restriction

(1) Stock transfer restrictions will be upheld provided that they are reasonable under circumstances, which means restraint on alienation is not undue. (2) A right of first refusal: ...(a) It is the restriction that shareholder must first offer to corporation before selling to others. ...(b) It is acceptable so long as price offered is reasonable. b) Action against transferee of stock: ...(1) Look for his knowledge or notice. ...(2) Even if restriction is reasonable and valid, it cannot be invoked against transferee unless either it is conspicuously noted on stock certificate or transferee had actual knowledge of restriction.

Officers and Directors: Liability - Scope

(1) Ultra vires: Responsible officers and directors are liable for ultra vires acts. (2) Improper distributions. (3) Securities liabilities. (4) Improper loans: (a) First approach: Loans must be approved by majority of shares. (b) Second approach: Loans are appropriate if Board of Directors finds it reasonably expected to benefit corporation (c) Sarbanes-Oxley Act (2002) prohibits most loans to executives in registered, PUBLICLY TRADED corporations.

Shareholder: Dividends - Funds - Insolvency/Unlawful

(4) Corporation can make distribution even if it lost money last year, but corporation cannot make distributions if it would render it insolvent. Some states say also insolvent if assets are less than liabilities and liabilities include liquidation or dissolution preferences. (5) Directors are personally liable for unlawful distributions, as are shareholders who knew the distribution was unlawful when they received it.

Shareholder: Meetings

(a) Annual meeting to elect directors can be held anywhere: Court can order one if not held. (b) Special meeting: (i) Can be held anywhere. (ii) Can be called by Board, president, holders of at least 10 % voting shares, or anyone provided in the certificate.

Officers and Directors: Transaction Involving Corporation - Exceptions

(a) If director or officer shows that the deal was fair and reasonable to corporation when entered, or (b) Director or officer shows material facts and his interest were disclosed or known and deal was approved by either: ...(i) Majority of the disinterested directors, or ...(ii) Majority of the disinterested shares. (c) Special quorum rule: Interested directors might count toward quorum or quorum may be majority of disinterested directors or shares. (d) Interested director or officer may still have to prove fairness even after his transaction has been approved.

Officers and Directors: Nonfeasance

(a) Nonfeasance: Director does nothing. (i) Duty of care standard: An ordinarily prudent person would attend some meetings and stay abreast of the business, so not attending meetings breached the duty of care. (ii) However, director is liable only if his breach caused loss to corporation.

Shareholder: Voting Methods - Quorum

(a) There must be a quorum represented at meeting. (i) Determination of a quorum focuses on number of shares represented, not number of shareholders. (ii) Generally, a quorum requires a majority of outstanding shares. (iii) Generally, quorum is not lost if people leave the meeting, unlike directors quorum. (iv) Articles can move up or down number of shares required for quorum but it can be never be less than 1/3 of shares entitled to vote (v) If quorum is met, a majority may act to bind corporation unless articles or bylaws require higher vote. (a) Traditional view: Need majority of shares present. (b) Modern trend: Need majority of the shares that actually voted.

Officers and Directors: Misfeasance

(b) Misfeasance: Board does something that hurts corporation. (i) Duty of care standard: Directors has duty to act in good faith and with degree of diligence. (ii) If directors have carefully inspected his decision making process and still caused corporation to lose money, then he is not liable because he has met the business judgment rule (BJR).

Insider Trading: Requirements

(b) The bad act must be in connection with purchase or sale of any security, includes debt or equity securities. (c) Materiality, misrepresentation or omission must concern a material fact that a reasonable investor would consider important in making investment decision. (d) Scienter: Defendant must have intent to deceive, manipulate, or defraud. While recklessness suffices, negligence does not. (e) Reliance: Reliance is presumed in cases of non-disclosure and public misrepresentation

Insider Trading: Violations

(i) Misrepresentation of material information. (ii) Nondisclosure of material inside information when duty to disclose exists: Insiders cannot trade on secrets and must abstain or disclose so everybody is trading fairly. (iii) Tipping: Passing along material inside information for a wrongful purpose.

Corp Powers

1. Share re-purchase: Corporation can get treasury stocks back and sell it again. If resold, treat it as no par. 2. Gifts and loans: Loans or gifts can be given out by Board of Directors if they are reasonably expected to benefit the corporation. 3. Asset transfer: Corporation only has the power to sell or transfer all of its assets with Board of Director's resolution, notice to all voting Shareholder, and majority approval of all shares entitled to vote.

