Business Associations Flashcards
De Jure Corporation
A de jure corporation is one that is formed in accordance with the law. Corporate formalities require it be filed with the secretary of state.
Requirements
* Authorized number of shares
* Purpose of the corporation
* Agents name/address
* Incorporator name/address
* Name of corporation
Hint: Forming a corporation is A PAIN
Liability for Pre-Incorporation Contracts Rule Statement
Pre incorporation contracts are contracts that a “promoter” enters into before the company actually became a corporation The issue then becomes, is the promotor and/or later formed corporation liable for preincorporation contracts.
Liability for Pre-Incorporation Contracts Rule Statement
Pre incorporation contracts are contracts that a “promoter” enters into before the company actually became a corporation The issue then becomes, is the promotor and/or later formed corporation liable for preincorporation contracts.
Promotor Liability
A ptomoter is a person who is acting on the corporation’s behalf before the corporation is actually formed.
A promoter is liable for the pre-incorporation contracts that they entered into unless there has been a novation to remove the promoter’s liability.
Directors
Function
* Corporations must have at least one director
* BOD makes high level decisions
* They determine boards salaries
* Can be comprised of inside directors and outside directors
Election
* The initial board is created by the corporation. When the initial term expires, vacant seats are filled by shareholder votes
Removal
* A director can be removed with or without cause upon a majority sh VOTE
Quorum Requirements
All directors need not be present at a director meeting for a valid decision to be made. Quorum requirements refers to the necessary number of directors that must be present for a decision to be valid. For a board decision to be valid, there **must be a majority of directors **at the meeting.
- Directors presence only counts toward quorum if he is disinterested.
- If quorum is met but then a director withdraws, it will destroy quorum if the remaining directors are insufficient to meet quorum
What are the duties of directors/officers?
Duty of Care and Duty of Loyalty
What are the different ways a director/officer can violate the duty of loyalty?
- Conflict of interest/Self Dealing
- Usurping corporate opportunity
- Failing to disclose material information
What are the shareholder rights?
- Meetings
- Voting
- Inspection (Not an absolute right)
- Dividends (Not usually right)
When does a sharwhilder have the right to inspect corporate records?
SH only has this right if
1. They can prove they are a SH
2. 5 days written notice
3. Can show proper purpose for inspection
However: A SH has an absolute right to inspect general documents like the articles, bylaws, minutes of meetings, recent annual reports
SH Right to Dividends
Dividends are the distribution of cash, property, or stock that a corporation may give out to its SH’s. SH’s have no right of entitlement to dividends. They are disbursed at the discretion of the board.
However:
**Unreasonably depriving **SH of dividends may be actionable.
General Partnership Creation
A general partnership is created when two or more persons carry on as co-owners a business for profit.
- **No formalities **required
- Intent to carry on as co-owners for profit is enough to create
- Sharing profits Presumption: If parties are** contributing $/services in exchange for profits,** then there is a **presumption a general partnership **was created
- If parties attempt to hold themselves out as a partnership to detriment of 3rd party,** creation by estoppel** can occur.
16B Short Swing Trading
Short Swing trading is the buying or selling of shares within 6 months.
The proper defendant is officer/director/10% or more SH
Applies only to publicly held corporation
Remedy: D must turn over any losses avoided
Strict liability appies
10b5
10b-5 prohibits fraud or misrepresentation in connection with the purchase or sale of any security. Elements:
- Instrumentality of interstate commerce used (phone, email)
- In connection with purchase/sale of security: Someone must have purchased or sold a security in connection with the fraudulent statement or conduct
- Bad act (Can be misrepresentation, insider trading, tipper tippee, misappropriation)
- Materiality
- Scienter (D intended to deceive, defraud, or manipulate. Recklessness may suffice)
- Additional element for private Plaintiff: Reliance and damages!
Misrepresentation
10B5 Is violated if D misrepresented material information. Misrepresentation can occur by a fraudulent statement or omission.
