Corporate Organization Flashcards
What body of law governs NY corporations?
Include this phrase at the beginning of EVERY Corporations Essay!
The governing statutory law is the NY Business Corporation Law (BCL)
INTERNAL AFFAIRS RULE = If a company is incorporated in NY then NY law will govern the internal affairs of incorporated businesses EVEN IF the company does NO business in NY
Internal Affairs includes duties and responsibilities of directors, officers, shareholders, etc
FORMATION REQUIREMENTS
What are the 3 formation reqs for corporations?
1) PEOPLE– incorporators (adult humans; NOT entities) 2) PAPER– certificate of incorporation (a.k.a. “articles”) 3) ACTS– (i) notorize certificate of incorporation; (ii) delivery to NY Debt. of State; AND (iii) hold an organizational mtg
PEOPLE (People, Paper, Acts)
ROLE/KEY INFO RE: INCORPORATOR
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 other companies/entities)
PAPER (People, Paper, Acts)
CERTIFICATE OF INCORPORATION - PURPOSE
What are 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
PAPER (People, Paper, Acts)
INFORMATION PLACED INTO CERTIFICATE OF INCORPORATION
What information goes into the certificate of incorporation?
1) MUST include key NAME AND ADDRESS
• Name: Corporate name MUST have “corp.” or “inc” or “ltd”
• Address of Corp: The county in NY of the “office of the corporation” is the address (DOES NOT have to be the place of primary business)
2) SERVICE OF PROCESS
• Designated Agent for Service of Process: Must designate the NY Sec of State as agent for service of process → Additionally, you MAY have a registered agent for serv. of process
• Forwarding Address: Must provide an address for forwarding process to the corp
3) INCORPORATOR INFO
• MUST provide Name/address of EACH incorporator
4) DURATION: MAY include a stmt of duration of the corporate entity
• IF cert has no prvn, then the corp is perpetual
5) PURPOSE: MUST include the corporate purpose Can be as general as “engage in all lawful activity”
• If corporate purpose is a ltd’s purpose, then it can NOT act OUTSIDE that purpose, or it will be ULTRA VIRES
• Effects of ULTRA VIRES ACTS:
(i) Ultra Vires acts are VALID
(ii) Shareholders can seek an injunction of ultra vires activities
(iii) Any managers responsible for the activities ARE LIABLE to the corporation for any associated LOSSES
6 CAPITAL STRUCTURE: MUST outline the capital structure in the certificate of Inc, which includes… (i) Authorized stock (MAX # of shs that the corp can sell)
(ii) # of shs per class of stock
(iii) Information on par value, rights, preferences and limitations for each class (iv) Information on any series of Pfd. shares
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
• Relevant terminology:
(i) ISSUED STOCK = # of shs that the corp actually sells
(ii) OUTSTANDING STOCK = stk that the corporation has sold AND has not reacq’d (as part of Treasury stk)
ULTRA VIRES ACTS
What are the consequences of having an ultra vires act?
At common law, that would mean the K could be voided.
Today:
(i) ulltra vires Ks are VALID (not voided)
(ii) SHs CAN seek an injunction
(iii) The resp. magangers ARE liable to the corporation for ulta vires losses
ACTS (People, Paper, Acts)
What acts must incorporators take to establish a corporation?
1) Each incorporator must SIGN CERTIFICATE AND have it NOTARIZED
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 MEETING (or they can do it by written consent), where they…
(i) ADOPT BYLAWS
(ii) ELECT INITIAL BOD, which immediately takes over
POWERS AND LIABILITIES OF CORPORATION
What powers AND liabilities does a corporation have?
***HIGHLY TESTED MATERIAL
A corporation is a separate legal person
1) POWERS = broad
(i) enter K in its own name
(ii) transfer property
(iii) buy/sell securities
(iv) sue or be sued
(v) make political contributions UP TO $5k/yr per
candidate/organization
(vi) make UNLIMITED charitable contributions
(viii) GUARANTEE loans NOT in furtherance of corp
business BUT ONLY IF it receives 2/3 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
DE FACTO CORPORATION
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) there is a relevant incorporation STATUTE (NY = the BCL);
2) the parties make 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 (Basically the rule of allowing de facto corps is all but abolished)
CORPORATION BY ESTOPPEL
What is corporation by estoppel?
***THIS IS ABOLISHED IN NY!
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 proprietors ARE liable if they fail to form a de jure corporation
BYLAWS
What are bylaws?
1) Bylaws = LAWS used to set up procedures and responsibilities of ppl like officers, and to set forth the type of notice req’d for meetings, etc.
2) CONFLICTS w/Cert of Inc. and bylaws:
If bylaws are inconsistent with the certificate, the CERTIFICATE cntrls!
3)Filing:
NO FILING FOR BYLAWS – Bylaws are NOT filed with the state (only the cert. is)
4) ADOPTION:
Initial bylaws are adopted by the incorporators at the 1st organizational mtg AND have status of “SHAREHOLDER BYLAWS”
5) POWER TO AMEND/REPEAL BYLAWS:
• 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 for BOD repeal of bylaws
• SHs can still amend/repeal after any permitted BOD amendments/repeals
6) NOTE: corporations DON’T have to have bylaws (the certificate is ALL that is req’d)
PROMOTER
What is a promoter?
***HIGHLY TESTED MATERIAL
Promoter = 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
PRE-INCORPORATION CONTRACTS
Is the corporation liable for pre-incorporation Ks?
***HIGHLY TESTED MATERIAL
The corporation is liable on a pre-incorporation contract ONLY IF it ADOPTS the K
Otherwise, NO!
ADOPTION OF PRE-INCORPORATION CONTRACTS
What 2 ways can a corporation adopt a pre-incorporation K?
***HIGHLY TESTED MATERIAL
A corporation can adopt a pre-incorporation contract in one of two ways
1) EXPRESS ADOPTION = BoD action can be taken to adopt the K
2) IMPLIED ADOPTION: Even if no explicit adoption by the BoD occurs, there can be implicit adoption if the corporation KNOWINGLY accepts the benefits of the K
(e. g. moving into office space leased under the pre-incorporation contract)
PROMOTER CONTRACT LIABILITY
Is the promoter liable for pre-incorporation Ks?
***HIGHLY TESTED MATERIAL
YES! The promoter is liable for pre-incorporation contracts UNLESS the K clearly states otherwise
Promoter is liable UNTIL there is a NOVATION
NOVATION = 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)
• Corp liability would be b/c of the adoption
• Promoter liability would remain b/c he is a party to the K and there HAS not been taken off the K through Novation
