1. organization of Corporations Flashcards
What does an incorporator do?
- Execute the certificate, and
- Deliver it to the Department of State, and
- Hold the organizational meeting.
How many incorporators do you need?
1 or more
Who can be an incorporator?
In NY, adult humans only
What information goes into the certificate?
- Names and addresses
- Statement of duration (optional)
- Corporate purpose
Can I form a corporation with the name Bubba’s Burritos?
No, it must have corporation, incorporated, or limited in the name.
What do we give as an address?
The county in NY, of the office of corporation
Whom must you designate as the corporation’s agent for service of process?
The NY Secretary of State
What other information besides the agent must be given for service of process?
An address for forwarding process to the corporation.
What if the certificate contains no statement of duration?
The corporation has perpetual existence
Can the certificate of Bubba’s Burritos, Inc. indicate that the corporation’s purpose is to “engage in all lawful activity, after first obtaining necessary state agency approval?”
Yes
What if the certificate indicates that the corporation’s purpose is to “prepare and sell fast food” and the corporation then opens and operates a chain of massage parlors?
Doing that is an ultra vires act (beyond the scope of the certificate).
How do we handle ultra vires today?
- Ultra vires contracts are valid.
- Shareholders can seek an injunction.
- The responsible managers are liable to the corporation for ultra vires losses
Authorized stock
The maximum number of shares the corporation
can sell
Issued stock
The number of shares the corporation actually sells
Outstanding stock
Stock that the corporation has sold and has not
reacquired
What must be included in the certificate about the corporation’s stock?
- Authorized stock
- The number of shares per class
- Information on par value, rights, preferences, and limitations of each class.
- Information on any series of preferred shares.
What do the incorporators do at the organizational meeting?
They adopt any bylaws, and elect the initial directors.
Suppose we form a NY corporation, but the company only does business in Florida. What law governs the internal affairs of the corporation (that means things like the duties and responsibilities of directors, officers, shareholders, etc.)?
NY law governs the internal affairs. (The internal affairs doctrine)
Can a corporation make political contributions?
Yes, but no more than $5,000 per year, per candidate or organization.
Can a corporation make charitable contributions?
Yes, with no statutory ceiling.
Can a corporation guaranty a loan that is not in the furtherance of corporate business?
Yes, if it is approved by 2/3 of the shares entitled to vote.
Can we form a corporation and avoid (legally) having it pay income tax at the corporate level?
Yes, we form an “S” corporation instead of a “C” corporation.
What is an “S” corporation?
- An S Corp has no more than 100 shareholders, all of whom are human and U.S. citizens or residents.
AND
- There is one class of stock and it is not publicly traded.
Suppose the corporation does something like incur a debt, breach a contract, or commit a tort. Are the people who run the corporation (directors and officers) liable for what the corporation does?
No
Who is liable for what the corporation does?
The corporation itself
Are bylaws a condition precedent to forming a corporation?
No
If bylaws are inconsistent with the certificate, which document controls?
The certificate
Are bylaws filed with the state?
No
Who adopts the initial bylaws?
The incorporators at the organizational meeting
Who can amend or repeal the bylaws or adopt new ones?
Shareholders
When does the board of directors ever get to amend or repeal bylaws or adopt new ones?
Only if the certificate or a shareholder bylaw allows.
And, even then, shareholders can amend or repeal any director-adopted bylaw.
What is a promoter?
A promoter is a person acting on behalf of a corporation not yet formed. For example, she might enter a contract with a third-party on behalf of the corporation-not-yet-formed.
Is the corporation liable on pre-incorporation contracts?
Only if the corporation adopts the contract.
How can adoption of a contract by a corporation happen?
- Express adoption (Board Action)
2. Implied Adoption
What is an implied adoption?
This arises if the corporation knowingly accepts a benefit of the contract.
Is the promoter liable on pre-incorporation contracts?
Unless the contract clearly indicates otherwise, the promoter is liable on pre-incorporation contracts until there is a novation – that would be an agreement among the promoter, the corporation, and the other contracting party that the corporation will replace the promoter under the contract.
Secret Profit Rule
Promoter cannot make a secret profit on her dealings with the corporation. If she does, she is liable (and has to account for the profit – return it to the corporation).
How is the profit determined if a promoter sells property to corporation of property acquired before she became a promoter? (damages under the secret profit rule)
Profit equals price paid by the corporation minus fair market value (FMV)
How is the profit determined if a promoter sells property to corporation of property acquired after she became a promoter? (damages under the secret profit rule)
Profit equals price paid by
corporation minus price paid by promoter
What is required of a foreign corporation doing business in NY?
Foreign corporations doing business in New York must qualify.
How does a foreign corporation qualify?
The foreign corporation can qualify by
- Applying to the N.Y. Department of State and
- Designating the Secretary of State as agent for service of process.
- It also has to pay fees to New York for the privilege of doing business here.
In applying to qualify, what kind of information does the foreign corporation give the N.Y.
Department of State?
- Information from its certificate, and
2. Proof of good standing from its home state.
What happens if a foreign corporation does business in N.Y. without qualifying?
It cannot assert a claim in NY until it qualifies and pays fees, taxes, penalties, and interest.
