CORPORATION FORMATION Flashcards
Are there any limitations on the name that can be chosen for a corporation?
Yes, there are two:
1. SIMILARITY: The corporation’s name can’t be confusingly similar to the name of any other corporation formed in the state, and
- CORPORATENESS: In most states, a corporation’s name must show that it is a corporation, by including “Co.,” “Inc.,” or something similar.
NOTE: A corporation’s name must appear in its articles of incorporation.
Must the corporation’s initial board of directors be named in the articles of ncorporation?
No; the articles may name the initial directors, but, if they don’t, the directors may be named at the corporations’s “organization meeting” (which takes place after the articles of incorporation are filed). If the directors are named in the articles of incorporation, then the organization meeting is called the organization meeting of directors; if not, the initial directors are appointed at the organization meeting, which is called the organization meeting of incorporators.
After the articles of incorporaton are filed, an “organization meeting” takes place. What happens at the meeting?
- Directors are selected (if they weren’t named in the articles of incorporation);
- The directors make initial decisions. These include accepting subscriptions to corporate stock, approving issuance of shares in return for consideration (usually money) exchanged for stock, designating corporate officers and establisheing their areas of authority;
- Bylaws are adopted.
NOTE: If the dirctors were name in the articles of incorporaton, the organization meeting is called an organization meeting of directors; if not, it’s called an organization meeting of incorporators.
What do “corporate bylaws” do?
They regulate the corporation’s internal affairs Generally, they deal with matter like the date of the annual shareholders” meeting, calling and conducting shareholders” and directors” meeting, titles and duties of officers, number of directors, and any special quorum or voting requirements.
WHO CREATES: By laws are adopted, amended,or repealed by majority approval of either the board of directors or the shareholders entitled to vote. RMBCA Sect.10.04(a)(1)
TECHNICAL REQUIREMENTS: No filing is required; unlike the articles of incorporation, the bylaws need not be filed with the state.
WHO’S BOUND: Valid bylaws (i.e., those that aren’t unreasonable or oppressive and are approved by a proper mahority)are binding onb all shareholders, whether or not they expressly consent to them or even know what they contain.
CONFLICTS WITH ARTICLES: if a corporation’s bylaws and articles conflict, the articles control.
Snoopy, tired of begging for his dinner, decides to earn money to buy his own food. He opens u a movie production copany. The first feature he intends to produce is “My Life as a Human.” He files articles of incorporation in which he sattes that the copany’s purpose is “to engage in any business in which corporations are allowed to engage.” All Snoop intends for the corporation to do is make movies. If the jurisdiction requires a pupose satement in the articles of incorporation, is Snoopy’s purpose statement permissible?
Yes, in most jurisdictions.
Not every jurisdiction (nor the RMBCA) requires a purpose statement at all. Of those that do, in most jurisdictions this statement can be very general, like Snoopy’s (Delaware, for instance, doesn’t require anything specific. Del Ann Code 102(a)(3).
NOTE: California has an unusual “purpose” requirement; each corporation must state in its articles that it is empowered to engage in all acts in which corporations may lawfully engage. If a corporation wants to limit ist purpose it can add limitations to this statement (e.g., “may not own a TV station”). HA Sec. 121 p.
Regarding corporations law, what is the RMBCA?
The RMBCA, or Revised Model Business Corporation Act, is a model statute that provides a comprehensive framework for the governance, formation, and operation of corporations in the United States. It was developed by the American Bar Association’s Committee on Corporate Laws as a guide for states to use when drafting their own corporate laws.
The RMBCA serves as a template that states can adopt entirely, in part, or with modifications. Many states have enacted laws based on the RMBCA, making it a widely influential document in the field of corporate law.
What are the 5 Key aspects of the RMBCA?
- Incorporation and Structure: The RMBCA outlines the process for forming a corporation, including the filing of articles of incorporation, the establishment of bylaws, and the roles and responsibilities of directors and officers.
- Corporate Governance: It provides detailed guidance on corporate governance, including the rights and duties of shareholders, the conduct of shareholder meetings, and the powers and responsibilities of the board of directors.
- **Fiduciary Duties: **The RMBCA sets forth the fiduciary duties of directors and officers, including the duty of care and the duty of loyalty, to act in the best interest of the corporation and its shareholders.
- Corporate Transactions: It includes provisions related to mergers, acquisitions, and other major corporate transactions, as well as the rights of shareholders in such transactions.
- Dissolution and Liquidation: The act also covers the procedures for dissolving a corporation and liquidating its assets.
Al and Peg Bundy open up a “Married…With Problems” marriage counseling service. They want to incorporate the business. What kind of informaton about the ownership of the corporation must appear in the articles of incorporation?
The articles of incorporation must describe corporate ownership, or “stock,” in terms of:
1. the types of stock the corporatin is authorized to issue (e.ge., preferred, commmon), and
2. the number of shares of each class of stock the corporation may issue. (Note that this should be more than the corporation initially plans to issue, in case it wants to issue more shares in future (e.g.e, to raise more capital). If the corporation doesn’t authorize more shares thatn it plans to issue, any increase in authorized shares requires an amendment to the articles and shareholder approval.) RMBCA Sec. 2.02(a).
Note that the articles may also include more details on ownership, including:
1. whether or not the stock has “par value”, and
2. the privileges, rights, and preferences each class of stock is to have. RMBCA Sec.2.02(b)
“M” wants to incorporate his detective agency, “Her Majesty’s Secret Service.” The corporate statute in the jurisdiction requires that M designate a state resident as a registered agent. As his agent, M chooses Bond…James Bond. What’s the purpose of the “registered agent” requirement?
To receive service of process on behalf of the corporation, in case it’s sued by anyone on any claim.
Note that the registered agent’s name and address must appear either in the articles of incorporation or in a separately filed form.
NOTE: The registered agent can be changed subsequently by filing a form with the Secretary of State identifying the new agent’s name and address.
What is an “ultra vires” act?
A transaction outside a coorporation’s powers. The scoope of a corporation’s powers is determined both by the corporation’s articles of incorporation (specifically the corporate “purpose” clause) and the stater’s corporate statute.
SIGNIFICANCE: Not much today; however, traditionally ultra vires acts were considered void. this came up most frequently in the case of contracts, which were unenforceable by or aginst the corpration if they were outside the corporation’s pwers (e.g., not in relation to the corporation’s stated purpose). Even for acts that were theoretically ultra vires. exceptions were typically made if either party had already perfored nder the ultra vires contract. HA Sec. 184p. 478-9