Insider Trading: Short Swing Profits

2. Short swing profits: Federal Rules 16-b poses strict liability on directors, officers, and 10% shareholders who speculate and provides for recovery by corporation of profits gained by certain insiders from buying and selling the company's stock. a) Reporting corporation must be listed on national exchange or has at least 500 shareholders with $10 million in assets. b) Type of defendant: (1) Director: Either when he bought or sold, or (2) Officer: Either when he bought or sold, or (3) Shareholder who owns more than 10%: Both when he bought and sold, determined BEFORE THE BUY OR SALE c) Type of transaction: Short-swing trading refers to buying and selling stock within a single 6-month period. d) Consequence of 16-b: All profits from such short-swing trading are recoverable by the corporation. (1) Profits: If, within 6 months before or after any sale, there was a purchase at a lower price, there is a profit. (2) It is a profit even if you buy after you sell, so long as you buy at a lower price than that at which you sell.

Officers and Directors: Inspection Rights

4. Inspection rights: Directors and officers do not have to make showing to get inspect corporation records. They have unfettered accesses to them because of their management responsibilities.

Officers and Directors: De Facto

8. De facto officers and directors: a) Definition: A de facto officer or director is not a legal director or officer, but he acts like one and is treated like one. As a result, he has the same fiduciary duty and is subject to the same liability without the same protections. b) Duty and right: (1) While a de facto officer or director has the same general powers as a legal one and usually binds the corporation with his acts and contracts, he may not have the same rights or protections. (2) A de facto officer or director has the same fiduciary duty, and is subject to the same liability, as a legal officer.

Officers and directors: Duty of Loyalty

A director or officer has duty of loyalty to act in good faith and with the conscientiousness, fairness, morality and honesty that the law requires of fiduciaries.

Shareholder: Voting Trust

Requirements for voting trust: (i) There is a written trust agreement controlling how the shares will be voted. (ii) The copy is sent to corporation. (iii) Voting trust transfers legal title of shares to voting trustee. (iv) Original shareholders receive voting trust certificates and retain all shareholder rights except for voting. (v) Time limit on voting trusts: 10 years maximum.

Promoters

Actions by promoters: a) Promoters: Persons acting on behalf of corporation not yet formed. b) Promoters are liable for their actions on behalf of a pre-incorporated corporation until there is a novation. c) Corporations not liable for pre-incorporated corporation contracts unless they are later adopted. d) Adoption: (1) Express: Board of Directors resolution. (2) Implied: If corporation accepts benefits of the contract. (3) Novation is still needed for promoter to be released from liability even after adoption.

Officers and Directors: BJR

BJR: When controversial situation arises, directors and officers are protected if the decision is rational, after reasonable investigation, and with no taint of self-dealing.

Close Corp

Close corporations: Corporation with few shareholders and stock is not publicly traded. 1. Formation: Same as corporation with additional information in the Article of Incorporation filed with Secretary of States. a) Specified number of shareholders cannot be more than 35. b) A husband and wife or a principal and representative should be counted as one shareholder no matter how the shares are distributed. c) A corporation should cease to be a close corporation upon its having more than the maximum number of holders specified in its articles. 2. Officers and directors rights and liabilities: Officers and directors owe duty of loyalty to shareholders and corporation. 3. Shareholders rights and liabilities: a) Shareholders can manage business directly in a close corporation. Managing shareholders owe duties of loyalty and care. b) In a close corporation, shareholders owe each other fiduciary duties on shareholders in their dealings with each other. c) Controlling shareholders owe fiduciary duty to act in good faith and not oppress minority shareholders. 4. Creditors' rights: Members of a corporation are personally liable if the business of a corporation is being carried on recklessly, with gross negligence or with intent to defraud any person. 5. Dissolution: Dissolution occurs similar to those of business corporation, but court often order buy-out of the complaining shareholders in close corporation.

Shareholder: Cumulative Voting

Cumulative voting is only available in voting for directors. It is a device to help small shareholders get representation on the Board. (i) # of votes: Multiply # of shares and # of director to be elected. (ii) Example: Sarah owns 1,000 shares of stock in Corporation. Corporation has 9 directors open for election. Under cumulative voting, Sarah has 9,000 votes. (iii) Generally, if Articles of Corporation is silent, then shareholders cannot vote cumulatively for directors. c) Inspection: Shareholders have right to inspect books and records of corporation, either through an agent or in person.

