BLAW Final Exam

Factors that lead courts to pierce the corporate veil

1. A party is tricked or misled into dealing with the corporation rather than the individual. 2. The corporation is set up never to make a profit (be able to pay back debts) 3. The corporation is formed to evade an existing legal obligation. 4. Statutory corporate formalities, such as holding required corporation meetings, are not followed. 5. Personal and corporate interests are mixed together so much that the corporation has no separate identity. (greatest potential for this in close corps)

What are the types of corporations?

1. C-corp 2. Close corp 3. S-corp 4. Non-profit corp 5. Benefit corp 6. Professional corp

The 3 types of improper incorporation

1. De Jure Corps -- (right and lawful) substantially complied with all conditions but there may be a small error that is overlooked. Ex: wrong address on articles of incorporation 2. De Facto Corps -- defect in formation is substantial. 3. Corporation by Estoppel -- a business association holds itself out to others as being a corp when it has made no attempt to incorporate (the firm normally will be estopped or prevented from denying corporate status in a lawsuit).

Types of Corporate Financing

1. bonds -- debt securities (borrow funds and business pays interest to bond holder) 2. common stock -- equity/ ownership securities 3. preferred stock -- have priority over common stockholders 4. venture capital -- capital provided to new businesses by professional, outside investors. High risk; venture capitalist could lose all their money. 5. private equity capital -- private equity firms pool funds from wealthy investors and purchase entire corporation 6. crowdfunding -- people network and pool funds and other resources via the Internet

Responsibilities of Corporate Executive Officers

1. day to day operations 2. hired by board 3. can be fired by board 4. have fiduciary duty 5. no protection from liability -- business judgement rule says officers and board are not liable for honest mistakes/ bad business decisions.

2 Types of Committees of Board of Directors

1. executive -- handles ordinary business management decisions between board meetings. (not dividends or bylaws) 2. audit -- responsible for the selection, compensation, and oversight of the independent public accountants that audit the firm's financial records.

2 Types of Corporate Powers

1. express powers -- found in articles of incorporation, in the law of the state of incorporation, and in the state and federal constitutions. Bylaws and resolutions of the board of directors also establish express powers. 2. implied powers -- corporation has the implied power to perform all acts reasonably necessary to accomplish its corporate purposes.

Responsibilities of Board of Directors

1. overall firm management 2. makes policy decisions 3. hires and fires officers 4. directors elected by shareholders 5. hold meetings 6. each get 1 vote 7. has fiduciary (legal obligation) duty of care to put corp. and shareholders first 8. no protection from liability 9. can be removed for a cause (like not performing duties) 10. right to participate, inspect, and indemnification

Shareholder Rights/ Responsibilities

1. right to buy/ sell shares 2. right to vote on directors 3. right to propose solutions/ suggestions 4. right to receive dividends 5. right of inspection 6. hold annual meetings where the board is elected 7. no right to make policy decisions 8. right to bring a derivative suit (sue corp if they disagree with board) 9. majority shareholders have a fiduciary duty to corp and minority shareholders

4 Steps of Incorporation

1. select state to incorporate in 2. secure an appropriate corporate name (state must approve name and it must have either Corp., Inc., Co., or Ltd. in it) 3. Prepare the articles of incorporation. Must include... - Name - number of shares the corp is authorized to issue - name and address of corporation's registered agent and main office - name and address of each incorporator (people who sign the articles of incorporation) 4. File the articles with the state (secretary of state)

Shareholder Agreement

An agreement between shareholders that restricts the transferability of shares. (often for the purpose of maintaining proportionate control of a close corporation).

Ultra Vires Doctrine

Corporate acts beyond the express or implied powers of the corporation. (corporate articles of incorporations now adopt very broad purposes to prevent lawsuits)

Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has the implied power to:

Perform all acts reasonably appropriate and necessary to accomplish its corporate purpose

Chain of Election

Shareholders elect Board of Directors, Board of Directors elects Executive Officers

close corporation

Still have double taxation like C-corps. Managed more informally than traditional corp. Must have... 1. No public offering of stock 2. small # of shareholders (30 - 35)

Piercing the Corp Veil (PCV)

The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.

S Corp

The corporation's income is taxed only as the personal income of its stockholders. Must have... 1. must be a domestic corp 2. may not be a member of an affiliated group of corporations 3. shareholders must be tax exempt organizations like estates, trusts, nonprofits or actual people. 4. must be fewer than 100 shareholders 5. only offer one class of stock 6. no non-resident alien shareholders 7. CANNOT BE SUBSIDIARY OF ANOTHER CORP.

