Corporations Flashcards
Promoter Liability
a promoter is someone who works on behalf of the corporatioh to create and fund the entity, before the corporation exists
a promoter is personally liable for breach of contract, even after C is formed, unless there is a novation, or the 3P knew of the preformation status and agreed to only look to the C for performance
a promoter owes a fiduciary duty to the C and a secret profit is a breach
cannot compel payment since corporation did not exist
Corporate liability for preformation contracts
not liable unless there is a novation or express or implied adoption of the contract
Incorporation procedure
incorporator must signa nd file articles with the state and pay filing fee
articles must have name of corporation, contact info of local agent and incorporators, numbers of authroized shares
Ultra Vires actions
if a corporation has a narrowly stated purpose in the articles, and acts beyond that burpose, it is an utlra vires act.
Void at common law, now enforceable
Shareholder or state can file suit to enjoin it or take action against director/officer/employee
Timing
the entity is formed on the date the articles are filed as long as the state accepts it
De Jure Corporation
when all statutory requirements are met, the corporation is formed and the corporation is liable for corporate activities
De facto corporation
not recognized in majority
despite defective incorporation, if owner made good faith effort to comply and operated without knowing that the requirements were met, there is a de facto corporation
Corporation by estoppel
a person dealing with an entity in a contractual agreement as if it were a corporation is estopped form denying its existence and seeking personal liability
By laws
directors adopt bylaws, which are day to day rules
when in conflict, articles control
may be amended or repealed by majority vote of either shareholders or directors
Piercing the Corporate Veil
a plaintiff can pierce the corporate veil and hold shareholders personally liable to recover on the basis of fraud or unfairness
more likely granted in tort than contracts cases
Grounds:
Alter ego: failure to observe corporate formalities, or corporation is just the shareholder’s alter ego
**Undercapitalization: **failure to maintain sufficient funds to cover liabilities
Fraud: parties engaged inf raud or fraud like behavior
Types of stock
common: entiteld to vote and represents ownership
preferred: stock given priority with dividends and during liquidation
Issuance of stock
Authorized by articles and board of directors
Consideration can be money, property, or services as long as value is determined in good faith by board
Par value if exists, stock must be at least that much
watered stock sold for under par value
Stock subscriptions
an agreement to buy stock before formation of the company, irrevocable for 6 months
Preemptive rights
must be authorized in the articles of incorporation
if the board issues new shares, shareholders with this right can purchase additional shares to maintain proportional ownership
Distributions
a shareholder cannot compel a distribution unless the corporation acts in bad faith or abuses its discretion
a corporation cannot make a distribution if it is insolvent or the distribution would cause insolvency
directors are personally laible for unlawful distributions
priorities: prefrred, preferred participating, cumulative, common
Shareholder duties
shareholders elect the board of directors and vote on fundamental changes
Shareholder meetings
must have annual meetings to elect board
special meetings to approve fundamental changes
Notice: no less than 10 no more than 60 days, must include when and where, and purpose if for special,
failure to provide notice allows SH to challenge actions unless there is a waiver
waiver: if waive in signed writing or attends meeting without objecting
Unanimous written consent
unanimous written consent is needed form all shareholders to act without a meeting
Voting
only a shareholder who owns shares on the record date is entitled to vote