Insider Trading: Damages

Damages: Difference between price paid and price reasonable time after news went public. b) Common law insider trading: Also known as non-disclosure of special facts doctrine. (1) Many courts impose upon directors and officers affirmative duty to disclose special facts in securities transaction. (2) SPECIAL FACTS: Those a reasonable investor would consider important in making investment decision. (3) Who can sue: A shareholder with whom director or officer deals or a prospective investor may sue. (4) Measure of damage: Difference between price paid and value of stock a reasonable time after public disclosure. (5) In some states, the corporation can sue the insider to recover profits he made in market trading on inside information. (If no instrumentality of interstate commerce - this is the only theory)

De Facto Corporation & Corp by Estoppel

De facto corporations: An institution failing the de jure requirements can still be treated as a corporation if it put in a good faith effort to create corporation and exercises corporation privilege. f) Corporation by estoppel: (1) When a person deals with and treats an institution like a corporation, this person is stopped from later denying the existence of the corporation. (2) A corporation cannot say it is not a corporation to avoid obligations.

Corp Powers: Ultra Vires

Describes acts attempted by a corporation that are beyond the scope of power granted by the corporation's founding documents. b) Ultra vires deals are valid, but Shareholder can get injunction and responsible individuals are liable to the corporation.

Officers and Directors: Conflicts of Interest

Directors and officers owe shareholders and corporation duty of care (as well as DOL). Directors and officers must act in good faith with the degree of care an ordinarily prudent person would under similar circumstances and position. a) Conflicts of interest: Directors and officers should not have conflicts of interest with corporation in any dealings. (1) Competition against corporation: If a director or officer enter into a competing venture and breaches duty of loyalty, he may be liable for constructive trust on his profits OR corporation's damages. (2) Transactions involving corporation: When a director or officer has interest in a corporation transaction, then interested director or officer transactions will be SET ASIDE with exceptions (card)

Piercing Corporate Veil

Disregard of the corporate entity: Also known as pierce the corporate veil (PCV). 1. Generally, shareholder is not liable for debts or acts of corporation. Court may disregard of the corporate entity and hold shareholders personally liable if they abused privilege of incorporating and fairness demands it. 2. Examples: a) Alter ego: Shareholders commingles personal and corporation funds and practices excessive domination over corporation. b) Undercapitalization: When corporation fails to invest enough to cover prospective liabilities, they are personally responsible for it. (1) Companies that deal with hazardous materials such as nuclear waste need to have sufficient insurance covering it. (2) Instead of PCV, court may subordinate shareholder debt to that of outsider. Hint: Generally, courts are more willing to PCV for a tort victim than for a contract claimant. Watch for PCV in a related corporation where Parent Corporation forms a subsidiary to avoid obligations.

Dissolution

Dissolution does not end corporate existence. Corporation stays in existence to wind up. b) Distribution of assets: 4 steps in winding up or distribution of assets after dissolution. (1) Gather all assets. (2) Convert to cash. (3) Pay creditors. (4) Distribute remainder to shareholders, pro rata by share unless there is a dissolution preference, where the preferred shares get paid first.

Shareholder: Dividends

Distributions to shareholders can be in dividend, payment to repurchase shares, or to redeem shares. Redeem shares is forced sale to corporation at price set in certificate. (1) Distributions are declared in Board's discretion. (a) There is no shareholder right to a distribution until it is declared. (b) Action to force declaration is tough to win: Must show unfairness, such as corporation consistently making profit and Board refusing to declare dividends while paying themselves bonuses. (2) Shareholders get their dividends in the order of preferred, participating, cumulative, or common stock.

Shareholder: Vote

Eligibility to vote: Generally, record owner as of record date has the right to vote. (a) Record owner: Person shown as owner in corporation records. (b) Record date: A voter eligibility cut-off, set no fewer than 10 and no more than 60 days before meeting. (c) Exceptions to general rule: (i) Even if it is record owner on record date, corporation does not vote treasury stock. (ii) Death of shareholder: If the record owner shareholder died after record date, then his executor can vote the shares.

Insider Trading (Rule 10-b)

Federal law insider trading: Buyer or seller of securities who fails to disclose material inside information when there is a duty to abstain or disclose. Duty comes from relationship of trust and confidence with shareholders of corporation. (1) Instrumentality of interstate commerce: A transaction must employ some instrumentality of interstate commerce (e.g., telephone, mail, or if deal goes through national exchange).

