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Corporation Flashcards > Corporate Formation & Structure > Flashcards

Corporate Formation & Structure Flashcards

1
Q

What is a Corporation?

A

A corporation is a legal person or entity that has an existence that is separate from its owners (shareholders), and is formed by filing a written instrument (certificate of incorporation or articles of incorporation) in an appropriate state office (secretary of state).

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2
Q

What are the 5 characteristics of a Corporation?

A

1) Limited Liability-Shareholders only have limited liability for corporate obligations and are thus not personally liable for actions by corporate managers. Shareholders are not personally liable only if they (1) acted on behalf of the corporation and (2) the act was within their authority.
2) Free Transferability of Ownership Interests- In publicly held corporations’ shares of stock (ownership interests) are freely transferable without consent of other parties. (Transferee has rights of a shareholder, but only hold an economic interest)
3) Perpetual Existence- The legal existence of a corporation is eternal unless specified.
4) Centralized Management- In publicly held corporations the power to manage the business of the corporations is vested to the board of directors. Shareholders have no management rights only have the power to elect the board.
5) Entity Status- Corporations can exercise power and have rights in its own name. Recognizes as separate from its owners. (Can sue and be sued)(legal entity) A Corporation is a legal entity that can sue and be sued & own property.

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3
Q

Differences between choice of business entities

A
  1. Centralized or Decentralized Management
  2. Limited liability-partners have only limited liability and do not have full access to power and control. In a corporation, shareholders have no managerial rights (give up rights). A Corporation is managed by the Board of Directors.
  3. Transferability of Interest-Separates corporations from other business entities. If you take all rights of the share in a incorporated business it is assigned to the new owner.
  4. Taxation (1)Corporations are taxed twice on money that they make (Double Taxation) Taxed on its income, and its employees.
    (2) There are no taxes on Partnerships, contribute the income of the company to the individual partners.
    (3) An LLC that is unincorporated can choose whether to be taxed as a partnership or corporation.
    (4) State (margin tax)-All of the business entities(except those comprised of real people) have to pay a franchise tax.
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4
Q

How are corporations formed under TBOC?

A
  1. Corporations are filing entities that only the state can create. 1.002(22)
    i. Formed using a Certificate of Formation & complying with 3.001(a)
    ii. Existence begins when a Certificate of Formation is filled under 3.001(b)
    a. Organizers
    b. Must have legal capacity
    c. Sign CoF
    d. and Mail to SoS with various fees
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5
Q

Types of Corporate Securites

A
  1. Corporate shares represent a pro-rata ownership of a corporation.
  2. There are two types of shares Common v Preferred (Shares w/ special rights created by certificate)
    i. Preferred shares have special lives created by the CoF. Has to be specified by CoF. If not then the shares are common
    i. Usually preferred can’t vote unless 1% owner
    ii. Sometimes they can vote as a class, depends on the state law
    iii. Same rights unless Certificate limits or grants (All shares are created equal to the extent certificate amends)
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6
Q

Under TBOC what must a COF contain? 3.005

A
  1. Type of filing entity (Must state that corporation or other business entity is being created)
  2. Name
    i. Cant be identical or deceptive similar to another filing entity (5.053)
    ii. Name must be distinguished; cannot be the name of another Corporation. Call SoS or look up online to determine if name is available.
    iii. Can’t include the word lotto or lottery in the business name (5.061). Can’t be veteran related name.
  3. Must contain “Company” “Corporation”, “Inc” or abbreviation
  4. Must state purpose (any “lawful” purpose)
    i. What is the purpose? Why are we doing this?
  5. General Prohibited Purposes
    i. Unlawful activity
    ii. Cant operate as a bank, trust co, or insurance co,
    iii. For profit co: cannot be a co-op or labor union
    iv. Cannot raise cattle and own land
    v. Be in the business of stockyards & slaughtering
    vi. Be in the business of oil producing and pipeline
    vii. Business that requires a license that cannot be issued to a corporation.
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7
Q

VantagePoint Venture Partners v Examen Inc.

A

Dispute about voting rights of shareholders who held preferred stock and whether to use Del or Ca law. Court held that a corporation’s internal affairs are determined solely by the law of the state in which it was incorporated.

