Corporations Flashcards
1
Q
Formation Requirements
A
- Person - Must have one or more incorporators who executes the articles and delivers them to sec of state.
(a) Can be a person or entity - Paper - Articles of Incorporation. Must contain:
(a) Name of corporation (w special things)
(b) Name and address of each incorporator
(c) Registered agent and street address of registered office in the state of incorporation
(d) Stock info - Authorized stock (max # of shares); # of shares per class, if multiple classes (some states) - Act - Have notarized articles delivered to Sec of State and pay fees
2
Q
Other Formation/Organization Steps
A
- Organizational meeting
(a) Who - Initial directors, if named in articles; if not, incorporators
(b) Purposes - Elect initial directors (if applicable); appoint offices; adopt initial bylaws - Bylaws
3
Q
Consequences of Formation
A
- Internal Affairs Rule - State of incorporation’s laws govern internal affairs
- Entity status - Corporation is legal person/entity
(a) B Corp. - Formed for profit AND to pursue some broader social policy
(b) S Corp. - No more than 100 shareholders, all of whom are U.S. citizens/residents; one class of privately held stock; pass-through taxation - Limited liability - Shareholders, officers, directors not liable for corporate debts
4
Q
Defective Corporation
A
- Proprietors are personally liable
- 2 doctrines to escape liability (assuming person asserting was unaware of failure to form de jure corp:
(a) De facto corp - Treated as corp for all purposes EXCEPT in action by the state; requirements:
(1) There’s a relevant incorporation statute,
(2) Parties made a good faith, colorable attempt to comply with it, and
(3) There’s been some exercise of corporate privileges (acting like they had a corp)
(b) Corp by estoppel - Someone who treats bus as corp estopped from denying it is a corp; applies ONLY to K cases, NOT tort
(C) BUT OMG NB: Above 2 doctrines have been abolished in many states; so just mention and discuss
5
Q
Pre-Incorporation Ks
A
- Promoter - Acts on behalf of corp not yet formed when entering into Ks
(a) Is corp liable? - Only if it adopts the K; how to adopt K?:
(1) Express - Board takes action to adopt
(2) Implied - Corp accepts a benefit of the K
(b) Is promoter liable? - Unless K says otherwise, IS liable UNTIL there’s a novation
6
Q
Foreign Corps
A
Foreign corps transacting bus in a state must qualify and pay fees
- Transacting bus = Regular course of ~intrastate~ bus; also not simply owning property
- Qualifying = Getting a certificate of authority and appointing a registered agent/maintaining a registered office in the state
- If don’t qualify: (1) Civil fine, and (2) Can’t assert a claim in the state
(a) BUT can still be sued/defend
7
Q
Stock Issuance
A
- Subscriptions - Written offers to buy stock from corp
(a) Pre-incorporation subscribers CAN’T revoke for 6 months
(b) Unless otherwise agreed, corp CAN revoke pre-incorporation
(c) Post-incorporation subs CAN revoke, until accepted by board - Consideration - Any tangible or intangible property or benefit to the corp
(a) Includes property, services already rendered, future services, debt discharge, promissory notes, etc.
(b) Amount: - Par stock - At minimum issuance price
- No par - No minimum issuance price
- Treasury stock - Stock issued then reacquired; corp can resell at any price.
- Water - Failing to see par stock at par value
(a) Directors are liable if knowingly authorized the issuance
(b) Purchaser IS liable; NO defense - Preemptive Right - Right of existing shareholder to maintain percentage of ownership by buying stock whenever there’s a new issuance ~for money~
(a) MUST be in articles; if articles are silent, no rights
8
Q
Directors - Statutory Reqs
A
- Number - 1 or more; can be set in articles or bylaws
- Election:
(a) Initial directors - Named in articles or elected by incorporators at organizational meeting
(b) Later directors - Elected by shareholders
(c) Timing: - Default - Elected each year
- Staggered/classified board - One-half or one-third elected each year
- Removal before term expiration - By shareholders with or without cause
(a) Some states w staggered board - Directors can be removed only for cause - Filling vacancies - By board or shareholders UNLESS shareholders created vacancy, then shareholders
9
Q
Directors - Board Action/Meetings
A
- Must act as a group. How?
