Corporations Flashcards
De Jure Corporation
A corporation is formed when the AOI are filed with the Secretary of State. The AOI must set forth the name of the corporation; the maximum number of authorized shares; and the names and addresses of: the first board of directors, incorporators executing the AOI; and the initial registered agent.
Corporate Bylaws
Corporate bylaws are written rules of conduct that may contain any provision for managing the business and regulating affairs. When the bylaws conflict with the AOI, the AOI will control.
Corporation by Estoppel
Under the doctrine of corporation by estoppel, people who have dealt with the entity as if it were a corporation will be estopped from denying the corporation’s existence.
De Facto Corporation
A de facto corporation exists where there is a relevant corporation statute, a good faith and colorable attempt to comply with the statute, and the exercise of corporate privileges.
Promoter Liability
A promoter acts on behalf of a corporation that has yet to be formed. A promoter remains personally liable for any pre-incorporation contracts as long as both parties know the corporation has not been formed.
Shareholder Liability
Generally, shareholders of a corporation are not personally liable for the debts of the corporation. A court will hold a shareholder liable thus piercing the corporate veil (LLCs or Close Corporations). To pierce the corporate veil, shareholder must have abused the privilege of incorporating and fairness requires holding them liable.
Shareholder Management
Shareholders have no right to direct control in management of the corporation’s business.
Shareholder Voting
A shareholder is only entitled to vote if they acquire voting shares before a designated record date.
Vote by Proxy
A vote by proxy allows a shareholder to vote without physically attending the shareholder’s meeting by authorizing another person to vote their shares on their behalf. A vote by proxy can be revoked by shareholder attending the meeting or subsequently appointing another proxy. It is irrevocable if it explicitly states so and is coupled with an interest.
Shareholder Meetings
Shareholders who are entitled to vote must be provided with notice of the time, place, and purpose for all annual and special meetings. For special meetings, the notice required is 10-60 days and discussions are limited to the stated purpose.
Board of Directors
The board of directors have full control over the affairs of the corporation. The board must act as a group either by a unanimous agreement in writing or at a meeting which must satisfy the quorum (majority of directors) and voting requirements.
Directors/Officers:
Duty of Care
Directors and officers owe a fiduciary duty of care requiring them to exercise care that a person in like position would reasonably believe appropriate under the circumstances.
Business Judgment Rule
Under the business judgment rule, courts will not second guess the decision of a director if the decision was made in good faith, with the care of an ordinarily prudent person in like position, and in a manner the director reasonably believes to be in the corporation’s best interest. The plaintiff has the burden of proof.
Directors/Officers:
Duty of Loyalty
Directors and officers owe a fiduciary duty of loyalty requiring them to discharge their duties in good faith and reasonable belief that the actions are in the corporation’s best interest to avoid conflicting interest.
Corporate Opportunity Doctrine
Under the corporate opportunity doctrine, directors and officers breach the duty of loyalty by usurping business opportunities that rightfully belong to the corporation.
Safe Harbors Provision
The safe harbors provision protects directors or officers that entered into a conflicting transaction from liability if disinterested shareholders approve or authorize the conflicting transaction, or the transaction was fair to the corporation at the time entered into.
Waiver of Duty of Loyalty
(LLC)
An LLC operating agreement may waive the duty of loyalty so long as it is not manifestly unreasonable.
Lawsuits by Shareholders
A shareholder may file an action to establish that the acts of the directors are fraudulent, illegal, or willfully unfair to the corporation or shareholder.
Direct Suits
A direct suit is brought by a shareholder to enforce their own rights. Shareholder must prove actual injury that is not solely the result of an injury suffered by the corporation.
Derivative Suit
A derivative claim is brought by a shareholder on behalf of the corporation in which the shareholder seeks to enforce the rights of the corporation. The shareholder must have stock ownership at time of wrong (standing), must fairly and adequately represent the corporation, and file a written demand.
Shareholders Right to Inspect
A shareholder has a right to inspect corporate books and records so long as the demand is made in good faith and for a proper purpose. Shareholder must state their purpose, the records they wish to inspect, and that the records have a direct connection to the stated purpose.
Limited Liability Corporation
An LLC is formed when a Certificate of Formation is filed with the Secretary of State. The certificate must provide the name and purpose of the LLC, address of the PPB, name and address of the registered agent in the state, initial capital contributions agreed to be made by all members, and the number of all people who will manage the LLC along with their names and addresses.
Management of LLC
An LLC is presumed to be member-managed unless the operating agreement provides otherwise.
Dissociation of LLC
If a member leaves the LLC, then the member is dissociated. Dissociation does not lead to winding up or dissolution unless the other members unanimously agree to dissolve.
