Corporations Flashcards
major players in a corporation
shareholders: own the stock in a corporation and are the residual owners of the firm
board of directors: responsible for high level decisions and for selecting the officers/employees
officers/employees: day to day decisions of the corp
promoter
engages in activities such as raising capital and forming contracts in order to bring a corporation into existence
the duties of a promoter
each promoter is understood as being in a joint venture with the other promoters and therefore they owe each other fiduciary duties
cannot act to receive personal gain
owes fiduciary duties to corp/investors: cant benefit personally at the expense of the corp
liability of the promoter
personally liable for pre-incorporation transactions
an express adoption or use of the contractual benefits by the corp is not enough to release promoter
can only be released through a subsequent novation
corporation may indemnify the promoter
promoter’s entitlement to reimbursement
will generally have a right to reimbursement if the promoter is held personally liable for a pre-incorporation agreement made in good faith
should be calculated based on the benefits received by the corp
promoter does not automatically receive reimbursement for corporate formation costs but corp can choose to repay them
Corporation’s liability for pre-incorporation transactions
not generally liable- promoter is not their agent because the corp does not yet exist
can become liable if they adopt the contract by accepting the benefits of the transaction or accepting liability
incorporator and their liability
the person who signs and files the articles of incorporation with the state
not liable for pre-incorporation contracts
what is the primary document for creating a corporation
articles of incorporation
what are the requirements for the articles of incorporation
1)must be filed with the state corporation commission
2) must include the name of the corp and other basic info
name must include special words- corp./co./company etc.
name cannot suggest its an llc
3)must include the place in Virginia where its main office is
4) must include the number of shares that the corporation is authorized to issue
what is something that can be included in the articles but doesnt have to be
a corporate purpose
commonly use broad statement, but narrower business purpose can be named
ultra vires
if the articles of incorporation state a narrow business purpose and the firm conducts activities outside this stated purpose
challenging an ultra vires activity, who can do it
a third party who contract with the corp cannot asset that a corp has acted outside of its purpose to escape liability
can only be challenged:
1) a shareholder can sue to enjoin the corp from conducting the act
2)the corp can take action against a director/officer who engages in the act
3) the SCC can initiate a proceeding against the corporation to enjoin the act
what are the corporate powers
to sue/be sued
to make and amend bylaws
to purchase/transfer property
to contract
to lend money
to elect/appoint officers
to establish pension plans
to insure
to pay compensation
other powers can be enumerated in the articles
additional requirements to establish a corporation
registered agent
the articles must be filed with the state
the legal existence begins upon filing or on a later date stated in filing that does not exceed 15 days
who can be a registered agent
a resident of VA who is either
1) a director/officer of the corp, or
2) a member of the VA bar
agent can be another corp/llc as long as:
1)corp is not its own agent, and
2)the other entity lists at least one natural person
what happens when all requirements of corp formation are met
a de jure corporation is formed
what is a major consequence of a de jure corporation being formed
the other parties associated with the corp will enjoy limited liability for activities undertaken by the corp
what impacts how you amend the articles
whether or not stock has been issued
how to amend the articles if no stock has been issue
BoD may amend, or
if they have not been selected, the promoter may amend
how to amend the articles if stock has been issued
three step process:
1)board must approve the amendment
2) board will submit the amendment to the shareholders for consideration
must be given:
i)a notice period between 25 and 60 days for the vote, and
ii) a copy of the amendment
3) shareholders must vote to approve
default: 2/3 of shareholder but articles can set any standard that is not less than a majority
if multiple classes of stock- each class impacted holds a separate vote
4)after proper approval is obtained, deliver to the SCC
Special situations with amending the articles
1)amendment imposes new liability on the shareholders:
i)each shareholder must sign a separate written consent to such liability, and
ii) the consent will only apply to liabilities that arise after the amendment becomes effective
2)minor amendments: board may approve the amendment even if there is outstanding stock
willful failure to incorporate
if someone purports to conduct business in VA as a corp without making any effort to comply with the requirements, that person will be guilty of a misdemeanor
de-facto corporation
good faith effort to incorporate fails
not followed in VA
corporation by estoppel
when a defectively formed corp holds itself out as a valid corp to a third party, cant avoid liability by raising lack of corporate status as defense
the outside party cannot normally recover from the personal assets of the business owner
exception: if third party knew they were not a corp