Corporations Flashcards
What is required information for the articles of incorporation?
- Name, including a corporate designation
- Number of authorized shares, shares per class, voting rights, etc.
- Name and address of incorporators and registered agent
- Street address of registered office
- Any other provision regarding corporate operations that is not inconsistent with the law.
When does the corporate existence begin?
At the time of filing with the state
What are the bylaws?
Internal document adopted at the organizational meeting that contain provisions for managing the corporation. Can include any provision not inconsistent with the articles of incorporation or law
What law governs the internal affairs of a corporation?
The law of the state of incorporation
What is a B-Corp?
A benefit corporation, which is formed for profit and to pursue some benefit to a broader social policy cause. Managers therefore cannot be liable for failing to maximize profits alone.
What sort of liability does a corporation have?
Limited liability. Shareholders are liable only to pay for their stock, not for corporate debts.
De Facto corporation
No liability for incorporators when there is a defect in formation if:
1. There is a relevant incorporation statute (always met);
2. Parties made a good faith, colorable attempt to comply with the statute; AND
3. Exercise of corporate privileges (parties acted as though they thought there was a corporation)
Can only be raised by a person who is unaware that there was no valid incorporation, and is ineffective in an action by the state.
Corporation by estoppel
People treating business as valid corporation are estopped from denying the corporation’s existence. Insulates against personal liability in contract, but not tort.
If estoppel and de facto corporation do not apply, who may be liable?
The active business members, not passive investors.
Important to note that these doctrines are abolished in many states
Are promoters generally liable for preincorporation contracts?
YES, because even though they are acting on behalf of the corp, the corp is not yet in existence and therefore cannot yet enter into a contract.
-personal liability continues even after corporation forms unless there is a novation
-corporation does not become liable unless it adopts the contract expressly or impliedly
When is a corporation foreign?
When it is from anywhere outside of the state. They must register and pay fees if they transact business in a state.
What is the holder of a debt security’s relation to the corporation?
A bondholder is a creditor, but not an owner, of the corporation
What is the holder of an equity security’s relation to the corporation?
A stockholder is an owner, but not a creditor, of the corporation
What is a subscription agreement?
A written offer to buy stock from a corporation.
-Preincorporation subscriptions are irrevocable for six months
-Postincorporation subscriptions are revocable until accepted by the corporation
What is the acceptable form/amount of consideration for shares in a corporation?
-MBCA: any tangible or intangible property or benefit to the corporation; amount set by directors in good faith
-Traditional: par value required, only cash, property, or services already performed
What is watered stock?
When the par value stock is issue for less than its par value. The person who bought the stock (but not a third party buyer in good faith) or the directors who knowingly authorized may be liable for the difference.
What is a preemptive right?
Right of an existing shareholder of common stock to maintain her percentage of ownership in the company by buying stock whenever there is a new issuance of stock FOR MONEY. Right must be stated in the articles.
Who can remove directors, and for what reason may they be removed?
Shareholders can remove directors before their terms expire with or without cause.
How must the board of directors act?
As a group, either by unanimous agreement in writing or at a meeting satisfying the quorum and voting requirements. Individual directors are not agents of the corporation.
What sort of notice is required for board meetings?
-Regular meetings: no notice required
-Special meetings: two days’ notice of date, time, and place (but not purpose)
What is a quorum of the board of directors for meetings?
A majority of all directors must be present at the meeting, which may be lost if people leave. Passing a resolution requires a majority vote of those present.
Can the board delegate duties to committees?
Yes, but the committee cannot typically declare a distribution, fill board vacancies, or recommend a fundamental change to shareholders (they can recommend actions to the full board)
What standard is a director/officer held to?
A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation. She must also use the care that a person in like position would reasonably believe appropriate under the circumstances.
What are two common scenarios where the duty of care will arise?
-Nonfeasance: director will do nothing (lazy director where breach causes loss to corporation)
-Misfeasance: board makes a decision that hurts the business (causation is clear)
*Burden on plaintiff
What is the business judgment rule?
Applies for duty of care. Presumption that when board took an action, it did appropriate homework. A court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis.
What are common scenarios for duty of loyalty violations?
-Self-dealing
-usurping corporate opportunities
-competing ventures
-insider trading
*Burden on defendant