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8
Q

Internal Affairs Doctrine

A

a. Common Law principal-only the jurisdiction/state of incorporation has the authority to regulate a corporation’s internal affairs.
b. Applies to relationships b/w the corporation, it’s officers, directors, and shareholders.
c. TBOC 1.101: Texas law applies to corporations formed by filing in Texas
1. Formation
2. Internal affairs – 1.105
i. Rights, powers ,& duties governing authority, governing persons, officers owners and members
ii. Matters relating to membership of ownership interests
3. 1.104 liability of owners, etc. for obligations
4. In other words the state of incorporation regulates what happens within a corporation

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9
Q

Con Law v Choice of Law

A

I) Con Law v. Choice of Law

a. Choice of Law Only
1. Forum state choice of law (usually applies)
2. CA statute dictates choice of law
3. Forum shopping
4. Factors: certainty, predictability, uniformity of result, and ease of application of the law
b. Constitutional Principle
1. No Forum shopping
b. Constitutional Law
1. Due process 14th-gives directors and officers of a corporation a significant right to know what law will be applied to their actions.
2. Commerce Clause-a state has no interest regulating the internal affairs of foreign corporations, unless a rare situation.
3. Internal Affairs Rule is the rule
b. Why Internal Affairs Doctrine?
1. Consistency/Uniformity
2. Expectations-Delaware determines their rights and liabilities
i. Corporation
ii. S/Hs
iii. Directors (Ds)
iv. Officers (Os)

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10
Q

Why do Corporations choose Delaware?

A
  • Choice for most publicly-held corporations
  • Legislature keeps statute up-to-date
    • Specialized courts
    • Chancery: equitable
    • Commercial Law Courts (new!)
  • Expedited appeals to Del Supreme Ct.
  • More cases
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11
Q

Delaware CoF requirements?

3.005

A

a. Type of filing entity (corporation)
b. Name
i. Must contain “Company” Corporation” “Incorporated” or abbreviation. 5.054
ii. Can’t be identical or deceptive similar to another filing entity. 5.053
iii. Can’t include: lotto or lottery (5.061) veteran-related (5.062)
c. Duration, if not to be perpetual
d. Name of registered agent and street address of that agent (registered office, no PO Boxes)
e. Name and address of each organizer
f. Names and address of managers(Name individually & give addresses)
i. Members of Board of Directors or
ii. Others if shareholder agreement requires
g. Must state purpose (can be “any lawful purpose”) 3.005(a)(3)
h. General prohibited purposes (all filing entities). 2.003 [On TEST]
1. Unlawful business or activity
2. Can’t lawfully be engaged in by that entity
3. Operate as bank, trust company, savings association, insurance company or cemetery organization
4. For-profit corps: Not co-op and not labor union 2.007(1)
5. Prohibited combinations 2.007(2)&(3)
i. Raising cattle and owning land to do so (except owning feedlots & feeding cattle)
ii. Stockyards and slaughtering, refrigerating, canning curing, packing meats
iii. Oil producing & oil pipeline (except thru subsidiaries)
6. 2.007(3): Business that require a license that cannot be issued to a corporation (practice law, doctors)

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12
Q

Filing a CoF in Delaware reqs:

A

a. 4.01: Organizers sign Certificate of Formation & deliver to SoS
b. 4.02: SoS
1. Determines if certificate conforms to the law, all fees paid, THEN
2. Files (accepts into filing system)
3. Delivers written acknowledgement of filing to entity or its representative
4. Won’t be effective until FILED or a later date if you choose so
5. Will notify you if effective, and give duplicates if asked
c. 4.051: effective on filing (except for delayed effectiveness, 4.052)

  1. 059 Organizational Meeting of BOD required after certification is filled
    a. Have to give least 3 days notice to directors (others)
    b. Adopt bylaws
    c. Elect officers
    d. Other business as necessary
  2. Authorize issuance of shares, set price to be received(21.157-.162)
  3. Accept pre-formation subscriptions (21.165-.167)
  4. Banking resolutions (signature cards)
    i. Bank is going to want signature card filled out that will be signed by CEO
    ii. Need a place to put money earned from Corporation
  5. Once money comes in for shares you will issue the shares
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13
Q

Pre-Formation Contracts Liability of a Corporation
Problem

Day-7-A signs Contract 1
Day 0-organized sign o/f & mail to SOS
Day 7-B signs Contract 2
Day 8-C/F returned unfilled name/consent

