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89 Cards in this Set
- Front
- Back
does an organizer have to be a Texas resident?
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No
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what is an ultra vires activity?
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An act beyond the scope of the corporation's purpose in the certificate of incorporation
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if the Corporation suffers losses due to an ultra vires action, who will be liable to the corporation?
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Responsible managers
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what is the effect of the secretary of state's filing the certificate of incorporation?
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a De Jure corp. is formed
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as a general rule who is liable if the corporation incurs a debt, breaches of contract, or commits a tort action mark?
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the Corp.
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if the Bylaws conflict with certificate of formation, which takes precedence?
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The certificate, except bylaws can set number of Ds.
*Certificate takes precedence over the bylaws |
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Why does a corporation issue stock?
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to raise capital
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what must a corporation receive when it issues stock?
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CONSIDERATION: "any tangible or intangible benefit to the Corporation" including money, discharge of debt, property, services already rendered for the Corporation, even notes and contracts for future services
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what does "Par" mean?
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Minimum issuance price
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what does "no par" mean?
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No minimum issuance price.
-Board can set any price |
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C Corp. is selling 10,000 shares $3 par stock. It must receive at least ___.
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$30,000
-can receive more than par value, but not less. |
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Treasury Stock is ____ and issued but not ____.
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Authorized; outstanding
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When will a Corporation be liable on pre-incorporation contracts?
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After the Corporation either expressly or impliedly adopts the contract
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what is an issuance?
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where the Corp. sells its own stock
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What is it called when a corp. sales its own stock?
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stock ISSUANCE
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how does a corporation get directors?
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Shareholders vote them in
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what is a classified board?
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a staggered board
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Can a Director be removed before his term expires?
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Yes, shareholders can vote them out for any reason by a vote of a majority of the shares entitled to vote
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Is notice required for regular board meetings?
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NO
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How does the board make an act?
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a) Unanimous written consent, or
b) A meeting that satisfies quorum and voting requirements. |
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what if directors agree that the Corporation will do something; they agree in a series of individual conversations: without a meeting or unanimous written consent. Is that okay?
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No. –the act is void, unless ratified by a valid action.
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Shareholders elect Directors at __ __.
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annual meetings
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S owns 1000 shares C Corp. there are 5000 shares outstanding. C Corp. is planning to issue an additional 3000 shares. If S has preemptive rights, then S has the right to:
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buy 600 shares (1/5 of 3000)
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What is a pre-emptive right?
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The right to the existing shareholder of common stock to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for money (cash or to equivalent).
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if the certificate of formation silent as to whether there are preemptive rights. Are there preemptive rights?
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No
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preemptive rights exist if:
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certificate of formation provides for preemptive rights
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what are the consequences of issuing par stock for less than par value?
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Directors will be liable if they knowingly authorized the issuance below par.
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Will a person who bought stock below par be liable to the corporation?
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Yes, b/c he is charged with notice of par value
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if the person who bought the stock below par value transfers the stock to a third-party? Will that third party be liable the Corporation?
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No, unless the transferee knew the stock was issued below par.
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If C Corp. decides to resell treasury stock, must it resell the treasury stock for par value?
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No, treasury stock is always treated as no par
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What duties do the directors owe the corp?
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Duty of Care
Duty of Loyalty |
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if Director is sued alleging a breach of the duty of CARE, the burden of proof is on the ___.
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plaintiff
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if Director is sued alleging a breach of the duty of LOYALTY, the burden of proof is on the ___.
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Director (∆)
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Director breaches the duty of care, what also must be shown for D to be liable?
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CAUSATION
-that D's breach CAUSED a loss to the corporation |
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A Director is presumed to have concurred w/ Board action unless:
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the D's dissent or abstention is noted in writing in corporate records
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A Director is presumed to have concurred w/ Board action unless her dissent or abstention is noted in writing in corporate records. This done (i) having it put in the __, or (ii) sending a __ to the corporate secretary at the meeting, or (iii) sending a __ __ to the corporate secretary immediately after the meeting.
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minutes; note; registered letter
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Duty of Loyalty.
What are the three ways for a Director to breach the duty of loyalty? |
• Self Dealing (Interested Director (Transactions.
• Competing Ventures • Usurp a Corporate Opportunity |
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A Director that Self Deals, engages in a Competing Venture, or usurps a Corporate Opportunity has breached the duty of ___.
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LOYALTY
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Does the Business Judgment Rule (BJR) apply to the duty of loyalty?
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NO
-BJR cannot apply where there is a CONFLICT OF INTEREST |
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LOYALTY
Interested Director Transactions are any __ b/w the Corp and one of its directors. |
deal
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LOYALTY
Does the rule against interested director transactions apply to deals b/w the Corp and a director's close relative? |
Yes
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LOYALTY
Does the rule against interested director transactions apply to deals b/w the Corp and another business of which the director is a manager or has a financial interest? |
Yes
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LOYALTY
The rule against interested director transactions apply to deals b/w the Corp and any one of its __, or director's __ __, or another business the director manages or has a financial __. |
Director; Close Relative; Interest
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an interested director transaction will be set aside UNLESS the director shows: (i) the deal was __ to the corp when approved; OR (ii) her interest and the material facts were __ or known and the deal was approved in good faith by the SHs or a majority of disinterested Ds.
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FAIR; Disclosed
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if a D is sued for a breach of the duty of loyalty, the burden of proof is on the ___.
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Defendant
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a Director owes the Corp a duty of loyalty, this means he must act in good faith and with a reasonable belief that what he does is in the Corp's __ __.
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best interest
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The duty to act in GOOD FAITH and with a reasonable belief that his acts are in the BEST INTEREST of the Corp is standard for which duty?
