Corporations Flashcards
(113 cards)
What are the 5 types of fact patters that arise on the Bar?
(1) Creating a Corp
(2) Issuance of Stock
(3) Directors and Officers
(4) Shareholders
(5) Fundamental Corporate Changes
What is a Corporation?
legal entity that is separate from its shareholders.
It can sue and be sued in its own name, enter into contracts, hold legal title to its property, and transact any lawful business.
How is a dejure corporation formed?
A dejure corporation is one that has been formed according to law.
A corporation is established when a person (incorporators), draft the articles of incorporation, and file them with the secretary of state.
Person, Paper, Act.
What 4 things must the articles of incorporation contain?
(1) the corporate name
(2) stock info (number of shares to be issued)
(3) name/address of the incorporators
(4) name and address of registered agent
What may the board of directors adopt?
Bylaws
What are Bylaws?
rules that govern the internal operations of the corporation
If the bylaws and articles of incorporation conflict, what is the result?
The articles of incorporation will prevail
What is a promoter?
An individual who acts on behalf of the corporation before it has been formed.
When is a promoter liable?
(1) he acts on behalf of a corporation AND
(2) knows that no corporation has been formed
Is a promoter personally liable for a pre-incorporation contract if the corporation subsequently adopts it?
YES! Both the corporation and the promoter will be liable.
When is a promoter NOT liable for a pre-incorporation contract?
If:
(1) there is a novation OR
(2) the contract provides that the promoter is not personally liable.
Defective Incorporation and Owner Liability
Under the rules, if a corporation’s formation is defective, then the shareholders may be personally liable for the corporation’s liabilities and contracts.
When is a DeFacto Corporation Formed?
when the entity
(1) attempted to incorporate in good faith
(2) was eligible to incorporate AND
(3) took business action as a corporation
What is the effect if a DeFacto corporation exists?
It prevents personal liability of shareholders who were UNAWARE that the corporation was not properly formed.
What is corporation by Estoppel?
Parties who act as if a corporation has been formed will be estopped from denying that a corproation has been formed.
Prevents parties from backing out of contracts on the grounds that a corporation has not been formed.
ONLY applies to K’s. Does NOT apply to torts.
What is the internal affairs doctrine?
Know this
The internal affairs of the corporation are governed by the law of the state of incorporation.
When a corporation issues (sells) stock, what must it received?
CONSIDERATION
What are valid types of consideration that a corporation may accept when issuing stock?
any tangible or intangible property ot benefit to the corporation.
Money, property, services already performed, discharge of a debt, promissory notes, or promises of future work.
What is watered stock?
When par value stock is issued for less than its par value.
If directors authorize a sale of stock for less than the stated par value, what is the result?
The shares are validly issued, but the directors who authorized the issuance can be held liable for breach of fiduciary duty.
What is a preemptive right?
The existing shareholder of common stock has the right to maintain her percentage of ownership in the company by buying stock whenever there is a new issuance (sale) of stock for MONEY.
The articles of incorporation must provide the shareholders with this right.
Piercing the Corporate Veil
Under the law, a corporation shields its shareholders from personal liability. However, courts may disregard the corporate form and hold the shareholders personally liable for the corporation’s acts by piercing the corporate veil.
What must a plaintiff prove to pierce the corporate veil?
A plaintiff must show that the shareholders of the corporation or member of the LLC abused the privilege of incorporating by:
(1) undercapitalizing the corporation,
(2) failing to follow formalities to form the corporation,
(3) that the corporation is an alter ego because the shareholders have co-mingled assets, or
(4) the corporate form was created to deceive creditors.
Further, the plaintiff must prove that fairness requires holding the shareholders personally liable.
Who is liable if the veil is pierced?
Only shareholders who are active in the operation of the business. Liability is jointly and several.
Shareholder may be another corporation, parent corp, etc.