C Corp

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders

Watered Stock

When a corporation issues shares for less than their fair market value

All of a certain corporation's small number of shareholders agree that the firm can operate without directors, bylaws, shareholder meetings, stock certificates, and formal records of shareholders' decisions. This firm is most likely:

a close corp (partnership here means business with an informal mgmt style)

Metro Moving Service holds itself out to customers as being a corporation but makes no attempt to incorporate. In this circumstance, the outfit is most likely

a corp by estoppel

public corporation

a corporation formed by the government to meet some political or governmental purpose

benefit corporation

a for-profit corporation that seeks to have a material positive impact on society and the environment. Must have... 1. purpose -- how will they benefit the public 2. accountability -- did they achieve their impact 3. transparency -- issue annual benefit report about what they achieved

Maude owns Urban Achiever Corporation. Maude uses Urban Achiever's funds to pay her personal expenses, creates Fun and Games Corporation to engage in the same business as Urban Achiever, transfers Urban Achiever's assets to Fun and Games, and petitions Urban Achiever into bankruptcy. This most likely warrants:

a pierce of urban achievers corp veil

Glen and Dot are directors and shareholders of SomethingToCuddle, Inc. Dot's written authorization to Glen to vote Dot's shares at a shareholders' meeting is:

a proxy

Masonry Inc.'s stated purpose is to perform the stonework on buildings and other structures. Masonry contracts with New Contracting to pour the pilings for a bridge's foundation despite lacking the skill and license to do the work. This is most likely

an ultra vires act

publicly held corporation

any corporation whose shares are publicly traded in a securities market

non profit corp

any profits made are used exclusively for charitable, education, or scientific purposes for which it was formed

Respondeat Superior Doctrine

doctrine that makes an employer liable for the tortious acts of agents/ employees/ directors committed during the course and scope of their employment. -- was the wrongful act on company time? -- was the wrongful act committed with the intent to benefit the corporation?

Common Corporate Vocab Terms

domestic -- this is what we call a corp doing business in its home state. foreign -- a corp formed in one state but doing business in another. alien -- a corp formed in one country doing business in another. public -- formed by the government publicly held -- sells stocks on a public securities exchange private -- created either wholly or in part for private benefit (for profit). Most corporations are private. Cannot publicly trade the stocks.

Duties of Directors and Officers

duty of care duty to make informed decisions duty to exercise reasonable supervision duty of loyalty

A corporation is not liable for the misconduct of its agents or officers.

false

Corporate officers hire the board of directors.

false

Shareholders are personally liable for the debts of a corporation.

false

To pierce the corporate veil is to disregard the corporate entity and hold the directors liable for a corporate obligation.

false (change directors to shareholders and this is true!)

Boutique Corporation would like to remain a corporation but change its corporate status to avoid income taxes at the corporate level. To qualify, among other things, Boutique must:

have only one class of stock (this is the only requirement of an s-corp given so this is the answer)

Gus and Mike want to form and do business as Kayak Adventures Corporation. A corporation can be owned by:

legal or natural persons

Rights of Board of Directors

participation -- in all board meetings inspection -- can assess corp books and records indemnification (reimbursement) -- in the event a director is sued they are reimbursed for legal fees

Ed and Doris want to form a corporation to bake and sell cookies. The first step in the incorporation procedure is to:

select a state in which to incorporate

Treehorn Corporation authorizes Jeffrey, its employee to oversee its timber operation. In the course of his employment, Jeffrey disposes of the operation's waste illegally. Walter is a Treehorn shareholder. Liability for this act most likely rests with Walter to:

the extent of walters investment in the firm

Professional corp

the shareholder-owners are professionals who are held to a higher standard of conduct. ex -- doctors, lawyers. - shareholders can be held liable in the case of malpractice much like a partnership would be treated.

The alter ego theory

theory that the corporation was just another side (the alter ego) of the individual or group that actually controlled the corporation.

Because a close corporation is one whose shares are held by a relatively small group of persons, the firm often operates like a partnership.

true

If the procedures for incorporation are not followed precisely, others may be able to challenge the existence of the corporation.

true

One of the key advantages of the corporate form is the limited liability of its owners.

true

The articles of incorporation serve as the primary source of authority for a corporation.

true

When directors do not act in the best interests of their corporations, the shareholders may sue them on the company's behalf.

true