Officers and Directors: Liability

General rule: A director is presumed to have concurred with Board action unless his dissent or abstention is noted in writing in corporate records. --> Writing means: (a) Minutes. (b) Writing to corporation secretary at the meeting. (c) Registered letter to corporation secretary promptly after adjournment. --> Exception: If mistake was made after directors relied in good faith on auditors, employees, professionals, or book value of assets.

Controlling Shareholder: Fiduciary Obligations

Increasingly, courts impose duties on controlling shareholder, owed to corporation and to minority shareholders. Can sell at Control premium, which is appropriate unless: (1) Sale to looters: Controlling shareholder is liable if he sells to looters without making a reasonable investigation of a buyer. Liable for damage caused to corporation, including amount looted and other harm, such as damage for earnings. ...(a) Watch for facts that would put a reasonable person on notice of a problem. (2) Disguised sale of corporate asset: Buyer pays a premium to the controlling shareholder so he can get his hands on an asset of the corporation. Controlling shareholder has no right to sell a corporate asset. All shareholders should share in premium paid by buyer. (3) Sale of a board position: Fiduciary cannot get paid to relinquish his position. Watch for controlling shareholder selling his control shares and then resigning from the Board along with his allies. It is appropriate for a new controlling shareholder to elect new directors, but it is not for the controlling shareholder to relinquish his position. (4) Controlling shareholder cannot oppress minority shareholder to detriment, especially in close corporation because there is no public market for the stock.

Stock

Issuance of stocks: Issuance happens when a corporation sells and trades its own stocks. a) Subscriptions of stocks: Written offers to buy stock from corporation. (1) Pre-incorporation offers are irrevocable for six months, unless all parties agree. (2) Post-incorporation offers can be revoked up until acceptance. b) Consideration for stocks: Can be in the form of money, property, or services already performed for the corporation. However, it cannot be in the form of future services or promissory notes. c) Amount: Generally, a corporation must receive consideration at least in the amount of the total par value of the stock. If stock is no par, then Board of director sets a price. (1) Par: Minimum issuance price. (2) Treasury stock: Reacquired stock. (3) Corporation can take in property, instead of money, when issuing par value stock. d) Watered stock: (1) Definition: ISSUING stock for less than par value. (2) Corporation can go after Board of Directors buyers if they did it knowingly. If buyers sold watered stock to bona fide purchasers, cannot go after bona fide purchaser.

Shareholder: Meetings - Notice

Notice requirement: Must give written notice to every shareholder entitled to vote, for every meeting, either annual or special. (i) Form of notice: Fax and email are accepted. (ii) Contents of notice: Must state when and where meeting is held and purpose of meeting. The stated purpose is the only business that can be transacted at that meeting. (iii) Consequence: Without proper notice, action taken at meeting is void unless those not sent notice waive notice defect expressly or impliedly. (a) Express: In writing and signed anytime. (b) Implied: Attend the meeting without objection.

Officers and Directors: DOL/Usurp Corp Opportunity

Obligations with respect to corporate opportunities: Directors and officers cannot usurp corporation opportunity unless director discloses to Board of Directors and waits for them to reject opportunity. If breached, remedy is constructive trust.

Shareholder: Dividends - Classes

Preferred stock - e.g. each share has a $2 preference which must be paid first Preferred Participating stock: Gets the preference (e.g. $2) AND gets the common dividend as well Cumulative preferred stock: If its $2 preference hasn't been paid in last 3 years+this one, needs to be paid $8 for any other shareholder to also get paid

Professional Corp

Professional corporations (P.C. or P.A.): Members of a licensed profession, like doctors and lawyers, cannot practice profession through a general business corporation, but they can form a professional service corporation. 1. Formation: In general, P.C. is governed by rules of corporation. Certificate must meet general corporation requirements except for use of "P.C." and must indicate profession to be practiced and include names and addresses of original shareholders, directors, and officers. There must also be certification that each shareholder, director, and officer is licensed to practice profession. 2. Operation: a) All shareholders in a P.C. must be licensed professionals. b) Many P.C. operates like a partnership, where decisions are made among the members. 3. Creditor rights: a) Professionals are liable for their own malpractice. b) Professionals are liable for contracts entered in P.C.'s name. 4. Dissolution: Dissolution can occur through either filing article of dissolution or by failing to comply with the rules. a) If a shareholder dies or is disqualified from the practice, the P.C. must purchase his stock to prevent passing by inheritance to a non-professional. b) Otherwise, the P.C. certificate may be forfeited

Shareholder: Vote - Proxies

Proxies: Record owner can give away its voting right through proxy. (a) Proxy is writing, including fax or email, signed by record shareholder or authorized agent, and directed to secretary of corporation, authorizing another to vote shares. (b) Proxy is good for 11 months unless it says otherwise. (c) Record owner can revoke the proxy by writing to the secretary of corporation. (d) Proxy is revocable even if it says irrevocable unless it is proxy coupled with interest. (i) Proxy coupled with interest: The proxy-holder has some interest in shares other than voting. (ii) Example: Proxy-holder bought the irrevocable proxy.