(a) Unanimous agreement in writing
(b) Voting at a meeting - Meetings
(a) Notice? - Regular meetings - No
- Special meetings - Yes, unless bylaws say otherwise; at least 2 days’ notice of date, time, and place (NOT purpose)
- Failure to give notice means meeting events are voidable UNLESS dirs not notified waived by (1) writing, OR (2) attending and not objecting at the outset
(b) Proxies/voting agreements? - NO; fiduciary duties are non-delegable
(c) Quorum - Unless otherwise, majority of directors
(d) Passage - Majority vote of those ~present~
- Failure to give notice means meeting events are voidable UNLESS dirs not notified waived by (1) writing, OR (2) attending and not objecting at the outset
- Delegation to committees - OK, but comms CAN’T (1) declare distributions, (2) fill board vacancy, (3) recommend a fundamental change to shareholders
10
Q
Directors - Fiduciary Duties - Care
A
Director must use care that a prudent person in like position would reasonably believe appropriate under the circumstances.
- In suits, burden on plaintiff
- Nonfeasance - Director does nothing/is lazy
(a) Liable ONLY if breach caused a loss to the corp - Misfeasance - Director makes a decision that hurts the corp
(a) NOT liable if BJR - Presumption that a bus decision was made in good faith, was informed, and had a rational basis
11
Q
Directors - Fiduciary Duties - Loyalty
A
Director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation.
- NO BJR
- Self-dealing/Interested director txs - Any deal bw corp and one of its directors (or close relative) or another bus of the director
(a) Tx set aside/director liable UNLESS shows either:
(1) Deal was fair to corp when entered, OR
(2) Dir’s interest and relevant facts were disclosed or known and the deal was approved by either: - Majority (>=2) of disinterested dirs, OR
- Majority of disinterested shares
(b) Even if approved, some courts require showing of fairness
- Majority of disinterested shares
- Competing ventures - Dir can’t compete directly w corp
(a) Remedy - Corp gets constructive trust on profits dir made from competing venture - Corporate Opportunity/Expectancy - Dir can’t ~usurp~ a corporate opportunity; can’t take it until he (1) tells the board about it, and (2) waits for the board to reject it
(a) Opportunity = Something in the corp’s bus line; something the corp has an interest/expectancy in; something dir found on company time/w corp resources
(b) Corp’s inability to pay not a defense
(c) Remedy - If dir has it, must sell to corp at his cost; if dir sold it, corp gets constructive trust on profits - Which dirs are liable? - Dir presumed to concur w board action unless her dissent or abstention is noted ~in writing~ in corp records.
(a) Writing = (1) in the minutes, or (2) delivered in writing to presiding officer at meeting, or (3) written dissent to the corp immediately after meeting
(b) Can’t dissent if vote for the resolution
(b) NOT liable if: - Absent from the meeting
- Good faith reliance on info presented by others
12
Q
Officers
A
- Are agents of corp
(a) Ability to bind corp requires actual/apparent authority
(b) Presidents generally have inherent authority - Owe same duties of care and loyalty as dirs
- Selected and removed and paid by board
13
Q
Indemnification of Dirs/Officers
A
- Corp CANNOT indemnify dir/office who was:
(1) Held liable to the corp, OR
(2) Held to have received an improper benefit - Corp MUST indemnify a dir/office who prevailed on the merits OR otherwise
(a) Some states, must win entire case; other states, entitled to indemnity “to the extent” she wins - Corp MAY indemnify dir/officer’s ~litigation expenses~ IF dir acted in good faith w a reasonable belief her act was in the corp’s best interest (loyalty)
- Court can order reimbursement if justified
(a) If dir/officer held liable to corp, limited to costs and attorneys’ fees - Articles can eliminate dir (and sometimes officer) liability to corp for damages in ~Duty of Care~ cases
(a) BUT NOT for intentional misconduct, usurping corp opportunities, unlawful distributions, or improper personal benefit (loyalty)
14
Q
Shareholders - Management
A
- Generally don’t manage; board does
- Close corporation can have board management OR can eliminate board and have shareholders manage/appoint a manager
- Shareholder Management Agreement - 2 ways:
(a) In articles AND approved by ALL shareholders, or
(b) By unanimous shareholder agreement - Duties - For close corps, some states impose fiduciary duty of ~utmost good faith~ owed to OTHER shareholders
(a) Permits suits by minority shareholders being oppressed
15
Q
Shareholders - Liability for Corp Debts/PCV
A
- Generally no
- BUT maybe piercing of the corporate veil
(a) Close corporations ONLY - PCV Reqs:
(1) Shareholders abused the privilege of incorporating; AND
(2) Fairness requires holding them liable
PCV Scenarios:
(a) Alter ego/identity of interests - Commingling of personal/corporate funds; using corporate assets as their own
(b) Undercapitalization - Corp undercapitalized ~when formed~; shareholders failed to invest enough to cover prospective liabilities
(c) Generally more willing to PCV for tort than K claims
