Corporations

Question 1

Formation of Corporations

Answer 1

1. De Jure:
   2.**De Facto: :
   3..Estoppel **

Question 2

Formation of Corporation

De Jure

Answer 2

The courts often reforms to a legal valid corporation as a de jure. Generally, no corporation exists, and there is no limited liability, until articles of incorporation are properly filed with the appropriate state office. This forms a de jure corporation, a full-fledged, distinct legal entity for all purposes.

Question 3

Formation of Corporation

De Facto

Answer 3

De Facto Corporation
An association may be deemed a de facto corporation if:
* there is a procedural, administrative, or other defect in the process of
incorporation, so that a de jure corporation does not come into being (for
instance, a document getting lost in the mail, or inadvertent omission of required
information);
* the incorporators tried, in good faith, to comply with the statutory incorporation
requirements, which in some states requires actually filing or colorably
attempting to file the articles of incorporation with the appropriate state office;
and
* actual exercise of corporate prerogatives, or actually conducting the business as
though there were a de jure corporation (for instance, entering a lease on the
corporation’s behalf).

Question 4

Formation of Corporation
De facto Corporation, Status and Powers

Answer 4

If the requirements for a de facto corporation are met, then the business will
be treated as a de jure corporation for most purposes. This means that the
shareholders enjoy limited liability, and the business may sue, be sued, acquire
and hold property, and take other actions as though it were a distinct legal
entity. Generally, only the state may challenge the corporate status of a de
facto corporation, which is thus the equivalent of a de jure corporation as
against everyone on Earth except the state. This means that people who deal
with the de facto corporation as though it is a de jure corporation cannot later
hold the shareholders personally liable, on the grounds that no de jure
corporation was ever formed. (However, the incorporators or directors should
promptly act to remedy any defective incorporation and form a de jure
corporation as soon as possible after learning of the defect.)

Question 5

Corporation by Estoppel

Answer 5

A court may, in the interest of fairness, prevent a par ty from denying that a de jure
corporation exists (and, thus, that the shareholders have limited liability) under the
doctrine of corporation by estoppel. Generally, this doctrine applies if:

• a party dealt with an association as though it were a de jure corporation;
• the party apparently believed the association was a de jure corporation, without
  fraud by the person representing the association; and
• at the time, the association held itself out as a de jure corporation.

Courts typically apply corporation by estoppel if a party to the transaction
attempts to hold the shareholders personally liable, based solely on defective
incorporation. Courts may also apply the doctrine to prevent the association itself
from denying its corporate existence if a third party reasonably relied to her
detriment on the association’s status as a de jure corporation. [See 18A Am. Jur. 2d
Corporations §§ 203, 207-08, 210-11, 215, Westlaw (database updated May
2018); Timberline Equip. Co., Inc. v. Davenport, 514 P.2d 1109 (Or. 1973); see also
Cranson v. Int’l Bus. Machines, Corp., 200 A.2d 33 (Md. 1964).]

Question 6

Piercing the Corporate Viel

Question 7

Scope of Authority: Duty of Care

Question 8

Scope of Authority: Duty of good faith

Question 9

The Power and Scope of Corporate Authority

Question 10

Fiduciary Duties Duty of Care

Question 11

Duites of Care and the BJR

Question 12

Failure to Act to Monitor the Firm

Question 13

The Duty of Good Faith

Question 14

The Duty of Loyalty

Question 15

Duty of Loyalty: The Corporate Opportunity Doctrine

Question 16

Duty of loyalty for Dominant Shareholders

Question 17

Transfers of Control

Question 18

Shareholders Rights: Ownership Proxies Inspections

Question 19

Shareholders Rights: Shareholder Suits

Question 20

Shareholder Suits: The Demand Requirments and Special Litigation Committees

Question 21

Control Issues in Corporation: Issues of Control

Question 22

Limitations on Control Arrengements

Question 23

Freeze outs and Abuse of Controls

Question 24

Oppression of Minority Shareholders.