Shr Derivative Suit: Remedy

Remedy: Generally, recovery in any successful derivative suit goes to corporation, and shareholder receives costs and attorney fees, usually from judgment won for corporation. (1) Exception: Shareholder may recover damages directly in a derivative suit if returning money to the corporation will put the money in the ones who caused the damages.

Shareholder: Voting Agreement

Requirements for voting agreement: Also known as pooling agreement. (i) Shareholders can enter into voting agreements. (ii) A signed writing is required. (iii) Voting agreements are specifically enforceable, but this decision is split.

Shareholders Agreements

Shareholders can enter into agreements to vote their shares to elect each other to the Board of directors. (a) Not allowed: Agreement as what they would do as directors. (b) It is against public policy for directors to HINDER the exercise of independent judgment.

Formation

Statutory requirements: To create de jure corporations, one or more incorporators need to file the signed Articles of Incorporation with Secretary of State and pay the required fee. a) After filing: The Board of Directors need to hold an organizational meeting where they select officers, adopt any bylaws, and conduct other appropriate business. b) Incorporators: Can be a person OR ENTITY c) Articles has to include: (1) Purpose: It can be general or specific. (2) Names and addresses of incorporators and registered agent. (3) Business name must have corporation, Inc., Co., etc. (4) Financial structure: (a) Authorized stock, issued stock, outstanding stock. (b) Number of shares per class, par value, voting rights, preferences of each class. d) Effect of defective incorporation: Corporation is a separate legal person. Generally, directors and officers are not personally liable for its obligations and owners are liable only for the price of their stocks. However, when incorporation process is defective, they are still liable personally. (see De Facto)

Shareholder: Dividends - Funds

Surplus generated by business activity: (i) Surplus can be used for all distributions. (ii) Surplus: All earnings - all losses - distributions previously paid (b) Stated capital generated by issuing stock: ....(i) Stated capital can never be used for distributions. ....(ii) Stated capital only includes stocks at par value. Stock value over par is counted as capital surplus. ....(iii) When there is a no-par stock, the Board can allocate between stated capital and capital surplus. ....(iv) Capital surplus: (a) Generated by issuing stock, but only the payments in excess of par plus amounts allocated on a non-par issuance are capital surplus. (b) Stated capital can be used for distributions if shareholders are informed.

Shareholder: Right to Inspect

Traditional view: To have the right to inspect, a person must have owned stock at least 6 months, or own at least 5 percent of the outstanding shares. (b) Modern trend: Any shareholder should have the right. (2) Procedure: Written demand stating a proper purpose, which is related to his role as a shareholder. The purpose can be hostile to the directors or officers. (3) Consequence: If corporation refuses to allow inspection, then Shareholder moves for a court order, and, if successful, recovers costs and attorney fees incurred.

Shareholder: Act

Two ways shareholders can take a valid corporation act: (i) Unanimous written consent signed by holders of all voting shares. (ii) A meeting satisfying quorum and voting rules. (a) If certificate allows, shareholders can take action without meeting if there is an agreement in writing of holders of enough shares to pass a resolution.

Articles of incorporation and bylaws

While Articles of incorporation needs to be filed, bylaws is not required when forming a corporation. Bylaws are later adopted by Board of Directors and can be amended or repealed by Shareholders. If bylaws are inconsistent with Articles, then Articles controls.

Officers and Directors: Election, Resignation, Removal

a) Election of directors: Shareholder elects directors at annual meeting for the entire Board, staggered, or classified. (1) A corporation can have classified or staggered Board of Directors: Positions are grouped into classes and each class is elected by a class of shares. b) Resignation: Officers or directors cannot get paid to relinquish their positions. c) Removal of directors: (1) Shareholder can remove directors before their term expires without cause with a majority of vote. (2) Board of Director or Shareholder fills any vacancy. However, if slot is created because Shareholder removed someone, then Shareholder can pick whom to fill. d) Selection and removal of officers: Officers are selected and removed by directors, who also set their compensation. If officer is removed, can get money damages but not his office back.

