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  1. pre-incorporation: a promoter acts on behalf of corporation not yet formed. what does corporation have to do to become liable?
    • 1) express board resolution
    • 2) implied ratification through a) knowledge and b) acceptance of benefits
  2. is a promoter liable for pre-incorporation contracts?
    yes, unless there is a novation releasing him from liability
  3. does promoter owe fiduciary duties to corporation?
  4. What if a director/officer does an ultra vires act?
    • 1) ultra vires act can be enjoined
    • 2) corporation can recover losses from the D/O
  5. what is a de facto corporation?
    • 1) corporation is not validly formed
    • 2) organizers made a good faith, colorable attempt to comply with corporate formalities
    • 3) no knowledge of the lack of corporate status
  6. what is piercing the corporate veil?
    • when shareholders are personally liable for corporate debts
    • results in joint and several liability!
  7. when is the corporate veil pierced?
    • 1) alter ego: shareholders treat the assets of the corporation as their own, fail to observe sufficient corporate formalities
    • 2) fraud: avoiding personal liability through corporate formation operates as a fraud on creditors
    • 3) undercapitalization: failure to maintain sufficient funds to cover foreseeable liabilities
    • *must be some basic injustice that equity requires that the individual shareholders be held responsible for the damage they caused
  8. what are requirements for effective board action?
    • 1) board meeting [quorum, majority vote of those present], or
    • 2) unanimous written consents
  9. director's duties?
    • 1) duty of care
    • 2) duty of loyalty
    • 3) duty not to waste corporate assets
    • 4) duty to disclose (material corporate information to other members of the board)
  10. duty of care
    • directors must act in:
    • 1) good faith
    • 2) best interest of the corporation
    • 3) due care of an ordinarily prudent person
    • *BJR!
  11. What is the BJR?
    presumption that directors manage the corporation in good faith and in the best interests of the corporation and its shareholders
  12. duty of loyalty
    • director may not receive an unfair benefit to the detriment of the corporation or shareholders unless there has been:
    • 1) material disclosure
    • 2) independent ratification
  13. self-dealing/interested director transaction?
    • director who receives an unfair benefit to herself (or relative, or another business of hers) in a transaction with her own corporation
    • 1) ok if fair, or if independent ratification after full disclosure
    • 2) remedy is recission
  14. corporate opporutnity doctrine
    • director receives an unfair benefit by usurping an opportunity which the corporation would have pursued
    • 1) remedies are damages, constructive trust, or corporation gets the opportunity at cost
  15. what is independent ratification?
    • 1) majority vote of independent directors
    • 2) majority vote of a committee of at least 2 independent directors
    • 3) majority vote of independent shareholders
  16. requirements for shareholder derivative suit?
    • 1) contemporaneous stock ownership - when claim arose, and throughout the litigation
    • 2) demand must be made (and rejected), or excused because futile
  17. director indemnification - when?
    • 1) mandatory indemnification if director is successful in defending the suit
    • if director loses the suit, then indemnification depends on the nature of the suit
    • 2) if director loses a derivative suit for wrongdoing, indemnification generally not allowed
    • 3) suit is settled, some states allow indemnification
  18. shareholder pooling agreements
    • written agreement to vote shares as required in the agmt
    • 1) binding and enforceable
    • 2) no time limit
  19. voting trust
    • formal written agreement delgating voting power to a trustee
    • 1) on file
    • 2) expires in 10 years
  20. stock transfer restriction agreements - what requirements?
    must be reasonable
  21. what is valid consideration for stock?
    • 1) stock must be suppored by consideration
    • 2) exchange of property for stock, the board must assess the adequacy of the consideration (duty of care & loyalty)
    • 3) future services are not consideration
    • 4) promissory notes at CL were not consideration; modernly are sufficient consideration
  22. controlling shareholder's duties
    • owe fiduciary duties (care/loyalty) to minority shareholders.
    • Must:
    • 1) refrain from obtaining a special advantage
    • 2) refrain from causing corporation to prejudice minority shreholders
    • 3) must refrain from selling corporation to a looter, unless reasonable measures were taken to investigate
  23. mergers - what is required?
    • 1) directors and shareholders entitled to vote of BOTH corporations must approve
    • 2) appraisal rights of dissenting shareholder: 1) written objection before mtg, 2) vote against merger, 3) file written claim
  24. sale of assets - what is required?
    • if outside the ordinary course of business,
    • 1) majority of directors and shareholders entitled to vote must approve
    • 2) sale of assets may be a de facto merger, may trigger possible recission or appraisal rights
    • 3) purchasing corporation may be liable for debts and liabilities
  25. dissolution and liquidation - what is required to enter into?
    majority of directors and shareholders entitled to vote must approve
  26. one person sells stock to another. what remedies?
    • 1) tort of fraud or misrepresentation
    • 2) Rule 10b5 federal securities action
  27. short-swing profit rule (Rule 16b)
    • 1) large corporation [national exchange, or 500+ sh & $10MM assets)
    • 2) Officer, director, or 10% shareholder
    • 3) purchase and sale of stock within 6 month period
    • *strict liability!
  28. 10b5 private plaintiff action [against corporation, against another shareholder]
    • private plaintiff must show:
    • 1) interstate commerce
    • 2) fraudulent conduct (scienter - intent to deceive; materiality; misrepresentation or failure to disclose that breaches fiduciary duty)
    • 3) reliance
    • 4) in connection with purchase or sale
    • 5) damages
  29. What is an "insider" for purposes of 10b-5?
    someone who owes a fiduciary duty not to disclose material, nonpublic information
  30. insider trading
    • an insider breaches 10b5 if by trading he breaches a duty of trust and confidence owed to:
    • 1) issuer
    • 2) shareholders of the issuer
    • 3) another person who is the source of the material nonpublic information (misappropriation)
    • Elements:
    • 1) insider
    • 2) bought or sold stock via interstate commerce
    • 3) based on nonpublic information
  31. Tipper liability
    • insider gives a tip of material inside information to someone else who trades on the basis of the inside information, tipper can be held liable under 10b-5 if:
    • 1) insider
    • 2) improper purpose
    • 3) personal gain (reputation or monetary)
  32. Tippee liability
    • 10b-5 violation
    • 1) tipper breached
    • 2) tippee knew that tipper was breaching
    • 3) tippee bought or sold stock via interstate commerce
  33. misappropriation theory for stock trades?
    • brought by government against any trader who:
    • 1) misappropriated information from any source
    • 2) breach of duty of trust and confidence owed to the source of information
    • *if you find tippee is not liable bc tipper not liable, then raise misappropriation theory!
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