A
  • Contract signed before corporation is legally formed
    • Corp has no liability
  • Unless the Corp agrees to be liable after it comes into being
    • A would be liable
  • Unless third party releases them
    • A, B and C were working as Partners/General Partners or A was a sole proprietor
  • Person who signed contract before formation is liable
    • at execution
    • at formation
    • and after adoption
  • Unless released by third party
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14
Q

Pre-Formation Contracts Liability of Corporation

A
  • Contract is signed before corporation is legally formed and before Corporation exists as a legal entity

Liability of Corporation

    • Not liable at time of contracting
    • Not liable on formation
    • Only after adoption of contract
      • not ratification
      • Express or implied by conduct
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15
Q

Pre-Formation Contracts liability of Agents

A

• An agent is a person who signed contract in name of corporation before corporation was formed

Personally liable for contract 
• at execution
• after formation
• and adoption
• Unless released by Third Party
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16
Q

Pre-formation Contracts liability of Owners

A
  • Business operating in fact pre-formation
  • What is the “form” of that business?
  • Liability of Owners?
  • No limited liability at common law
  • General Partnership
  • Only non-filing entity
  • Only common-law multi-owner form
  • No corporation => owners => partners
  • Partners liable for all “firm” obligations
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17
Q

Two equity alternatives to avoid personal liability of a Corporation.

A
  1. Defacto Corporation-treats Corporations as existing even though it does not exist at law
  2. Corporation by Estoppel-Look to context of Corporation; 3rd party claiming that Corp cannot enforce because it doesn’t exist.

Cts will likely rule that Corp is established by de facto. Use of defacto doctrine as a shield against liability.

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18
Q

Defacto Corporations

A

• Defacto Corporation(Valid in fact but not necessary valid at law)
o Defacto (in fact) vs. de jure (at law)
• T/P trying to avoid liability by arguing DFC
- - Contracts
- - Taxes by defective municipal corporations, unity districts

• Agents & S/hs try to avoid liability by claiming it was a DFC

  • Distinguish contexts for applying de facto corporation doctrine
  • Even though a corp can only exist at law it existed and it also doesn’t matter that the 3rd party didn’t know it wasn’t a corp

o Effect of defacto doctrine?
• If court adopts defecto argument
• Corporation exists “in fact” (as to T/P),
• Contracts are not pre-formation
• Agents are not liable if fully disclosed principal
• Owners not liable as general partners
• Corporation is liable

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19
Q

Defacto Test

A

• Statute for limited liability entity
• T/p must make colorable (Good Faith) attempt to comply
• Corporate agents must actually use the corporate franchise
- - Attempt Limited Liability
- - Sign in corporate name (Inc., Corp., Co.)
• T/P dealt with corporation & NOT individuals
- - Signed in corporate name

o Defacto Statute
• MBCA rejected:
• Easy argument for T/p to claim Corp was incorporated
• Vague what exactly are Corp acts
• “Too old its not 1890 anymore!!”(Not hard to communicate with other people)

• Language: “act as a corporation”
- - Anyone who “acts as a corporation” even though you have not filed in the state you are jointly liable for the acts of the business
• –passive owners not acting, not liable(Passive owner may not necessarily be liable under statute)

• RMCBA: only if “knowingly” acted, will you be liable for the acts of a corporation
o Courts still like it
o Statute protects would be limited liability partnerships

Some cts have still adopted Defacto in some context.

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20
Q

Corporation by Estoppel

A

When a party engages in misleading conduct; and causes another party to rely on that conduct, to which reasonably believe them; creating a detrimental change of position. The first party is estopped from asserting that matters aren’t as represented.
Estops Corp agent from arguing that no corporation existed.

o Misleading conduct by T/P?
• Don’t promoters (agents mislead as to existence of corporation?
• Don’t’ corp. wannabe’s mislead?
• Contracted for corp & not personal liability(individuals) Look to corporation and not to individuals
- - T/P knowledge corp status?
• Reasonable belief by “Promoters”?
• Had the Corp taken GF steps to incorporate?
• How hard is it to for them to find out they can check the Sec. of State online

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21
Q

Defacto v Estoppel. Who should bear risk?

A

• Best leave-cost avoider? (Incorporators)
• If you are going to sign a k with a Corporation you should check with Sec of State to get notice to make sure Corporation is existing
• Defacto = estoppel? Estoppel essentially the same argument as defacto…
– Statute rejects defacto, so Estoppel is most logical argument for T/p.

