Corporations Flashcards
Governing Law
New York Business Corporations Law (“BCL”)
Formation Req’s (3)
- People
- Paper
- Acts
Incorporators - What do they do?
- Execute the certificate
- Deliver it to department of state
- Hold organizational meeting
Incorporators - How Many?
1 or more.
Incorporators - Who can be one?
Adult humans only. No entities.
Certificate of Incorporation - Purposes
- Contract between corporation and shareholders
2. Contract between corporation and state. @@
Certificate of Incorporation - Required Info
- Names and addresses
- Statement of duration
- Corporate purposes
- Capital Structure
Certificate of Incorporation - Names and Addresses
- Corporate Name
- Address
- Corporate agent @@
- Name and address of incorporator
Corporate Name
MUST contain “Corporation,” “Incorporated,” or “Limited”
Corporate Address
COUNTY in New York of office of the cooperation.
Corporate Agent for Service of Process
NY Secretary of State @@
Certificate of Incorporation - Statement of Duration
If silent, Corp will have PERPETUAL existence.
Certificate of Incorporation - Purpose Statement
Corporate statement of purpose is required.
Statement of Purpose - Conduct Outside Scope
Ultra vires act
- Contract/certificate still valid.
- Shareholders can seek an injunction against activity
- Responsible managers are liable to corporation for ultra vires losses.
Authorized Stock
Maximum number of shares the corporation can sell
Issued Stock
The number of shares the corporation has actually sold
Outstanding Stock
Stock the corporation has sold and has not reacquired.
What must be included in certificate re: stock?
- Authorized stock
- Number of shares per class
- Information on par value - rights, preferences, and limitations of each class
- Info on any SERIES of preferred stock
(At least one series with unlimited voting, and one series with unlimited dividend)
Formation - Acts Required
- Incorporator signs certificate before NOTARY
- Incorporator delivers to NYS DoS + pay fee
- DoS files certificate
- Incorporator holds ORGANIZATIONAL MEETING
What is the effect of the DoS filing the certificate?
Conclusive evidence of valid formation - de jure
What happens at ORGANIZATIONAL MEETING?
- Adopt by-laws
2. Elect initial directors
Can a corporation make political contributions?
Yes, but no more than $5,000/year per candidate or organization.
Can a corporation make charitable contributions?
Yes & unlimited
Can a corporation guaranty a loan that is NOT in the furtherance of corporate business?
Yes, if approved by 2/3’s of the shares. @@
Are SH’s liable for the conduct of the corporation?
SH’s have LIMITED LIABILITY
SH Limited Liability
SH’s are liable only to pay for their stock and not generally liable for what the business does.
De Facto Corporation must establish
- there is a relevant incorporation statute (e.g. BCL)
- parties made a good faith, colorable attempt to comply with it; and
- the business is being run as a corporation
De Facto Corporation - Status in NY
Thought to be abolished in NY under the BCL, but it MAY be available in very rare circumstances.
Corporation by Estoppel
One dealing with a business as a corporation, treating is as a corporation may be estopped from denying the business’s corporate status.
Corporation by Estoppel - Status in NY
Abolished in NY.
If bylaws are INCONSISTENT with certificate, which controls?
Certificate (think Constitution preempting statutes)
Are bylaws filed with the state?
No.
Are outsiders bound by bylaws?
No.
Who adopts bylaws?
Incorporators at organizational meeting.
**Status of shareholder bylaw.
Who can amend, repeal, or adopt new bylaws?
Shareholders
When can D’s amend or repeal bylaws?
Only if certificate OR SH bylaw allows it.
Promoter
A person acting on behalf of a corporation NOT YET FORMED.
Are corporations liable for pre-formation contracts?
Only when it ADOPTS the contract.
Pre-formation Contract Adoption (2 Types)
- Express Adoption - board action
2. Implied Adoption - if corporation knowingly accepts a benefit of the contract.
Is the PROMOTER liable for pre-incorporation contracts?
Promoter is liable for pre-incorporation contracts until there is a novation.
Until novation - both company and promoter are liable.
*Still liable even with adoption. Need Novation!
Secret Profit Rule
Promoter can’t make a SECRET profit on her dealings with the corporation.
- If P acquired property BEFORE becoming promoter, PROFIT = Price paid by Corp - FMV
- If P acquired property AFTER becoming promoter, PROFIT = Price paid by Corp - price paid by promoter.
Foreign corporations doing business in NY MUST
qualify
Foreign Corporation - Defined
A corporation incorporated outside New York State.
Domestic Corporation - Defined
Incorporated in New York State
Foreign Corporation - How to qualify?
Applying to NY DoS and designating the Secretary of State
- Info from Certification of Incorporation
- Proof of good standing in its home state.
What happens if a foreign corporation does business in NY without qualifying?
