Corporations Flashcards
Forming a Corporation
- People
- one or more incorporators who execute and sign the articles of incorporation - Paper: articles of Incorporation
- filed with sec of state; (name of copr must include corp, company, inc. or limited, articles must also state name/address of incorporators and initial directors, and registered agent/office)
- generally ust include a statement of purpose (acts beyond the purpose are ultra vires)
- capital structure (stock) must include the (a) authorized stock, (b) number of shares per class, and (c) info on voting class - Act: have the articles notarized and delivered to the Sec of State
De Facto Corp and Corp by Estoppel
- De facto Corp: protects shhs who fail to create a de jure corp
- relevant incorporation statute
- parties make a good faith attempt to comply, but fail and are unaware of failure; and
- some exercise of corporate privileges - Corp by Estoppel: one who treats a business like a corp may be estopped from denying that it is a corp
Bylaws of a corporation
Not required, but they govern the internal governance of the corp
- adopted at organizational meeting
- can be amended by shhs
- articles control over bylaws
Pre-incorporation status
Promoter (person acting on behalf of not yet formed corp) is liable unless there is a novation (agreement between all three parties that corp will replace promoter on contract)
The Corporation is not liable until it adopts the contract (express or implied)
Only a novation releases the promoter from liability
Issuance of Stock
When a corp sells its own stock
- subscription (written offers to buy stock):
- pre incorp: irrevocalbe for 9 months
- post incorp: revocable until acceptance by board
- consideration : required
- money
- property
- services already performed
- split over whether services to be performed in the future count
- par value: minimum issuance price, if no par then board of directors sets price
Watered stock: stock sold for less than par
- directors can be liable for water if they knowingly authorized the issuance
- the purchaser is also liable
Pre-emptive rights (corporate stock)
The right of an exisiting Shh to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock FOR MONEY
- this right generally only exists where it is explicitily created in the articles of incorp
Directors (corp)
Mange the business of the corporation
Elected by Shhs at the annual meeting: can be removed by majority vote of shhs with our without cause
- board of directors act by unanmous agreement in writing or at a meeting (meeting requires a quorum which is a majoirty of all board members and then passing a resolution requires a majoirty of those present)
- regular meetings no notice required
special meetings notice required (must state time and place but not purpose)
no proxies for directors
Duties of Directors (Corp)
- Duty of Care: must act in good faith and as reasonable person
- breached by nonfeaseance: failure to act or Misfeasance: action that causes harm
- Business judgment rule: director not liable if business judgment turns out badly if it was 1 informed 2 made in good faith 3 made without conflict of interest 4 had a rational basis - duty of loyalty
piercing the Corporate Veil
court may PCV to hold shhs personally liable for corporation obligations
Standard: to avoid fraud or unfairness:
- alter ego: corp abused to pay for personal things and avoid liability
- undercapitalization: must invest sufficient to cover reasonably foreseeable liabilities
Shh Derivative suits
a suit by a shh to enforce a coporation’s cliam, not her own personal risk (ask, could corp have brought this suit?)
- suit against board for breaching duty of loyalty
1. stock ownership at time claim arose
2. adequate rep of corps interest
3. written demand to corp to bring suit (corp has 90 days to do so)
4. corp is joined as defendant
5. settle only with court approval
Shh Voting
Record shhs as of the reocord date have the right to vote
- proxies allowed (in writing, signed by shh)
- shh’s act:
1. at a meeting:- annual - to elect directors
- special meeting (requires notice of purpose, called by 10 percent of shhs)
- majoirty of shares must be present and then acty by majority of those present
- or by written unanimous consent of all voting shares
Dividends
Paymetns to Shhs at the discretion of the board
- payment: referred, preferred participating, cumulative, common
- can be payed from : earned surplus or additional paid in capital; not stated capital
- corp can pay a divided if not insolvent;
- abilty to pay debst as they come due
- balance sheet (liabilities exceed assets)
Fundamental Corporate Changes
Board cannot make them alone, needs to get (majority of) shh approval
- amendemnt of aritlces
- mergers or consolidations
- transfer of all or substnatially all corp assets
- dissolution
Dissenting shh right of appraisal:
- right of shh to force corp to buy her stock for fair value triggered by merger or consolidaiton or transfer of substantially all assets
- but no right if listed on national exhange
Federal Securities Law
- Rule 10b-5
- unlawful to in itnerstate commercer:
employ an scheme to defraud
make an untrue statement of material fact or omit a material fact
engage in any act that would operate a fraud - Prima Facie Elements
Fraudulent conduct (material or mistatment or ommision)
In connection with the purchase/sale of a security
in interstate commerce (easily satisfied; phone internet)
reliance (plaintiff relied on fraud)
damages
Also: insider trading!!!!
- breach of duty of trust and confidence owed to issuer, shhs or another person - rule 16(b) - strict liability
- purchase and sale or vice versa w/in 6 months
- of an equity security (stock)
- by officer, director, or more than ten percent shh
- which realizes a profit
Profit must be disgorged
applies only to big coprts; 10 mil in assets and at least 2000 shares, or national exhagne
