corporations Flashcards
formation of corporation
file and sign Articles of Incorporation with the Secretary of State. Articles must include certain things.
articles of incorporation
must include name of corp and be filed within state; name and address of local agent for service of process; name and addresses of incorporators and number of authorized shares in each class of stock.
Corporate existence begins when articles are filed unless articles establish later date.
de jure corporation
when all statutory requirements for a corporation are met. Corp is liable for corp’s activities
SHs are shielded from personal liability.
de facto corporation
when owner makes good faith effort to comply w/incorporation requirements and operates w/o knowing requirements aren’t met.
Owner is not personally liable for obligations incurred in corp’s name.
Shields SHs from personal liability
corp by estoppel
person who deals w corp as if they’re proper corp is estopped from denying their existence and can’t seek personal liability of owner
dividends
The power to authorize a dividend rests with the board of directors (“BOD”).
special meetings
require notice, must state purpose, proper time and place of meeting.
general meetings
no notice required, generally stated in Articles.
SHs meet annually, directors meet quarterly
derivative suit
SH can sue on behalf of Corp:
(1) SH has standing to represent corp,
(2) SH makes demand and waits at least 90 days before commencing action and
(3) recovery goes to Corp, SH can seek reimbursement
close corp
corp that’s not publicly traded, has few SHs and less corp formalities or governance
piercing corporate veil
can pierce corp veil and hold SH personally liable
- Undercapitalization at time of formation
- disregard of corp formalities
- Misconducts – fraud, self-dealing, siphoning of corp funds, using corp assets as SHs own assets
removal of directors
- SH can remove with or w/o cause before term expires
- Cts can remove for fraud/abuse of authority
- Directors can’t remove other directors
ultra vires
acts that go beyond directors/officers’ powers. Corporate actions that go beyond what’s permitted in Articles
- Can be brought by (1) SHs (2) Corp or (3) State
duty not to usurp a corporate opportunity
when director learns of opportunity corp may be interested in, director has duty to disclose opportunity to corp and wait for board to reject
duty of loyalty
Directors owe corp duty of loyalty.
Must act in good faith and best interest of corp w/o regard to personal gain
Duty of loyalty - related persons
Corps dealing w/related persons are subject to COI and may be protected by safe harbor rules
self-dealing
director who engages in conflict of interest transaction w/his own corp has violated duty of loyalty unless transaction is protected by safe harbor rules
safe harbor rules
(1) Disclosure of material facts & Majority of disinterested SHs approve (2) Disclosure & Majority of BODs approve or
(3) Fairness of transaction to corp at commencement
duty of care
Owe a duty of care to act as a reasonable person w/care and skills.
Must act as a prudent person in similar circumstances. Must use any special skills
business judgement rule
Directors Not liable for loss arising from good faith or informed business judgements arrived to w/reasonable care.
proxies
SHs can vote by proxy executed in writing. Valid for 11 months unless provided otherwise.
Revocable by SH, irrevocable if coupled w/interest or given as security
voting agreement
SHs may enter into written + signed agreement providing for manner in which they’ll vote their shares. Must be signed by all SHs
promoters
persons acting on behalf of corp not yet formed
- Corp generally not liable unless adopted or there’s a novation releasing promoter from liability
federal securities act
- Protects against fraudulent practices in connection w/sale or purchase of stocks.
- Rule 15(b) action, P must show (1) purchase of sale or security (2) in reliance on (3) D’s fraudulent or deceptive conduct (4) relating to a material fact (5) with scienter (6) involving use of interstate commerce and (7) damages
valid board action
For a BODs’ acts at a meeting to be valid, a quorum of directors must be present at the meeting.
quorum
A majority of all directors in office constitutes a quorum, unless a higher or lower number is required by the articles of incorporation or bylaws.
To be counted for quorum purposes, a director must be present at the time that the vote is taken.
right of inspection
SH has a right to inspect and copy corporate records upon 5 days’ written notice.
Although a SH may generally inspect the main records of the corporation, such as the bylaws and articles and the minutes of SH meetings, the SH must demonstrate a proper purpose before inspecting certain records.
SH Direct action
In a direct action to enforce a SH’s rights, the SH sues the corp for breach of a fiduciary duty owed to the SH by a director or an officer.
Any recovery goes to the SH.
novation
A novation is a substitute agreement between all relevant parties to extinguish the original contract, thereby releasing the original obligor of liability.
express adoption
Corp may expressly or impliedly adopt a contract after it has been validly formed.
Once adopted, the corporation becomes liable on the contract.
However, adoption does not relieve the promoter of liability absent a novation.
Express adoption occurs when the corporation has expressly assumed the liability whereas implied adoption may occur when the corporation accepts the benefits of the transaction.
corporate vicarious liability
An employer corporation can be held liable for the tortious conduct of an employee that is within the scope of employment.
