Corporations Flashcards
Corporation: definition
Entity that exists separate from owners, shielding owners and managers from personal liability.
Requirements to incorporate
agent, street address, corporation name, authorized number of shares, name and address of incorporator
De jure v de facto corporation
De jure: all statutory requirements for incorporation met; articles of incorporation signed and filed with secretary of state.
De facto corporation: actual use of corporate power and good faith, but unsuccessful incorporation under valid incorporation statute. LImited liability. State can attack status but not third parties.
Piercing the corporate veil: Definition
Court may pierce corporate veil and disregard corporate entity holding shareholders personally liable as justice requires. Result: active shareholders have personal and several joint liability.
Reasons to pierce the corporate veil:
Alter ego, capitalization, fraud, estoppel.
Purpose of corporation
default - any lawful business purpose unless articles define a specific purpose.
What is the term for corporate acts beyond stated business purpose? Contexts in which this arises?
Corporation has committed “ultra vires” acts. Acts generally enforceable, but may be cited when corporation sues officer, shareholder sues to enjoin
proposed act, state seeks dissolution.
Stock subscription agreements: Pre-incorporation and post-incorporation
subscriber makes written promise agreeing to buy specified number of shares. Post-incorporation subscription: creates contract between subscriber and incorporation. Pre-incorporation subscription: good for 6 months , or all subscribers agree to recovaction.
What are the categories of stock sold or available to be sold?
Available, issued, outstanding
Rules for different classes of stock (common/preferred)
Preferred must state # shares in each class, distinguishing name for class. Rights/preferences/limitations.
Preemptive rights - shareholder
right of existing shareholder to maintain percentage of ownership in corporation when there is new issuance of stock for cash. Modernly, unless articles provide otherwise: no preemptive rights for shareholder.
Who are corporate promoters
Promoters act on behalf of corporation not yet formed.
Liability for acts of promoters
Promoter is personally liable until there has been a novation replacing promotor’s liability with that of corporation, or agreement between parties stating otherwise.
Corporate Management structure
Director - at least 1; articles of incorporation (filed with state to establish corporation, include rules that will gover corporation) bylaws (document governing management of the organization; adopted by board of directors); annual election for board of directors; officers and committees appointed to implement board decisions; officer authority (officer can bind corporation).
Removal of officers/directors
Directors: removed by shareholder vote for any reason unless articles indicate otherwise. Officer: Board can remove with or without case