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22
Q

Texas Consequences of defective incorporation

A
  1. Texas Tax Code 171.255 says:
    a. Corp. forfeits right to do business because not filing reports/paying taxes
    b. Ds & Os who keep doing business as a corporation despite forfeiture :
    i. Personally liable (a) as partners
    (b) for debts created/incurred
    ii. After forfeiture and before revival
    iii. Remain liable after revival
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23
Q

Defenses to Texas 171.255

A

a. Not liable if D/O can show debt created or incurred
i. Over D/O’s objection or
ii. Without D/O’s knowledge, but only if can show
iii. reasonable diligence re corp’s affairs
iv. would not have revealed intent to create debt

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24
Q

What are the 2 fundamental Corporate instruments?

A

(1) CoF & (2) bylaws. If there is a conflict b/w the two the CoF controls. Together along with state and federal statutes they set out the rules that govern corporate officers and matters.

25
Q

What are Corporate bylaws?

A

Corporate bylaws address the time, place, and manner of annual stockholder meetings, give quorum to voting requirements, set forth the powers of company officers; allow shs and bod to amend bylaws.

26
Q

Why should a Corporation consider not using bylaws?

A

Defense to use of bylaws is the advance notice bylaw system in which requires a shareholder proposing a matter to give notice before the meeting, used to ensure orderly consideration of business at next meeting. Bylaws advances can also be used to strike down disgruntled shareholders who do not meet bylaw reqs.
S/hs cannot amend CoF but can veto ammendments proposed by board. S/hs and B/ds can amend bylaws.

27
Q

Charlestown Boot & Shoe

A

Shareholders brought suit against Ds because Ds did not want to work with appointed Non-D.

Rule: The power of the board is original, un-delegated, and is part of the nature of the corporation. Shareholders have no power over the management of a corporation and cannot order the directors to take particular actions in managing the business of the Corp. A corporation shall be managed by the directors subject only to the by-laws and votes of the Corp.

28
Q

Role of B/D

A

• DGCL 141(a): business & affairs of corp. managed by or under the direction of the B/D, except as stated in
o DGCL
o Certificate of incorporation

• TBOC 21.401:
o B/D exercises powers of corporation
o B/D directs the management of the business & affairs. (Two TBOC 21 limitations)

• MBCA 8.01(b)
o All corporate powers to be exercised by or under the authority of the B/D
o Business & affairs of corporation managed by, or under direction of, B/D
o Except
o Subject to limitations in CoI., or agreement authorized by 7.32

• Source of power:
o Statutory “original & undelegated”
o Not from S/Hs
o B/D not agents of S/Hs
o B/D can act on behalf of the Corp
29
Q

What are the rights of passive S/Hs?

A

• Rights regarding bylaws; Get to elect people to serve on BODs
• Right to elect B/D. TBOC 21.405
• Right to remove Ds
- Common law:
• Inherent in right to elect
• But only for cause (misconduct)
o Without cause: by statute/bylaw
- TBOC 21.409(a): with or without cause, unless C/F or bylaws
• Limited right to approve certain actions

30
Q

CA, Inc. v AFSCME Employee Pension Plan

A

S/Hs offered a proposed bylaw to be reimbursed for election expenses of new B/Ds. B/D disagreed and stated that they did not agree.

Under Delaware both b/ds and s/hs have the power to adopt, amend and repeal corporate bylaws.

Ct held that bylaw was not adoptable because it violates Delaware law because it takes away the boards’ fiduciary duty and gives them no power to avoid the reimbursement. If ct wants to change a bylaw they must make an adoption to the CoI.

Rule: Corporate bylaws detail the process for making corporate decisions but they may not limit the discretion of the directors by dictating what the result of a decision making process must be.

B/D have a fiduciary duty to manage:

(i) Cannot contract away duty
(ii) S/H bylaws cannot require B/D to act when would otherwise breach fiduciary duty.

31
Q

What does a CoI contain?

A

A CoI may contain any provision creating, defining, limiting, and regulating the powers of the corporation, the directors, and the stockholders.

