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Business Associations - Fall 2022 (Dexter) > Corporations (Formation) > Flashcards

Corporations (Formation) Flashcards

1
Q

Corporations (Formation)

Factors

A
  1. Legal Entity
  2. Separate and Distinct from its owners
  3. Formed/Incorporated under State Law
  4. Owned by stockholders/shareholders
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2
Q

Corporations (Formation)

Benefits of Legal Personhood

A
  1. Continuity of Existence
  2. Legal Capacity, including the right to:
    a. Hold assets in the name of the corporation
    b. Enter into contracts
    c. Sue or be sued
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3
Q

Corporations (Formation)

Formation

A

A corporation is formed by filing a Certificate/Articles of Incorporation with the state

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4
Q

Corporations (Formation)

Governing Law

A

The law of the state of incorporation:
1. Dictates Formation Requirements
2. Governs Internal Affairs

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5
Q

Corporations (Formation)

Governing Law:
Supremacy of Corporate Control

A
  1. US Constitution
  2. Federal Regulations
  3. State of Incorporation’s Corporations Code
  4. Corporation’s Charter of Articlers of Incorporation
  5. Corporation’s Bylaws
  6. The **Authority **of the
    a. Board of Directors
    b. Officers
    c. Employees
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6
Q

Corporations (Formation)

Governing Law:
Internal Affairs Doctrine

A

The internal affairs of a corporation are governed by the laws of the state of incorporation

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7
Q

Corporations (Formation)

Governing Law:
Corporate Powers/Ultra Vires Doctrine

A

Corporate powers are granted by the state of incorporation.

Any acts exceeding or beyond the corporate purpose and corporate powers are not granted by the state

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8
Q

Corporations (Formation)

Promoters

A

Take Preliminary Steps (Plan and Organize) to establish their business

Viewed as Joint Venturers or Partners for the purpose of forming the corporation

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9
Q

Corporations (Formation)

Promoters:
Duties & Obligations

A
  1. