Corporations

Question 1

Requirements to form a de jure corporation

Answer 1

• person (incorporator)
• paper (articles)
• act (delivery to SoS)

Question 2

pre-incorporation contracts ~ liability for promoter + corporation

Answer 2

• promoter: liability continues even after corporation is formed absent a novation or express limitation in the contract
• corporation: not liable unless it expressly or impliedly adopts the contract

Question 3

defective corporations - 2 types

Answer 3

• de facto corporation: colorable compliance with incorporation statute, exercise of corporate privileges
• estoppel: people treating a business as a valid corporation are estopped from denying the corporation’s existence
• person acting on behalf of the corporation can’t be aware of the failure to form

Question 4

piercing the corporate veil (3 types + general rule)

Answer 4

general rule: shareholders aren’t liable for corporate debts unless then 1) abused the privilege of incorporating and 2) fairness requires piercing the veil

Types:

1. alter ego doctrine: harm caused to third party because commingle funds, don’t treat corporation as a separate entity, use corporate assets for personal purposes, don’t hold meetings
2. inadequate capitalization at inception: inadequate to meet prospective liabilities
3. perpetrating a fraud

Question 5

issuance of stock (subscriptions + consideration + preemptive rights)

Answer 5

-preincorporation subscriptions are irrevocable for 6 months; post incorporation subscriptions can be revoked up to acceptance

-consideration: can be any tangible/intangible property/benefit to corporation
~traditionally had to be more than par value
~today, directors can determine valuation, which is conclusive if in good faith

-preemptive rights: allow to maintain a % ownership in an issuance for cash
~must be stated in the articles; aren’t applicable to shares issued within 6 months after incorporation, shares issued for non money consideration, shares without voting rights

Question 6

shareholder vs. director voting (who entitled, rules for meetings, thresholds)

Answer 6

BOTH

• must give notice for meetings; if no notice is given actions are voidable unless expressly/impliedly waived
• votes can occur at meeting or with unanimous written consent

SHAREHOLDERS

• shareholders of record on the record date have a right to vote
• thresholds: majority vote required for anything except directors (plurality is OK there)
• quorum required = majority of outstanding voting shares (broken quorum is OK)

DIRECTORS

• no notice needed for regular meetings, need for special meetings
• quorum = majority of all directors (broken quorum is NOT OK)
• directors are presumed to concur with the board unless they dissent in writing or are absent from a meeting

Question 7

agreements for shareholder votes (3 types)

Answer 7

• proxy votes: writing, signed, delivered to secretary
• can be revoked in writing or by attending a meeting; unless they are irrevocable (stated + coupled with an interest); generally valid for 11 months
• voting trust: 10Y maximum, written, give copy to corporation, transfer legal title to trustee, OG shareholders get trust certificate
• voting agreement: in writing + signed

Question 8

director liability

Answer 8

DoL: directors must act in good faith, in a manner reasonably believed to be in the best interests of the corporation
DoC: directors must act with the care that a person in a like position would exercise

DoC: can be breached through nonfeasance or misfeasance. Under BJ rule, court won’t second guess an action if it is done in good faith, informed, and rational.

DoL:
a self-dealing transaction won’t be set aside if:
1. director disclosed all material facts and transaction was approved by disinterested directors/SHs OR
2. transaction was fair to the corporation
corporate opportunity doctrine: a director may not divert to himself a business opportunity within the corporation’s line of business without first giving the corporation an opportunity to act

Question 9

director indemnification

Answer 9

no indemnification if director was liable to corporation or received an improper benefit
compulsory indemnification if successful in defending on the merits
permissive indemnification if acted in good faith

Question 10

fundamental corporate changes (types, requirements, remedy)

Answer 10

• amending articles, mergers/consolidations, share exchanges, dispositions of substantiality of assets outside the regular course of business
• general requirement: board resolution, notice to SHs, shareholder approval, articles of change filed with the state

-appraisal may be available to dissenters in a merger/consolidation
EXCEPTION: listed company with over 2,000 shareholders
EXCEPTION: merger of 90% subsidiary into parent company, if rights of surviving company aren’t significantly affected

Question 11

dissolution

Answer 11

-voluntary dissolution: by fundamental change procedure; or by majority of incorporators/directors if business hasn’t begun
-administrative dissolution
-judicial dissolution:
~by AG
~SHs if directors are deadlocked, misconduct, waste
~creditors if corporation is insolvent and claim is due

-corporation continues, but just for the purpose of winding up assets. Can assert claims to the extent of undistributed assets unless notify creditors.

Question 12

authority of corporate officers + directors

Answer 12

Directors have actual authority to act pursuant to a valid meeting or unanimous written consent

Officers are agents of corporation, so have actual authority to act with whatever power the board grants (in a proper vote, for authority that could properly be delegated)
–> president has apparent authority to bind corporation to contracts