Corporate Organization Flashcards
What body of law governs NY corporations?
The governing statutory law is the NY Business Corporation Law (BCL). 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 is the 2 purposes of the certificate of incorporation?
1) It’s a K b/t the corporation and its SHs 2) It’s a K b/t the corporation and the state
What information goes into the certificate of incorporation?
1) MUST include key 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 Additionally, you 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 include 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 actitivty” 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; info on any series of preferred shares; 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.
What are the consequences of having an ultra vires act?
At common law, that would mean the K could be voided. Today, ulltra vires Ks are VALID (not voided). SHs CAN seek an injunction The resp. mangers ARE liable to the corporation for ulta vires losses
What acts must incorporators take to establish a corporation?
1) Ea. incorporator must sign certificate AND have it notorized 2) Must deliver the certificate to the NY Dept of State & pay filing fees. Filing = CONCLUSIVE evidence of valid formation (de jure corporation) 3) Incorporators must hold an organizational mtg (or they can do it by written consent), where they…i) adopt any 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 - enter K in its own name, trnfr property, buy/sell securities, sue or be sued, make political contributions UP TO $5k/yr per candidate/organization, make charitable contributions w/o a limit, g’tee loans NOT in furtherance of corp business IF it received 2/3d VOTE of SHARES entitled to vote (not just SHs) 2) Liability = falls on the CORPORATION itself The ppl who run the corporation (BOD; officers) are NOT liable for what the 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 they show 1) there is a relevant incorporation STATUTE (NY = the BCL); 2) the parties made a GOOD FAITH, colorable attempt to comply with it; AND 3) the 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?
The 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?
Used to set up procedures and responsibilities of ppl like officers, set forth the type of notice req’d for meetings, etc. If bylaws are inconsistent with the certificate, the CERTIFICATE cntrls! Bylaws are NOT filed with the state (only the cert. is). outsiders are not bound by bylaws.
Initial bylaws are adopted by the incorporators at the 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)
Who is a promoter?
A promoter is a person acting on behalf of a corporation not yet formed i.e. the 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?
The corporation is liable on the K ONLY IF it ADOPTS the K Otherwise, NO!
What 2 ways can a corporation adopt a pre-incorporation K?
1) Express adoption: the bd can take action to adopt the K 2) Implied adoption: arises if the corporation KNOWINGLY accepts the benefts of the 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)