Question 25

Introduction to Merggers and Acquistions

Question 26

Intro to Corporate Soical Reponibilty.

Question 27

Business Judgment Rule

Answer 27

Decisions by corporate directors are generally respected as valid, carefully considered business judgments (not court’s place to evaluate soundness of decision)

The so-called business-judgment rule may insulate a director from liability for some
breaches of the duty of care (not the duty of loyalty). Under the business-judgment
rule, if a director is sued for a bad business decision that allegedly breached the duty
of care, a court will presume that the director acted (1) in good faith, (2) upon
reasonable information, and (3) in the honest belief that the act was in the
corporation’s best interests. Unless the presumption is rebutted, a director will not be
liable for honest mistakes or simple poor judgment, even if the result is catastrophic
for the corporation and its shareholders. [See 3A Fletcher Cyc. Corp. § 1036, Westlaw
(database updated Sept. 2017).]

Question 28

Business Judgment Rule

[No Judicial Second-Guessing]

Answer 28

The gist of the business-judgment rule is that a court must not substitute its own
business judgment for a director’s. Thus, a court will not second-guess a director’s
actions or evaluate them in hindsight. In evaluating an alleged breach of the duty
of care through the lens of the business-judgment rule, courts consider only the
circumstances as they existed at the time of the challenged action, from the
perspective of a reasonable person in the director’s position. If the decision is one
that a reasonable person could have made at the time, then the director will not be
liable for it. [See 3A Fletcher Cyc. Corp. § 1036, Westlaw (database updated Sept.
2017); Model Business Corporation Act § 8.30, with comments.]

Question 29

Business Judgment Rule

[Rebutting the BJR Presumption]

Answer 29

The business-judgment rule will not insulate a director from liability if:
* the director did not take reasonable steps to inform herself before making a
decision or did not stay sufficiently informed about the corporation’s affairs;
* the director breached or is alleged to have breached the duty of loyalty, as by
laboring under a conflict of interest;
* the act was colored by fraud or other misconduct;
* the director was grossly negligent; or
* the act was one that no similarly situated person could have believed reasonab

Question 30

Overview Corporate Formation Steps Formation Steps

Answer 30

1. Choose a Corparate Name:
   * It has to include the word incorporation or incorporated or INC
   * It needs to be reconizablly different other name on file.
2. File Certificate of incorporation
   * Your corporation is legally filed or legally created when filing the Certificate of incorporation with the NY Secretary of State.
   * It must include the Corporations name and purpose.
   * Purpose: They form with “any lawful purpose”
   * How many share of stock you are going to issue. The stock strcture.
   -and what they are going to look like.
   - You have to issue stock.
   -The default in NY is that you need to issue 200 shares of common stock
   -This means that the ownership[ of this corporation is inital being divided up into 200 pieces that can be sold at any price.
   - You dont have to sell those pieces you can hold them all within the corpoation., You do not have to have investors yet,

• You have to indicate what that stock structure is.
• County were the main office is licated
• The corporation agent and service of process.
• You laso have to pay a filing fee.

3. Appoint a Registered Agent
   -Every NY corporation must appoint the NY department of state as theri agent.
4. Prepare Corporate Bylaws
   - Internal corporate documents that set up the basic ground rule on how to operate your corporatetion they are not filed with the stat.
   - You are not legally required to have them but you should
   - They show bank, IRS etc that your corporation is legimaste.
   - You should keep a record of this at the corpoation principal office.
5. Appoint Directors and Hold first Board Meeting
   - The incorporator the person who signed the article must appoint the initial directors who serve on the board. Until the first annul meeting of share holder and the shareholder get to vote who will be on the board.
   - Corporation Board of directors must meet.

    - you have to have somone who will record the minutes. Prepared by the incorrporatior or any of the director, And the board needs to spprove the mintes. 
       
    - These are really strict formalities 
               - These are checks and balancess to show that your corpoation is operatiing as its own enity separate and aprt from the incorporator
               - You will not get the benefit of the corpration if it is not its own enity this is why these have to followed. 

