BOrgs slides again Flashcards
What is the hierarchy among the conflicting articles, bylaws, and state laws for a corporation?
State laws > Articles > bylaws
Can an LLC, in its operating agreement, completely eliminate the duty of care?
No. §105 provides that they may alter it in some respects but not eliminate completly.
T/F) An LLC may be formed for any lawful purpose.
True
LLC formation?
- Certificate of organization
- File with SOS
- SOS issues charter
- One person [at least] becomes member
Corporation formation?
- File articles of incorporation + Choose business name
- Pay fees
- SOS issues charter
- Elect directors
- Directors select managers
- First board [organizational meeting]
- Pass bylaws etc.
Difference between LP and GP?
Both receive profit and own part of company but only the GP has daily responsibility and full liability.
A director “shall” be a natural person. DGCL 141
What kind of rule?
Mandatory
Property of partnership owned by who?
Partnership
How to form LLC
- C.O.O
- Filed with SOS
- One person becomes member
How could a partnership become an LLC? [You created the LLC and want to convert partnership so you dont have to transfer bunch of shit]
- Draft Cert. of Conversion + approve it
- File with SOS
T/F) An LLC may be governed by BOD.
True
[______] An agent is an employee if the principal has right to control physical details of work.
Vaughn
Under Vaughn, when is a principal VL for acts of nonemployee agents?
- Intended it
- Authorized result or manner of performance
RST Apparent agency defined. What’s an important factor of the analysis?
The 3rd party belief is traceable to the PRINCIPALS manifestations.
What case showed that an agent may not manifest their own authority.
Verizon
“You are not authorized to sign for the K but tell them you are.”
Principal will be liable
Best practice signature
- Principal name and Unique identifier
- Agent name, sign, capacity
Agent fiduciary duties? Case?
- GF
- Loyalty
- care
- No compete
- No secret income
Confidentiality
Pompa
Principal duties?
- GF
- idemnify
If you doubt persons ability to K for a corp?
- Certified minutes
- Legal opinion
Can a partner for a partnership bind the partnership to contracts signed?
yes
Should you accept contract signed by individual board member?
No. Per Baldwin, individual board members have no authority.
Should you accept contract signed by individual member of an LLC?
No.
T/F) A common way for parent company to avoid liability is to act through a subsidiary.
True
Ltd. =
Corporation
FL. fictitious name state requires registration when?
- When receiving compensation [for business]
- Under fictitious name – Not the persons legal name
In Fl, under the fake name statute, must Walt Disney World Co. register the name “Disney world?”
Yes. This is not the (1) Corp.’s legal name and it is (2) for business.
[Doctors]
Under this case, apparent agency is established when the P proves that he looked to principal [hosptial] for serves and the principal (not P) selected the person providing services.
Popovich v. Allina health
If YOU CHOOSE the doctor, will hospital be liable?
No not unless doctor is actual employee.
Forming DL Corporation?
- Choose state [Deleware]
- Reserve name
- Hire agent
- Find office
- File A.O.I. / fundamental docs [Entity exists now]
- Buy entity kit
- Call first meeting
How to comply with corporate requirement of maintaining registered office in that state?
Hire an agent
LLC agent requirements in state?
LLC must maintain registered agent residing a place of business in the state.
A.O.I. should lay out what?
- Name
- Incorporator(s) and addresses
- Registered office address
- Purpose
- Shares and price
- How managed? Board or otherwise.
Signed
First organizational meeting?
- Incorporator calls
- Elect directors
- Select managers
- Adopt corporate seal
- Bylaws / resolutions, adopt bank account
- Directors pass resolution issuing shares
When come into existence?
1. Corp.
2. LLC
3. LP
- AOI filed
- COO filed +1 member
- Cet. of LP filed + 1 GP
Entities must pay fees in how many states?
- Where formed
- Where operating
MBCA requires what abbreviations / what words for corporation?
Corp.
Ltd.
Corporation
Limited
Inc.
Co.
Incorporated
Limited
- Cay Club
- Cay Club Inc.
_________________________________
- Cay club
- Cay Club co.
Which one valid corporate name?
2, #4
T/F) DL recognizes wider variety of names for corporations.
True. Association, club, foundation, society, union, syndicate, etc.
Entity names must comply with what?
- Required designators
- Uniqness
- Registration for BOTH legal and fictitious names
When Microsoft Co. does business as “Microsoft,” it is doing business under what name?
Ficticious / trade name
FL fictitious name registration steps?
Must register if:
1. Doing business for $$$
2. Name other than legal name
Then you register:
1. The name
2. Address of registrant + Business
3. Certification by registration that the name / business has been advertised at least once in local newspaper
Deleware has a unique corporate law which requires residency for a registered office.