Officers and directors: Compensation

a) Officers' compensations are set by the directors. b) Directors can set their own compensation, but compensation must be reasonable and in good faith. (1) If the compensation is excessive, then it is a waste of corporate assets and a breach of duty of loyalty.

Shareholder Liability

a) Shareholders generally enjoy limited liability, which means they are liable only for the price of their stock. b) Fraud: (1) Common law fraud may apply to misrepresentations in the sale of stock, allowing suit by the defrauded buyer or seller against a fraudulent shareholder. (2) For shareholders, fraud covers overt lie but not half-truth or failure to disclose.

Officers and Directors: Meetings and Actions

a) There are 2 ways the board of directors can take a valid act. (1) Unanimous written consent to act without a meeting, or (2) Meeting that satisfies quorum and voting requirements: Meeting can be held anywhere, including conference call if all directors can hear each other simultaneously. b) Notice requirements for Board meetings: (1) Regular meetings: Notice requirements can be set in by-laws. (2) Special meetings: Any action taken is void -- unless director waived notice defect in WRITING or by attending a meeting without objection. c) Voting rules: (1) A director cannot give a proxy for director voting. (2) A director cannot enter voting agreements on how he votes as a director because it is against public policy. d) Quorum for a meeting: To do business, corporation must have a majority of all directors unless bylaws provide otherwise. Once meeting has a quorum, passing a resolution requires majority vote of those present. (2) If there is no quorum, any action taken is void unless ratified by a valid act. (3) Quorum of director can be lost if people leave in the middle of the meeting. This rule is different from shareholders quorum.

Dissolution: Voluntary

a) Voluntary: There are 2 ways to voluntarily dissolute. After either, file articles of dissolution and give notice to creditors. (1) Board of directors resolution and approval by majority of the shares entitled to vote, or (2) Some states, unanimous written shareholder agreement is sufficient to dissolute.

Officers and Directors: Indemnification

a) When a person is sued in his capacity as officer or director and incurs costs such as attorney fees, fines, a judgment or settlement, he can seek reimbursement from corporation. (1) Prohibited: Reimbursement is prohibited if officer or director was HELD LIABLE to corporation or held to have received an IMPROPER personal benefit. (2) Mandatory: Some states, corporation must reimburse director or officer if he was successful in defending action. (3) Permissive: Reimbursement may be given in the following ways when none of the other options apply. (a) Corporation may reimburse officer or director if he acted in good faith and for purpose reasonably believed to be in corporation's best interests. (b) Court in which officer or director gets sued can order Corporation to reimburse litigation expenses and attorney fees if Corporation is reasonably entitled to the fees, but reimbursement cannot include judgment against him. b) Articles can provide for limitation or elimination of liability for damages but not for breach of duty of loyalty, intentional misconduct or wrongful personal benefit c) Corporation can buy insurance to cover director and officer liability.

Officers and Directors: Delegation of Authority

b) Delegation of authority: (1) Board of directors manages business of corporation. It sets policy, supervises officers, declares dividends and other distributions, recommends fundamental corporate changes, and etc. (a) Board can delegate substantial management functions to a committee of one or more directors. (b) However, a committee cannot: ...(i) Amend, repeal or adopt by-laws. ...(ii) Declare dividends. ...(iii) Submit a fundamental corporation change to shareholders. (2) Officers are agents of corporation, so they can bind corporation to deals if they have agency authority to do so. (a) Actual authority: Authority given in articles, bylaws, or by Board act. (b) Apparent authority: Corporation holds the officer as having authority to bind it, so that third parties rely on it. (c) Inherent or implied authority: By virtue of the office held.

Dissolution: Involuntary

b) Involuntary: (1) Shareholders can petition because of: (a) Directors abuse, waste of assets, misconduct, or (b) Directors deadlock that harms company, or (c) Shareholder deadlock and failure for at least 2 annual meetings to fill a vacant board position. (2) Alternative to dissolution: Court may order buy-out of the complaining shareholder, especially in a close corporation. (3) Creditor can petition because corporation is insolvent and the creditor either has unsatisfied judgment against corporation or corporation admits the debt in writing

Officers and Directors: Shareholder relations

c) Shareholder relations: (1) Directors and officers have duty to disclose material inside information because there is a duty to keep relationship of trust and confidence with shareholders.