It cannot sue in NY until it qualifies, pays fees, taxes, and accrued penalties and interest.
What is issuance?
Issuance of stock occurs when a corporation sells its own stock.
What is a debenture?
A loan NOT secured by corporate asserts.
What is a subscription?
A written, signed OFFER to buy stock from the corp.
Can a pre-incorporation subscription be revoked?
Irrevocable for 3 months
Are post-incorporation subscriptions revocable?
Yes, but only until it is ACCEPTED by the corporation.
Can the corporation decide to sell only to some subscribers and not others?
Must sell uniformly among the different stock classes
What happens if subscribers paid for less than half and fails to pay within 30 days of written demand?
Corporation can KEEP THE MONEY, cancel the shares, and resell them to someone else.
What happens if subscriber has paid half or more within 30 days of written demand?
Corporation must try to resell for cash, and if it can’t then corp can cancel the shares keep the money.
What are the 5 permitted forms of consideration for an issuance?
- Money
- Property
- Services PREVIOUSLY performed for the corporation.
- Binding obligation to pay money or property in the future.
- A binding obligation to perform future services having an agreed value.
What happens if stock is issued for no consideration?
Considered “unpaid stock” and treated as “water.”
Treasury Stock Defined
Stock that was previously issued and has been reacquired by the corporation.
-No par (i.e. no minimum share price)
מניות רדומות
Consequences for issuing par stock for less than par value
It becomes “watered stock.”
Watered Stock - Director Liability
Liable if they “knowingly authorized issuance” for less than par
Watered Stock - Purchaser Liability
Liable.
“Charged with notice of the par”
Watered Stock - Subsequent Third Party Purchaser Liability
NOT liable if TP acted in good faith.
Is BOD determination of value of consideration for issuance - binding?
Yes if made without fraud.
Pre-emptive Rights
This is the right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a NEW ISSUANCE of common stock for MONEY.
NO DEFAULT PREEMPTIVE RIGHTS for corporations formed after 1998. @@
Do pre-emptive rights attach during the sale of treasury stock?
No, assuming certificate is silent.
Pre-emptive rights with the sale of shares authorized by the original certificate and sold within two years of formation.
Then, if not sold within one-year period, preemptive rights will attach agains.
They don’t exist within 2 years of formation, assuming certificate is silent.
Pre-emptive Rights: Silent Certificate
No rights exist unless they are in the certificate.
Statutory Minimum Number of Directors Required
1 or more adult natural persons.
Number of Directors - Authority
- Bylaws
- Shareholder act
- Board vote if shareholder bylaw allows
(Default - 1)
Who elects directors
- Incorporators initially
2. Shareholders at the annual meeting
Where is staggered board determined
Certificate or SH bylaw
Removal of Director before end of term
- SH’s can remove for cause
2. BD can remove for cause ONLY IF certificate or SH bylaw allows.
Removal of Director without cause?
SH’s only and ONLY IF certificate or bylaws allow
Who chooses a D to fill a vacancy?
The board.
Exception: if SH removes D without cause, then SH appoints.
Are directors agents of the corp?
No. No individual power to bind the corp. to anything
Two ways BD can take a valid act
- Unanimous written consent
- A meeting
Otherwise, void unless ratified by valid act.
Is notice required for a REGULAR MEETING of the bd?
No, if the time and place are set in the bylaws or by the board.
Is notice required for a SPECIAL MEETING of the bd?
Yes, it must state the time and place but NOT the purpose.
Effect of BD meeting notice defect
Voids any act taken by the bd at the meeting
How can a D waive a meeting notice defect?
- In a signed writing ANY TIME
2. By attending the meeting without objection
Can a D give a proxy for a vote?
No, those are void. D’s have non-delegable fiduciary duties.
Can a D enter into a voting agreements on how they will vote?
No.
Quorum of Directors
Must have majority of the ENTIRE board (all positions, even vacant/resigned); then majority vote of those D’s PRESENT
Can the corp decrease a quorum to less than a majority of D’s?
Yes, in the certificate or bylaws but never less than 1/3 of the entire board.
Can the corp decrease the requirement that passing a resolution requires a majority of directors present?
No.
Can the corp increase a quorum to greater than a majority?
Yes, but in the certificate only.
Can the corp require a super majority vote to pass a resolution?
Yes, but in the certificate only.
What can a bd committee NOT DO?
- Set director compensation
- Fill a board vacancy
- Submit a fundamental change to SH’s.
- Amend bylaws
Director Duty of Care - Defined
A fiduciary who must discharge her duties in good faith and with that degree of DILIGENCE, CARE, and SKILL that an ORDINARY PRUDENT person would exercise under similar circumstances in like position.
“Prudent people do appropriate homework.”
Director not guarantor of success.
Directory Duty of Care - 2 Types
- Nonfeasance
2. Misfeasance