Corporations Flashcards
Corporations - Defined
Legal entity distinct from its owners. Requires filing certain docs w/ state, & running a corp gneerally requires more formaliity than required for most biz orgs
Corps generally have the following characteristics:
- Limited liability for owners, directors, and officers,
- Centralized mgmt
- Free transferability of ownership
- Continuity of life
Formation
Created by statute - complying w/ LBCA- One person can form a corporation
(1) Articles of Incorporation must include:
- Name of the corporation
- Address of initial registered office
- Address of initial principal office if different
- Name and address of initial registered agent
- Number of shares corporation is authorized to issue
- Name and address of each incorporator
(2) Affidavit of Acceptance
Name
Must include it’s a corporation
Can’t signal something that it’s not
Must be unique
Promoter
Promoter personally liable to 3P: when 3P knew corp not yet in existence
Corp liable to 3P: when adopts/ratifies. Promoter remains personally liable unless 3P discharges promoter
Third Parties
Promotor = person who actually does things before the corporation exists for the corporation (ex: signing contracts
De Facto Corporation Doctrine = if you make GF effort to incorporate and only exercise corporate authority, only the corporation will be responsible
Corporation by Estoppel Doctrine = when 3rd party relies only on corporation’s name and assets to enter into contract, only the corporation will be liable
Reporting
Annual Report
- Corp terminated if fails to file for 90 days
- Secretary give 30 day notice then file cert. of termination
- Corp can reinstate within 5 years of termin.
- Retroactive to term.
- Deliver articles of reinstatement & annual report to sec.
Agreement
Voting Trust (SH)
- Trustee exercises the rights of the SH (transfer of ownership_
- Trustee receives dividends & distrib to beenf in accord w/ agreement
- Formed before 2015 - no max term
- Before 2015 - max term 15 yrs - can extend for add 10 yrs
Unanimous Governance Agreement (SH)
- Must: state that it is an unan gov agree + in writing + file
- Eliminate BOD or restrict BOD powers
- Govern auth of distribution
- Establish directors/officers, terms/condition of office, m anner of selection/removal
- Transfer to SH the authority to exercise powers or manage business & affairs of corp
Voting
Shareholders: majority vote (by share)
- Vote by proxy (default: revocable)
- Revoke by: writing; showing up to meeting to vote; or appointing new proxy
- Electing Directors
- Plurality of vote (straight voting)
- But, can be cumulative voting
- Express in articles
-
Quorum: majority of shares (can alter but not less than 25% shares)
- Once share present at meeting, deemed present for quorum even if leaves
BOD: majority vote (by head)
- CANNOT vote by proxy
- Unless stated in articles & proxy must be diff. director + only for 1 meeting
- Quorum: majority of BOD (can alter but not less than 1/3 BOD)
Managment
Shareholders
- No direct control
- Elect/remove directors, amend bylaws, amend articles, major structure changes (alienate all/ sub all assets), merger, dissolution
Directors
- General responsibility for management & affairs
- Adopt bylaws, amend bylaws, elect officers, declare distributions
Officers
- Day-to-day management, mandatary, prepare minutes, maintain records
- MUST have Secy
- 1 yr term; must be in articles to be longer (3 yr max)
Meetings
Annual Shareholder Meeting
- Must have annually
- Called by BOD – if not within 18 months, any SH may demand secretary to call
- SH waives defect in notice if:
- Signed writing before/after meeting
- Must object to notice at beginning of meeting, or waived
Financial Structure
Equity securities (shares)
- Authorized shares stated in articles
- Can only sell those authorized
- Can have different classes of shares (must be in articles)
- Shares must be represented by certificate (see exceptions)
Must have share certificates
- Name of corp & organized under LA law
- Name of person issued to
- # , class, series of shares
Contribution
Anything of value
(cash, services, promissory note)
Mandatary
Duly authorized officer/employee → mandatary
NOT shareholder or director
Rights of Shareholder
Shareholder
- Inspect Books
- 5% voting power + owned for 6+ months → give 5 day written notice + purpose
- Articles, bylaws, board resolutions regarding classification of shares, past 3 year minutes of SH meetings, past 3 yearcorp communication to SH, names/addy of directors and officers, most recent annual report, unanimous governance agreement
Preemptive Right
- Purchase new shares to maintain proportion
- Must opt into in articles
Derivative Action
Derivative Suit
Can be brought when the corp: (1) declares unlawful dividends when insolvent, or (2) when breaching fiduciary duties:
- Any SH can bring suit on behalf of the corp\against the D/O
- Must be a shareholder when the breach occurred
Universal Demand Requirement—must have written demand to the Board that the Board bring the claim on behalf of the corp
- If Board doesn’t bring claim within 90 days, SH can bring the claim
- Independent directors can dismiss derivative suit
- Settlement of derivative suit requires court approval
Rights of Director
Day to day management
- Usually given to officers
Sole discretion to declare distribution
May set their own compensation
Must first give business opportunity to corp before taking themselves
Distribution
Declaring distribution solely in director’s discretion
Shareholder
Liable to corporation and creditors for receiving excess distributions
- Whether knew or not
Directors
Liable to the amount distribution excess
- Must be knowing or without due care
Limitation of Liability
Shareholder
Unpaid stock, pierced corporate veil, receipt of unlawful distributions, absence of de jure corp when SH knew there was no corp
Directors
Breach of duties, can limit liability but not for certain things (see other chart), not personally liable for money damages for action taken or failed to take
Indemnification
Mandatory Indemnification:
Unless limited by arts, a corp must indemnify a D/O who was wholly successful in defending the proceeding against the D/O for reasonable expenses + atty fees
Discretionary Indemnification:
A corp may indemnify a D for reaosnable exp incurred in unsuccessfully defending a suit if:
- D acted in GF
- Believed conduct was:
- in best interest of corp
- not opposed to best interest of corp
- not unlawful
Fiduciary Status
Shareholder = No duties
D/O = Duty of care and duty of loyalty
Withdrawal
Only for oppressed shareholders
Oppression = if the corporation’s distribution, compensation, governance, and other practices, considered as a whole over a period of time, are plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder
Termination
Administrative Termination
State may bring action to terminate for any of the following reasons:
- Failure to pay fees or penalties with 90 days due;
- Failure to deliver annual report within 90 days due;
- Failure to maintain a registered agent in state for 90 days for more; OR
- Failure to notify state of a change in registered agent within 90 days
May reinstate within 3 years after effective termination. Relates back
Dissolution
Voluntary Dissolution
- By majority vote of SH at special meeting called for dissolution
- File dissolution with secretary of state, liquidate, and then ceases
Judicial Dissolution
- By Attorney General
- By Shareholder
- By Creditor
Duties