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Duty of Loyalty
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Role of Directors?
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• MANAGE the business of the corp
• SET POLICY • SUPERVISE officers • Declare distributions • decide when to issue stock • recommend fundamental corp changes to the SHs |
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Who declares distributions?
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Directors
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What must be included in the Certificate of Formation?
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•Corporate name,
• name and address of each organizer • number of initial organizers • name and address of each initial director • name and PO box of the Registered Agent • Statement of Purpose |
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What must be included in the Certificate of Formation?
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Names and Addresses of:
• each organizer, • initial directors, • the registered agent A Statement of Purpose Corporate Name |
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What if the articles of incorporation says nothing about the duration of the corp?
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the duration is PERPETUAL
-TX Corps are perpetual unless the Certificate says otherwise. |
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"to engage in all lawful activity" is an example of what item that must be included in the Articles?
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Purpose Statement.
-the example is standard |
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The NAME of the Corp must include:
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Corporation, Company, Incorporated or any abbreviation.
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A toy company tries to incorporate in TX using the word "Bank" in its name. Can it?
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Name cannot mislead public about the purpose.
also, Banks must be formed under the special purpose statute |
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if a corporation does business under a name other that in the certificate, it must file an __ __ certificate w/ the SOS and county clerk where the registered agent is located.
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assumed name
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In order to have a meeting of the board of directors, must the Ds meet together in person?
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No,
- a conference call (simultaneous oral communication so each other can hear all others) count as a meeting? |
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Failure to give proper notice of a special board meeting VOIDS whatever was done at the meeting, unless:
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the defect is WAIVED BY THE PERSON NOT NOTIFIED--either in writing anytime or by attending w/out objection
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improper notice of a special board of directors meeting will not void all acts done if __ by the person not notified.
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waived
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a Director cannot usurp a corporate opportunity. This means the D cannot take the opportunity until he:
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tells the board & waits for the board to reject the opportunity
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if a D takes a corporate opportunity w/out first giving the Board the opportunity: the D will have to sell it to the corp at his cost.
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or if the D already sold the corporate opportunity he has to give the corp his profits (constructive trust).
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Do officers owe the same duty of care and loyalty to the corporation as the directors?
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Yes,
-Officers are AGENTS of the corporation |
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B/c Officers are agents of the Corp they can bind the Corp by acts w/in their __.
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authority
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The President of a corp has authority to convey corporate real property only if the __ gives her such authority.
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Board
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an Officer may have "Inherent Authority" to bind the corp to a contract entered into in the __ course of business.
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ordinary
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All corporations must which type of officers?
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President and Secretary
*can be same person |
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Can an officer also be a director.
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Yes.
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Who hires and fires officers?
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the Board
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Who hires and fires directors?
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Shareholders
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someone is sued as a D or O, when is the corp required to indemnify (reimburse) them?
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if the D or O wins a judgment for the entire case.
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When is reimbursement of a D or O prohibited?
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if the D or O is held liable for willful or intentional misconduct in performing a duty to the corp.
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What is a CLOSE CORP?
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few SHs, stock not publicly traded
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In order to form a close corporation the certificate must say what?
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this is a "close corporation"
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how does a close corp change its management structure? (i.e., from Board managed to Shareholder managed)
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written agreement by ALL shareholders at the time of the structure change
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Are SHs liable for the acts or debts of the corporation?
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No,
-the corp is liable for what it does |
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a court might "pierce the corporate veil" (PCV) and hold the shareholders personally liable if they have __ the corporate form and limited liability would be __.
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abused; unfair
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How to make a FUNDAMENTAL Corporate CHANGE
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1st, Board adopts a resolution of a fundamental corp. change.
2nd, Board must submit the proposal to the SHs w/ written notice. 3rd, the fundamental change must be approved by 2/3ds of shares entitled to vote. 4th, usually a document is delivered to the SOS for filing |
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What is the shareholder vote requirement in order to make a fundamental change?
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2/3ds of shares entitled to vote must vote "yes"
*this doesn't mean 2/3 present |
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what is a Dissenting Shareholder "right of appraisal"?
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right to force the corp to buy your stock at fair value
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When will a dissenting SH have a right of appraisal?
Actions by corp to trigger right of appraisal are: |
• merger
•sale of shares in a share exchange • transfer of substantially all assets • conversion |
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What must a SH do in order to perfect the right of appraisal?
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i) before the vote, file w/ corp a written notice of objection and intent to demand payment;
ii) abstain or vote against the proposed change iii) after the vote, w/in 20 days of notification by the corp, make a written demand to be bought out |
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Actions by dissenting SHs to perfect right of appraisal:
i) before the vote, file w/ corp a __ notice of objection and intent to demand payment; ii) __ or vote against the proposed change iii) after the vote, w/in __ days of notification by the corp, make a written demand to be bought out |
written; abstain; 20
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to Amend the certificate of formation requires:
i) Board of director __, and ii) Shareholder __ |
action; approval
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How many SHs must vote "yes" in order to Amend the certificate of formation?
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2/3 of shares entitled to vote
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How many SHs must vote "yes" in order to approve a merger?
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2/3 of shares entitled to vote
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No SH approval is required if a __% owned subsidiary is merged into a parent corp.
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90
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Where a 90% owned subsidiary is merged into a parent corp, this is what type of merger?
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Short-Form Merger
*no SH vote is required |
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The effect of a merger is that the surviving corp __ to all rights and __ of disappearing corp.
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succeeds; liabilities
*aka, Successor Liability |
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CONVERSION:
Corp can convert into another form of business organization. Requires board action and approval by __ of the shares entitled to vote. |
2/3
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