How do we tackle this if we operate only in SC?
Keep a registered office there with an agent.
A.O.I. shall contain what?
- Name & address of incorporator.
- Registered name & address of business.
- Purpose
- Total shares + price
- Address of each incorporator
- Registered agent address
- How managed?
How to get around the issue presented in the Dartmouth College v. Woodward case?
Just buy a Corporate Kit.
“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.”
Dartmouth v. Woodward College….. So buy a Corporate Kit.
What’s a corporate kit?
- Charter docs
- Corporate seal
- Stock certificates
- EIN application
- Certified minutes
1st organizational meeting?
- Incorporator calls to order + adopts bylaws
- Incorporator elects directors
- Directors elect managers
- Pass resolution for bank account
- Adopt corporate seal
- Directs adopt resolution to Issue stock certs
When does entity come into existence?
- Corporation:
- LLC:
- LP:
- When A.O.I. filed
- When C.O.O. filed + 1 member.
- When C.L.P. filed + 1GP and +1LP.
Must a partnership file formal docs with the state to form a partnership?
No.
What is an LLP?
Steps to form?
A partnership with limited liability.
- File “Statement of qualification”
- Pay fees
- Adopt name including LLP, RLLP.
- Designate office + appoint resident agent to receive service of process.
- Pay annual fees and file annual reports
Steps to form LLP?
As a partnership, you:
1. Elect internally to become LP
2. File S.O.Q
3. Pay fees + adopt LP RLLP name
4. Register office + agent in state to receive service of process
Note: Must file annual reports + pay fees.
Steps to form LP?
- Partnership votes internally to become LP
- File statement of Qualification
- Adopt LP RLLP designator.
- Register name + office
- Pay annual fees / file annual reports
Respondeat superior for LPs?
No. The state is selling limited liability. [Annual filing + fees]
This person conducts pre-incorporation scouting activities and will be personally liable for pre-incorporation contracts unless certain conditions met.
Promoter
When is promoter NOT liable for pre-incorporation Ks?
1 Ratification
2 Novation
3 Pre-Incorp. K states otherwise
Example of _____ Liability:
He negotiates lease with LL. Corp. later refuses to ratify [adopt] the lease K. Now he is liable unless LL releases him.
Promoter
The main rules state that a promoter is liable for a corporation that does not exist. What’s a good way around this rule?
Best practice signature include “To be formed” after Corporation name.
- Shows parties intend principal to be liable
- Shows promoter acting as agent
Can entities be liable for Ks made by promoter before they’re creation?
Yes if:
1. Ratify formally
2. Ratify by acceptence of benefits
Does ratification by Corporation release the promoter from pre-incorporation Ks?
No. Need a novation.
- Elements of UJ enrichment?
- When does this typically come up?
- Benefit conferred
a. knowledge by D of benefit
b. acceptance by D of benefit
c. inequitable for D to retain benefit w/o payment. - When promoter makes pre-incorporation K for entity.
Can a corporation exist without correct / formal incorporation? [This doctrine largely obsolete]
Yes. “De Facto Corporation”
- Law exists under which Corp. could form
- GF attempt to incorporate
- Unintentional omission of essential requirements
- Exercise in GF Corporate functions
Steps to recognize a “De Facto Corporation?”
[Doctrine largely obsolete]
- Law exists under which Corp. could be formed
- GF attempt to form
- Innocent [unintentional] omission of essential requirements
- GF Exercise of corporate funcitons
Corporation recognized by estoppel steps?
Effect?
Rationale?
- Held yourself out as corporation
- 3rd party assumed it was a corporation.
Effect: Both parties estopped from denying existence.
Rationale: Give 3rd party what it bargained for.
Can “Starbucks” be your client?
No, but the entity behind Starbucks can be, just like a person.
If you have a bank loan 150K [contribute], reserve right to inspect business [Control], receive margin of profits [share], isn’t this loan with the bank a partnership agreement?
For some odd reason, no. Banks seem exempt from the rule. [Bullshit.]
“These are common terms under which lenders do business.”
You agree to create corporation for a client. SOS rejects your A.O.I. filing b/c name requirements. Client already signed lease.
How to fix?
Any other risks for her?
Fix:
1. Notify client + malpractice carrier
2. Refile A.O.I.
3. Ratify the K with amended lease showing proper name
Risk: Persons only liable when they KNOW the corporation does not exist yet. If she didn’t know she’s in the clear.
When is person liable for Corporation to be formed if it does not yet exist?