6. Issue Stock:
   - This is when you are selling
   someone (shareholder) a
   piece of your corporation for
   cash or for property or
   services.

• You give the certification to show that they own a piece of the compnay.
• This is called Security.

7. File NY Biennial Statment
   - Biennial Statement Amendment may be
   filed to amend the name and address of
   a business corporation’s chief executive
   officer and/or the address of the
   corporation’s principal executive office.
   The form for filing a Biennial Statement
   Amendment is provided by the New
   York Department of State. You are
   required to use the Biennial Statement
   Amendment form provided by the New
   York Department of State. The statutory
   fee for filing is $9.
8. Comply with Other Tax Regulatory Requrements.

Question 30

Overview Corporate Formation Steps Formation Steps

Answer 30

1. Choose a Corparate Name:
   * It has to include the word incorporation or incorporated or INC
   * It needs to be reconizablly different other name on file.
2. File Certificate of incorporation
   * Your corporation is legally filed or legally created when filing the Certificate of incorporation with the NY Secretary of State.
   * It must include the Corporations name and purpose.
   * Purpose: They form with “any lawful purpose”
   * How many share of stock you are going to issue. The stock strcture.
   -and what they are going to look like.
   - You have to issue stock.
   -The default in NY is that you need to issue 200 shares of common stock
   -This means that the ownership[ of this corporation is inital being divided up into 200 pieces that can be sold at any price.
   - You dont have to sell those pieces you can hold them all within the corpoation., You do not have to have investors yet,

• You have to indicate what that stock structure is.
• County were the main office is licated
• The corporation agent and service of process.
• You laso have to pay a filing fee.

3. Appoint a Registered Agent
   -Every NY corporation must appoint the NY department of state as theri agent.
4. Prepare Corporate Bylaws
   - Internal corporate documents that set up the basic ground rule on how to operate your corporatetion they are not filed with the stat.
   - You are not legally required to have them but you should
   - They show bank, IRS etc that your corporation is legimaste.
   - You should keep a record of this at the corpoation principal office.
5. Appoint Directors and Hold first Board Meeting
   - The incorporator the person who signed the article must appoint the initial directors who serve on the board. Until the first annul meeting of share holder and the shareholder get to vote who will be on the board.
   - Corporation Board of directors must meet.

    - you have to have somone who will record the minutes. Prepared by the incorrporatior or any of the director, And the board needs to spprove the mintes. 
       
    - These are really strict formalities 
               - These are checks and balancess to show that your corpoation is operatiing as its own enity separate and aprt from the incorporator
               - You will not get the benefit of the corpration if it is not its own enity this is why these have to followed. 

6. Issue Stock:
   - This is when you are selling
   someone (shareholder) a
   piece of your corporation for
   cash or for property or
   services.

• You give the certification to show that they own a piece of the compnay.
• This is called Security.

7. File NY Biennial Statment
   - Biennial Statement Amendment may be
   filed to amend the name and address of
   a business corporation’s chief executive
   officer and/or the address of the
   corporation’s principal executive office.
   The form for filing a Biennial Statement
   Amendment is provided by the New
   York Department of State. You are
   required to use the Biennial Statement
   Amendment form provided by the New
   York Department of State. The statutory
   fee for filing is $9.
8. Comply with Other Tax Regulatory Requrements.

Question 31

Piercing the Corporate Veil

Answer 31

Courts may pierce the corporate veil by setting aside the principle of limited liability and
disregarding the corporate entity in the interests of equity. Generally, courts do this if the
corporate form has been abused such that recognizing limi ted liability would work unfair
harm or injustice.