32
Q

What are bylaws? (TX vs. DEL)

A

• DGCL 109(b): The bylaws may contain any provision relating to:
- The business of the corporation,
- The conduct of its affairs, and
• Its rights or powers or
• Rights or powers of its S/Hs, Ds, Os or employees

  • TBOC 21.057(b): provisions for regulation and management of the corporation
  • Must be consistent with law and certificate

Where do bylaws come from?
• DGCL 109(a): power to adopt
- If no S/Hs, incorporators (people who signed the articles of incorporation) or initial B/D can adopt
- If S/H only S/Hs have power to adopt
- Unless certificate give B/D power to adopt
- B/D adopts initial bylaws TBOC 21.057(a)

DGCL 102 v. 109

i. 102(b)(1) allows certificate to include provisions re
1. management of business,
2. Conduct of affairs of corp.,
3. Powers of corp., B/D & S/Hs
ii. 109(b)(2) allows bylaws of similar scope
iii. CA: Variation in language not significant
iv. Bylaws can limit B/D

33
Q

What are the powers of the B/D regarding bylaws?

TX v DEL

A 
DGCL 109(a)
– Certificate can give B/D power to adopt, amend or repeal
– B/D power does not divest or limit S/H power to adopt, amend or repeal bylaws.

TBOC 21.057: B/D power to adopt, amend, or repeal unless
– Certificate or TBOC reserves to exclusively S/Hs
– S/Hs expressly limit B/D power with regard to a particular bylaw
• S/Hs can adopt particular bylaw to avoid intervention from the board.
• TBOC 21.058: S/H power to amend or repeal or adopt unless limited by
– Certificate or
– Bylaw adopted by S/Hs
– B/D power does not limit S/H power

34
Q

CA, Inc. role of bylaws and S/H bylaws power

A

CA, Inc.: S/H power to adopt, amend, or repeal bylaws under 109 (b)
– legally sacrosanct
– power cannot be non-consensually eliminated or limited by anyone other than legislature
• But subject to 141(a) B/D power to manage
• Contrast broader language of 102(b)(1)

CA, inc. on role of Bylaws
• Bylaws can define process & procedures used by B/D
• Cannot dictate substantive decisions

• CA: Scope of Bylaws
Proper Scope of Bylas determined by common law

CA, Inc., Bylaws and B/D
• 141(a) power to manage
– Provides certificate can limit
– Note 102(b)(1) broader: can define, limit or regulate powers of B/D

• B/D fiduciary duty to manage:
– Cannot contract away duty
– S/H bylaws cannot require B/D to act when would otherwise breach fiduciary duty
• Different result if provision in certificate?

CA, Inc.: different in TBOC?
• 21.401(a) power to manage business & affairs
– Two express TBOC limits
– Not applicable in CA, Inc.
• 21.057: bylaws: regulation & management of affairs, consistent with law & Certificate

TBOC: role of Certificate
• 3.005(b) Certificate of Formation may contain any provisions
– Not inconsistent with law relating to the organization
– Relating to organization, governance, business or affairs

35
Q

Requirements for a Valid Action by the Board

A

Board can only act as a body no single director has the power to act as a responsible party for the corporation. The validity of an action by the board depends on the requirement for meetings, notice, quorum, and voting. Set at 2 levels. 1. Rules set out for the formalities for board action. 2. Rules concerning the consequence of non-compliance with the rules at the first level.

Meetings- B/d can only act at a duly convened meeting at which quorum is present. BOD can possibly act by unanimous written consent without a meeting, or by communication through a conference phone call in which all members are present.

Notice-formal notice is not required for a regularly scheduled meeting b/c bod is already aware of the meetings time and date. Notice must be given in a period of an advanced meeting to each bod.

Quorum-A quorum of the bod consists of an authorized # of the majority of a full board.

Voting-Assuming quorum is present when a vote is taken, the affirmative vote of a majority of those present is required for action.

In publicly held corps an ineffective meeting, notice, or lack of quorum will render the board action ineffective.
Older cases have held that informal approval by directors in which the approval was unanimous renders the informal approval effective.

36
Q

Power of Corporate Officers

A

Issues that involve the authority of corporate officers generally come up in situations in which there is a transaction b/w the corporation and a third person and the officer acted without the board on the corporation’s behalf.

Issues involving an officer’s authority are normally determined under the general law of the agency (CoI, bylaws)

Board decided declaration of dividends. Officers generally handle the managerial part of the corporation and authority is outlined in the corporate statute. The board cannot delegate to a committee corporate actions that require approval by both board and shs.

