Corporate Organization Flashcards
What body of law governs NY corporations?
(1) The governing statutory law is the NY Business Corporation Law (BCL)
(2) NY law governs the internal affairs of incorporated businesses EVEN IF the company does NO business in NY
What are the 3 formation reqs for corporations?
1) People– incorporators (adult humans; NOT entities)
2) Paper– certificate of incorporation (“articles”)
3) Acts– (i) notorize certificate of incorporation; (ii) delivery to NY Debt. of State; AND (iii) hold an organizational mtg
What are keyaspects of being an “incorporator”?
1) Responsibilities:
(i) execute the certificate;
(ii) deliver it to the NY Dept of State; AND
(iii) hold an organizational mtg
2) # of incorporators necessary: 1 or more
3) Who can be an incorporator: adult HUMANS only (no entities)
What are the 2 purposes of the certificate of incorporation?
1) K b/t the corporation and its SHs
2) K b/t the corporation and the state
What information goes into the certificate of incorporation?
1) Names and addresses
Corporate name MUST have “corp.” or “inc” or “ltd”
Addy = county in NY of the “office of the corporation”(doesn’t HAVE to be the place of primary business)
Must designate the NY Sec of State as agent for service of process
MAY have a registered agent for serv. of process. Must provide an addy for fwd’ing information to the corp
Name/addy of EACH incorporator
2) MAY including the duration of the corporate entity
If cert has no prvn, then the corp is perpetual
3) MUST include the corporate purpose
Can be as general as “engage in all lawful activity”
If corporation ltd’s its purpose, then it can not act OUTSIDE that purpose, or it will be ultra vires
4) MUST outline its capital structure, which includes…
Authorized stk (MAX # of shs that the corp can sell) # of shs per class of stk
Information on par value, rights, prefrences & ltds for each class
NOTE: (i) at least ONE class of stk or bonds MUST have unltd voting rights; AND (ii) at least ONE class of stk must have unltd dividend rights
Info on any series of preferred stk
Relevant terminology
Issued stk = # of shs that the corp actually sells
Outstanding stk = stk that the corporation has sol AND has not reacq’d (as part of Treasury stk)
What is ultra vires and what are its consequences?
Action beyond the stated purpose
Common law - K could be voided.
Today - VALID (not voided)
SHs CAN seek an injunction
Resp. managers ARE liable to the corporation for ulta vires losses
What acts must incorporators take to establish a corporation?
1) Sign and notarize certificate
2) Deliver certificate to NY Dept of State
3) Pay filing fees
Filing = CONCLUSIVE evidence of valid formation (de jure corporation)
4) Hold organizational mtg (or they can do it by written consent), where they…
(i) Adopt bylaws
(ii) Elect initial BOD, which immediately takes over
What powers AND liabilities does a corporation have?
A corporation is a separate legal person
1) Powers = broad
(i) enter K in its own name
(ii) trnfr property
(iii) buy/sell securities
(iv) sue or be sued
(v) make political contributions UP TO $5k/yr per candidate/organization
(vi) make charitable contributions w/o a ltd
(vii) g’tee loans NOT in furtherance of corp business IFF it received 2/3d VOTE of SHARES entitled to vote (not just SHs)
2) Liability = falls on the CORPORATION itself
Ppl who run corporation (BOD; officers) NOT liable for what corporation does
SHs (owners) also have ltd liability (i.e. they are ONLY obligated to pay the value of their stk
What is a de facto corporation?
If incorporators FAIL to form a de jure corporation, they can still be TREATED as a corporation (ltd liability, EXCEPT in actions by the state) IF…
1) Relevant incorporation STATUTE (NY = the BCL);
2) Parties make a GOOD FAITH, colorable attempt to comply with it; AND
3) Business is being RUN LIKE a corporation
NOTE: NY allows de facto corps ONLY when the incorporators did everything to file for incorporation and the Dept of State FAILED to file
What is corporation by estoppel?
Theory is that one dealing with a business as a corporation, treating it as a corp MAY be ESTOPPED from denying the business’s corp status later
i.e. they CANNOT later sue individual proprietors
IN NY, THIS HAS BEEN ABOLISHED Individual properitors ARE liable if they fail to form a de jure corporation
What are bylaws?
(1) Set up PROCEDURE and RESPONSIBILITIES of ppl like officers
(2) Set forth type of notice req’d for meetings, etc
CERTIFICATE cntrls over bylaws (if inconsistent)
NOT filed with state (only the cert. is)
Initial bylaws are adopted by incorporators at 1st organizational mtg AND have status of SH bylaws
Pwr to repeal
SHs ALWAYS have the pwr to amend/repeal bylaws (esp. BOD bylaws)
The BOD may do so ONLY IF (i) the certificate; OR (ii) SH bylaw allows
NOTE: corporations DON’T have to have bylaws (the certificate is ALL that is req’d)
What is a promoter?
Person acting on behalf of a corporation not yet formed
i.e. Promoter may enter into a K w/ a 3d party on behalf of the corporation-not-yet-formed
Is the corporation liable for pre-incorporation Ks?
ONLY IF it ADOPTS the K
Otherwise, NO!
What 2 ways can a corporation adopt a pre-incorporation K?
1) Express adoption: BOD takes action to adopt K
2) Implied adoption: Corporation KNOWINGLY accepts benefts of K
Is the promoter liable for pre-incorporation Ks?
YES! UNLESS the K clearly states otherwise
Promoter is liable UNTIL there is a novation, which is an agmt among (i) the promoter; (ii) the corporation; AND (iii) the K-ing party that the corporation will replace the promoter
NOTE: Adoption ALONE by the corp does NOT remove the promoter from liability (he would be jointly liable with the corp)
