Corporations Flashcards
What MUST be in the articles of incorporation?
(1) name and address of corporation
(2) name and address of incorporators
(3) name and address of each registered office and registered agent (with agent’s written acceptance)
(4) Number of authorized shares
Beyond the 4 requirements to incorporate, can the articles of incorporation include other provisions?
Yes- can include ANYTHING not inconsistent with law, regarding managing the business or defining powers of the corporation, directors and shareholders.
What are the statutory requirements for a director?
Must be a natural person (not a corporation) and 18 or older.
What is the minimum number of directors required if the articles or bylaws are silent?
one or more
How many incorporators are required?
one or more people or entities (such as corp, partnership or assoc) NO OTHER REQUIREMENTS (age, residency, citizenship etc)
How old must an incorporator be?
Any age - no requirements as to age, residency or citizenship
Abe wants to form a business but likes working alone. He comes to you to ask if he can be the sole incorporator, shareholder and director. What do you tell him?
He can - one person may fulfill all of these roles in a corporation. One or more natural persons or corporations can act as incorporator and a FL corp can have as few as 1 director and 1 person can hold all stock.
Promotor liability
A promotor purporting to act on behalf of a corporation knowing there was no incorporation is jointly and severally liable for all liabilities created while acting.
Harold contracts with companies on behalf of Z Corp prior to Z corp’s incorporation. After Z Corp incorporates, what is Harold’s risk as to liability for those contracts?
Harold would still be liable under the contracts. Adoption of a contract may be express or implied, but merely incorporating is not sufficient to constitute adoption.
What is the only way that a promotor can avoid liability on a preincorporation contract?
If there is a novation where the corporation, promoter and the third party agree to substitute the corporation for the promoter as the one liable on the K.
Harold enters into contracts prior to Z corp incorporation for rental space. Z Corp then moves into the space, knowing of the lease. Who is liable on the contracts?
Both Z Corp and Harold. Corporations are liable on pre-incorporation contracts if they expressly or impliedly adopt the contract. Express adoption occurs when the board passes a resolution adopting the contract. Implied adoption occurs when the corporation knowingly accepts the benefits of the contract. Because Z corp knowingly accepted the benefit by moving in to the leased space, it is liable.
Harold is also liable. Adoption does not free a promotor from liability - it only means that the corporation is liable too. The only way for a promotor to escape liability is through novation.
Subscription
A contract (signed, written offer) under which the subscriber agrees to purchase a certain number of shares from the corporation at a specified price.
When is a subscription revocable?
Pre-incorporation subscription agreements are irrevocable for 6 months unless the agreement provides otherwise or all subscribers consent to revocation.
Post-incorporation subscriptions are revocable until the board accepts them.
When is a subscription enforceable?
Once the board accepts it. Then, the corporation can sue the subscriber or sell the shares to someone else if payment isn’t made within 20 days of a written demand from the corporation.
Can a preincorporation subscription agreement be rejected by the corporation after incorporation?
YES
Ryan mailed articles to the department of state to incorporate his business. A week later he enters into a contract on behalf of the business. However, the articles of incorporation were lost in the mail and a corporation was never formed. Is Ryan liable on the contract?
No -all persons purporting to act on behalf of a corporation knowing there was no incorporation are jointly and severally liable. however, a defacto corporation is found to exist if there was a good faith effort to incorporate, colorable compliance with the law and actual use of corporate status (acting OBO corporation)
Corporation by estoppel
An equitable doctrine that may be applied when someone has dealt with a defectively formed corporation as if it were a legal corporation. That person may be estopped from later arguing that the business isn’t a corporation (meaning, they can’t avoid contracts or try to hold s-holders personally liable on grounds of defective corporate status). However, this doesn’t apply to tort claims.
On December 1, Dan, the sole director of X corp, issues 100 shares of stock to Harry for $10,000. The same day, Dan issues 500 shares to himself. On December 24, Dan issues another 100 shares for $100,000 to George. who can bring a derivative suit?
Harry only. Harry can bring a derivative suit because Dan breached his fiduciary duty of loyalty based on self-dealing. George cannot bring suit because the claim accrued before he became a shareholder.
Do shareholders have the power to run the day to day affairs of the corporation?
No - unless they agree to dispense with the board or restrict the board’s powers by shareholder agreement
Y corp is a wholly owned subsidiary of X corp. They have separate bank accounts and records, but both operate out of the location owned by X corp. they have interlocking directors. Y corporation is indebted to Zander. From whom can Zander recover?
Zander can recover from Y corporation ONLY. A subsidiary is generally treated as an entity distinct from its parent. However, if the subsidiary is inadequately capitalized, its operations or assets are intermingled with the parent’s or its business is operated solely for the benefit of the parent, both the parent and subsidiary will be treated as a single entity, thereby rendering the parent liable for the debts. Here, there is no basis to pierce the corporate veil because Y corp is operated independently as evidenced by the separate bank accounts and records.
X Corp sells bar review courses. X corp president wants to sell hula hoops. X corp buys 1 million hula hoops from Y corp. Is X corp bound by the agreement?
No, because the purchase was unusual and not in the ordinary course of X’s business. X would’ve needed to actual authority for this type of decision from the board of directors. The president usually has implied authority to do all acts necessary and proper in the usual course of business, but doesn’t have implied power to take extraordinary actions not in the usual course of business.
Joe is president of Y Corp, a machinery company. He enters a contract to buy machines and signs “Joe - Y Corp Inc” with a corporate seal. Who is liable on the contract
Only Y Corp. The authority of corporate officers is governed by the law of agency. An agent’s authority may be actual or apparent and has the power to bind the corporation (his principal) in contractual dealings with third parties. The K adequately indicates the representative capacity in which Joe signed and thus only his principal (the corp) is liable. It would’ve been better though for joe to sign “as president on behalf of Y corp”
Is the issuance of stock usual and ordinary?
No - thus it is not within the implied power of hte president
Is notice of a REGULAR meeting required?
No