To determine what would be outside the president’s apparent authority you look at the economic magnitude of the action, the cost of reversing the action, and the extent of the risk involved.

Officer’s powers usually stem from the law of the corporation or board delegation of authority whether expressed or implied. Express authority is manifested through a statute or by board or shareholder action. Implied authority is expressed through different circumstances, by evidence of how the business has operated in the past.

In the traditional model of corporate structure, the board managed the business of the corporation. For publicly held corporation the management function of the co is now allocated to the executives with the central figure being the CEO

37
Q

Fogel v. U.S. Energy Systems

A

The Board of directors deceptively called the CEO to a meeting and fired him. Fogel didn’t agree so he called a special meeting to challenge the termination.

Rule- Before a corporation may hold a special meeting of its board of directors, each director must receive notice as prescribed by the bylaws; to the extent such a meeting is held w/o notice, the meeting and “all acts done at such a meeting are void”

When a corporate action is void, it is invalid from the beginning and cannot be ratified later.

38
Q

Notice of B/D Meetings TBOC 21.411

A

TBOC 21.411
– Regular vs. special (as bylaws require)
– (a) Regular meetings, with or without notice
• Regular-(usually at least one which the annual meeting of the election of officers, date, time, and hr set in bylaws, other meetings are quarterly meetings to which you know in advance)(Whether you are entitled to a meeting depends on the bylaws)
– (b) Special Meetings, with notice, as prescribed by bylaws
– (c) Notice of business to be transacted or of purpose
• Not required
• Unless bylaws require

39
Q

TBOC B/D Quorum 21.413

A

• Minimum number present to conduct business.
• Majority of number of persons constituting full B/D
– Bylaws can change # of majority but not under 1/3
• Bylaws: 7 D’s. 3 Ds still sitting add new bodies so that you can vote. Ds have authority to fill vacancy to next annual meeting of shareholders if there is not enough ds for quorum.
• Present in person (actual or virtual 6.002)
• Virtual (conference telephone or speakerphone)
• Written consent requires unanimous decision from all directors[21.415(b)]
– Present throughout (or at time of action). Have to be there through entire quorum

Ds cannot give a proxy authorizing someone else to be there for them or cast absentee ballots.

40
Q

B/D Committees (TBOC 21.416) & Officers (21.417)

A

TBOC 21.416
• If C/F or bylaws allow, B/D can appoint out of its membership
• Committees have power of full B/D to extent of resolution appointing 21.416(b)
– But major limitations 21.416(c)
• B/D retains all its responsibilities/duties 21.416(f)

Officers
•	Elected by B/D 21.417
•	Actual authority
–	As B/D delegates specific matters
–	Bylaws
•	Apparent authority
–	President:
•	Majority rule:  acts in ordinary course of business
•	Texas:  NONE
–	Secretary:  to certify 3rd party whether or not corporate formalities have been met b/w the B/Ds
41
Q

Basic Reqs for a Shareholder Meeting

A

S/H action
• At Meeting 21. 363(a) (Time, place & date of meeting)
• Call for meeting (Who can call a meeting)
• Notice of meeting and notice of purpose (waivable but)
• Quorum requirement satisfied
• Vote requirement satisfied

42
Q

Who has a right to call a meeting? Who are registered owners?

A 
Right to Call a Meeting
• Annual:  set by bylaws.  21.351
• Special meetings  21.352
– President
– B/D
– 10% or + of S/Hs entitled to vote (unless C/F—C/F)
Registered Holders
• 21.201(a):  person registered as owner in share transfer records
• Is deemed owner for purposes of
– Voting
– Distributions
– Transferring shares
– Notice or giving proxies
– Exercising other S/H rights 
– Entering into b/H agreements
43
Q

What are the requirements for proper notice of a meeting?