1. Alter-Ego Theory
   Perhaps the prevailing theory of corporate veil-piercing is the alter-ego theory. Under this
   theory, courts will pierce the veil of limited liability and hold a shareholder personally
   liable for corporate obligations if two general requirements are satisfied. First, the
   shareholder must have effectively disregarded the corporate form, exerting such
   complete dominion or control over the corporation that it effectively became an
   extension of the shareholder herself, a mere instrumentality to accomplish her will.
   Second, and crucially, this disregard of the corporate form must have been meant to and
   did work some unfair harm or injustice against the party seeking to pierce the veil. Actual
   fraud is not required, though courts typically look for some indication of bad faith. [See 18
   Am. Jur. 2d Corporations § 52, Westlaw (database updated Aug. 2018); Morris v. N.Y. State
   Dep’t of Taxation and Fin., 623 N.E.2d 1157 (N.Y. 1993).]
2. Factors Considered in Deciding Whether to Pierce the Corporate Veil
   The rules governing whether to pierce the corporate veil are notoriously difficult to
   reduce to a precise formula or set of bright-line principles. Even so, the cases identify a
   list of factors that may, depending on the circumstances, indicate that a shareholder has
   abused the corporate form, usually to cheat creditors. These include:
   * commingling a shareholder’s assets with corporate assets;
   * severely undercapitalizing a corporation or causing it to become undercapitalized by
   effectively raiding its coffers;
   * systemic disregard for corporate formalities;
   * using the corporate entity for a shareholder’s personal benefit or using the
   corporation’s assets as though they were the shareholder’s own;
   * manipulating assets and liabilities so that the liabilities rest with one entity, but the
   assets rest with another, nominally beyond creditors’ reach;
   * using the corporate form to avoid satisfying a debt that should, in fairness, be the
   shareholder’s personal obligation;
   * using the corporate form to facilitate fraud or crime;
   * gross failure to maintain adequate corporate records; or
   * concentrated stock ownership in the hands of one person or very few persons.
   [See 18 Am. Jur. 2d Corporations § 54, Westlaw (database updated Aug. 2018).]

Question 31

Piercing the Corporate Veil

Answer 31

Courts may pierce the corporate veil by setting aside the principle of limited liability and
disregarding the corporate entity in the interests of equity. Generally, courts do this if the
corporate form has been abused such that recognizing limi ted liability would work unfair
harm or injustice.

1. Alter-Ego Theory
   Perhaps the prevailing theory of corporate veil-piercing is the alter-ego theory. Under this
   theory, courts will pierce the veil of limited liability and hold a shareholder personally
   liable for corporate obligations if two general requirements are satisfied. First, the
   shareholder must have effectively disregarded the corporate form, exerting such
   complete dominion or control over the corporation that it effectively became an
   extension of the shareholder herself, a mere instrumentality to accomplish her will.
   Second, and crucially, this disregard of the corporate form must have been meant to and
   did work some unfair harm or injustice against the party seeking to pierce the veil. Actual
   fraud is not required, though courts typically look for some indication of bad faith. [See 18
   Am. Jur. 2d Corporations § 52, Westlaw (database updated Aug. 2018); Morris v. N.Y. State
   Dep’t of Taxation and Fin., 623 N.E.2d 1157 (N.Y. 1993).]
2. Factors Considered in Deciding Whether to Pierce the Corporate Veil
   The rules governing whether to pierce the corporate veil are notoriously difficult to
   reduce to a precise formula or set of bright-line principles. Even so, the cases identify a
   list of factors that may, depending on the circumstances, indicate that a shareholder has
   abused the corporate form, usually to cheat creditors. These include:
   * commingling a shareholder’s assets with corporate assets;
   * severely undercapitalizing a corporation or causing it to become undercapitalized by
   effectively raiding its coffers;
   * systemic disregard for corporate formalities;
   * using the corporate entity for a shareholder’s personal benefit or using the
   corporation’s assets as though they were the shareholder’s own;
   * manipulating assets and liabilities so that the liabilities rest with one entity, but the
   assets rest with another, nominally beyond creditors’ reach;
   * using the corporate form to avoid satisfying a debt that should, in fairness, be the
   shareholder’s personal obligation;
   * using the corporate form to facilitate fraud or crime;
   * gross failure to maintain adequate corporate records; or
   * concentrated stock ownership in the hands of one person or very few persons.
   [See 18 Am. Jur. 2d Corporations § 54, Westlaw (database updated Aug. 2018).]