If the person [agent] knows it doesn’t exist and contracts anyways
You from corporation for a client and now corporation votes not to pay.
How to get money?
What are you up against?
Rule: No one can bind an entity prior to its formation.
We need to look for formal acquiescence or acceptance of benefits conferred then argue ratification or unjust enrichment.
Shareholders typically entitled to 4 protections regarding mergers and acquisition transactions.
1 Vote against
2 Appraisal rights
3. Sell to 3rd party
4. Sue over illegal transactions
T/F) Investors in partnerships, LLCs, and LPs have appraisal rights.
False. These entities require UNANIMOUS consent before merger / acquisition so there is no dissenting shareholders.
T/F) Entities with over 2000 shares do not have appraisal rights.
True
Merger process?
- Boards devise merger plan
- Present to SHs
- SHs vote
- Dissenters preserve appraisal rights
- File C.O.M with SOS
- Merge
- Dissenters paid out
2 types of mergers?
- Short form
- Small scale
What is a short form merger? When applicable?
How completed?
- Parents absorbs the subsidiary.
- When parent owns 90% of subs. Subs. has no voting rights.
- Parent just files paperwork
What is a small scale merger?
Who votes?
Who has appraisal rights?
- Large company acquires a small company
- Small company votes on it
- Only the company that voted, the small one.
When do the Corporation SHs have rights to vote on a sell of corporate assets?
When the sale concerns “substantially all” assets.
Cash out merger is basically an acquisition whereas Red buys all blue assets for cash.
Who votes on this? Why?
Does blue have appraisal rights?
Blue shareholders. Blue is selling “substantially all assets.”
Blue has appraisal rights UNLESS located in delaware.
Difference between statutory merger and asset sale?
In an asset sale, no one has appraisal rights [unless in Delaware] + only the selling company votes on it + all property transferred to buyer.
These two processes are methods of reincorporation where an entity can convert to diff. type of entity in same or diff. J.
Conversion & Domestication
This is a transaction that divides an entity into two or more entities.
Spin off
How can an entity change its state of incorporation?
- Conversion, Domestication, Merger
- Asset sale > Shell entity in destination state
Permitted?
“Smith Corp” when there is already a “Smith LLC?”
No. Entity type designators not sufficient distinction
Permitted?
“A.B.C. Insurance, Inc.” when there is an “ABS Insurance, Inc.?”
No. Typography / punctuation not sufficient distinction.
Permitted?
“Brown Corp.” when there is a “Browne Corp.”
Yes, diff. spelling is distinctive enough, even if only 1 letter.
Is a corporate name entitled IP rights?
No.
_______ Doctrine: Applies only to correct inconsequential deficiencies or technicalities in the serving / naming of parties.
Misnomer Doctrine. This applies to minor spelling issues.
Ways _____ use entities:
Warner Bros. Discovery owns HBO, CNN, and DC Comics.
Groups [Entity Groups]
For entity groups, entity statutes apply to the group uniformly.
False, to each entity separately.
Does the mere use of franchise logos and related items / assets satisfy sufficient control to establish liability for franchisor?
No. [Mobil Oil v. Bransford]
eTeam v. Hilton showed liability for franchisor why?
Sufficient degree of control over the franchisee. In eTeam, the franchisor literally told Hilton how to do everything.
You go to hospital. Anesthesiologist commits malpractice.
- Is he liable?
- Is hospital liable?
- Yes as tort-feaser
- Yes since they provided him. [Apparent agency] / Popovich v. Allina Health System
If you choose your doctor can you sue hospital under Popovich v. Allina rule of App. agency?
No.You chose the Doc. You can get memorial under Tort rule of RS / VL for employee if doc is an employee.
What if doctor is an I99 worker?
Look at degree of control.
This case showed liability for parent when it exercises significant degree of control.
Best foods
[T/F] A parent corporation is not normally liable for a wholly-owned subsidiary’s actions, even if the two entities share many or even all directors and officers.
If true, how to get around.
True.
1) Pierce the Corporate veil
2) Direct role in operations [mere control not enough]
If a parent company has control over subsidiary, is this enough?
No. Must (1) Pierce the Corp. veil or demonstrate (2) direct role in operations.
[Bestfoods]
Each partner has an equal right in the management and conduct of a partnership, and differences within a partnership are decided by a majority of the partners….
But what if only two partners?
When there are only two partners, there can be no majority, and neither partner can prevent the other from binding the partnership in the ordinary course of business.
[National Biscuit Co.]
“Agents have apparent authority only if the principal leads people who deal with the agent to believe the principal has granted the agent authority.”
Clark v. Verizon