A

When Required?
• For all S/H meetings. 21.353, 6.051
– Except no-locates. 6.053

Notice of Meeting III
How Much Notice
• 10-60 days in advance. 21.353(a)
• Caveat re statutory notice requirements for certain actions
– 21.456(c): no later than 21st day before meeting

Notice of Meeting IV
Notice of Purpose
•	Special meetings 21.353(b)
–	Unless C/F or bylaws…
–	Closed agenda  21.352(c)
•	Annual meeting
–	No notice of purpose unless 
•	C/F, bylaws
•	Fundamental actions  21.456
–	Election D’s
–	Ratify auditors
44
Q

TBOC Location of Meetings

A

Location of meetings
a. Meetings may be held at locations in or outside the state as:
i. Provided by the documents of the entity
ii. Agreed to by all persons entitled to notice
b. If location not established in accordance with subsection (a), the owners may hold meetings only at the registered office of the entity in this state or the principal office of the entity
c. The governing persons of a domestic entity, or a committee of the governing persons, may hold meetings as:
i. Provided by or fixed in accordance with:
A. The governing docs of the entity; or
B. The person calling the meeting
ii. Agreed to by all persons entitled to notice.
2. 6.002. Alternative Forms of Meetings.
a. May be by conference telephone or similar communications equipment, including video conferencing or the internet, or any combination
b. If voting is to take place at the meeting the entity must:
i. Implement reasonable measures to verify the every person voting is identified; and
ii. Keep record of any vote or other action taken
3. 6.003. Participation Constitutes Presence
a. A person participating in a meeting is considered present, unless the participation is for the purpose of objecting to the transaction on the ground that the meeting has not been lawfully called or convened.
4. 6.053 Exception (waiver of notice)
5. 6.201 Unanimous written consent to action
a. This section applies to actions at an annual or special meeting
b. The owners or members may take action without holding a meeting, providing notice, or taking a vote if each person entitled to vote on the action signs a written consent or consents stating the action taken.
c. Written consent described in (b) has the same effect as a unanimous vote at a meeting
d. A filing instrument may state that an action approved by written consent has the effect of an approval by unanimous vote at a meeting
6. 6.202 Action by Less Than Unanimous Written Consent
a. Majority Consent, 6.202-05
b. If Cert. Formation authorizes
c. Persons with votes
i. sufficient to approve at a meeting
ii. if holders of all voting shares present
d. Signed in counterparts
7. 6.203 Delivery of Less Than Unanimous Written Consent
8. 6.204 Advance Notice Not Required

45
Q

What are the Delaware reqs for a b/d meeting?

A

Del. Gen. Corp. Law § (Action of the B/D)
1. 141(a)- affairs of the corporation shall be managed by the B/D unless the certificate of incorporation provide otherwise
2. 141(b)-DGCL is silent regarding a call or notice of a meeting- No detailed formal requirements.
A. vote of majority of Ds present
B. at meeting
C. at which a quorum is present
i. Quorum: majority of total number of D
D. Cert. or bylaws may change
i. Quorum + or – (not below 1/3)
ii. Higher vote
3. 141(f)
4. 141(i)
5. 222- notice of meetings and adjourned meetings. requires written notice of place, date and hour of meeting, Record date,
Purpose or purposes of meeting
6. 229- Waiver of Notice

46
Q

Texas Voting Reqs for B/d members

A

Vote Required
• “Regular” voting
• “Statutory” voting
• Election of directors

Regular Voting (21.363)
•	All voting except 
–	statutory voting or 
–	election of directors
•	Majority of shares (unless C/F or bylaws)
•	Three approaches:  given percentage of
–	shares voting or expressly abstaining 
(unless C/F or bylaws) 
–	All shares entitled to vote (absolute)
–	All shares present if a quorum
47
Q

What does it mean to be a registered holder?

A 
•	21.201(a):  person registered as owner in share transfer records
•	Is deemed owner for purposes of
–	Voting
–	Distributions
–	Transferring shares
–	Notice or giving proxies
–	Exercising other S/H rights 
–	Entering into b/H agreements
48
Q

When is their a proper Notice of Meeting? TBOC

A 
Notice of Meeting
•	When required?
•	Manner?
•	How much?
•	Date, Time & Place
•	Purpose?

Notice of Meeting II
When Required?
• For all S/H meetings. 21.353, 6.051
– Except no-locates. 6.053

Notice of Meeting III
How Much Notice
• 10-60 days in advance. 21.353(a)
• Caveat re statutory notice requirements for certain actions
– 21.456(c): no later than 21st day before meeting

Notice of Meeting IV
Notice of Purpose
•	Special meetings 21.353(b)
–	Unless C/F or bylaws…
–	Closed agenda  21.352(c)
•	Annual meeting
–	No notice of purpose unless 
•	C/F, bylaws
•	Fundamental actions  21.456
–	Election D’s
–	Ratify auditors
–	Open agenda for ordinary business
49
Q

Quorum under TBOC

A

• Majority of shares entitled to vote (unless C/F or bylaws) 21.358
• In person or by proxy (contrast B/D)
• Present and Acting throughout?
– “Quorum Busting”?
– Texas: once a quorum is present, meeting can act until meeting is adjourned
(unless C/F, bylaws) 21.358(c)
– Contrast B/D-Unlike directors where you have to have quorum at all time to do a vote, Sh/s can continue to have voting until meeting is adjourned.

50
Q

Three things that require shareholder voting

A

“Regular” voting
“Statutory” voting
Election of directors

51
Q

Regular Voting (TBOC)

A

• All voting except
– statutory voting or
– election of directors
• Majority of shares (unless C/F or bylaws)
• Three approaches: majority percentage of either:
– shares voting or expressly abstaining (unless C/F or bylaws)
– All shares entitled to vote (absolute)
– All shares present if a quorum

In TX, you only count votes of the amount of people who vote yes, no, or abstain.

52
Q

Statutory Voting (TBOC)

A

Statutory Voting
• Fundamental Actions 21.364
• Fundamental Business transactions. 21.457
• Absolute voting
– Texas: 2/3 (unless—C/F only)
– Del: Majority (unless…) easier in Del than in TX

Statutory Voting II
• Fundamental Actions 21.364
– Amendment of Certificate of Formation
– Voluntary Winding Up (dissolution)

• Fundamental Bus. Transactions 21.457
– Mergers
– Sales of all assets
– Statutory share exchanges
– conversions
53
Q

Election of Directors

A

Directors are elected through straight or cumulative voting

54
Q

Straight Voting

A
  • “Straight” Voting
  • 21.359-not by maj of votes of shs but by plurality of shares unless c/f or bylaw allows.
  • By plurality (unless) 21.359
55
Q 
Straight Voting Hypo
•Hypo A=49 shares
           B=51 shares
•3 Ds being elected
–	A1 49
–	A2 49
–	A3 49
–	B1 51
–	B2 51
–	B3 51
A

•Only B gets to vote A gets shut out.

56
Q

Cumulative Voting

A

• “Cumulative” Voting 21.360-.362
• Always state whether or not there is cumulative voting in c/f or bylaws.
• Cumulative voting only if C/F requires
21.360

• Manner 21.361
– Notice by 1 => All S/Hs can cumulate
– # Shares X # D’s
– Can allocate as many total shares as you want

Total Votes= Shares x Positions

• A gets 49 X 3 =147
B gets 51X 3 = 153 (all for B)
• A doesn’t have votes to keep B off

57
Q

Removal of Directors under TBOC

A

• 21.409(a): general S/H right to remove a D with or without cause
• If classified voting for Ds, only electing class (b)
• If cumulative voting
– & less than all Ds being removed
– Not if votes against would have elected if voted cumulatively
• If Ds have staggered (temporary) terms (21.408)
• Ds can only be removed for cause (unless C/F only)

58
Q

Ultra Vires Doctrine

A

Corporations have limited powers.

TBOC 20.002- Ultra Vires Acts

  1. Not a defense in law or in equity
  2. An act is not invalid because the act or transfer was:

a. Beyond the scope of purpose as expressed in the COF or
b. Beyond the authority of officer as limited

  1. But beyond purpose/ authority ok if:
    a. S/H suit to enjoin
    b. Suit by corp vs. D or O for exceeding authority
    c. Suit by Attorney General to enjoin, or terminate corporation
59
Q

Limitations on the Ultra Vires Act

A
  1. Corporate powers could be implied
  2. Generally speaking, ultra vires was not a defense to corporate tort or criminal liability, Even when it was a defense, it could not be used to reverse completed transactions. (confined to executory contracts)
  3. Maj-the non performing party, having received a benefit under the contract, was estopped from asserting an ultra vires defense. Min-“the federal rule” part performance did not have an estoppel effect because it was prohibited by law and therefore void. Even cases taking the minority view usually permitted the performing party to recover in restitution.
  4. Under American Law, unanimous shareholder approval barred the ultra vires defense unless creditors would be injured.
  5. Most statutes made this kind of drafting unnecessary by providing that the certificate could provide simply that the corporation could engage in any lawful business.
  6. Delaware and model business statutes have almost abolished the ultra vires doctrine.

Corporation Flashcards (3 decks)

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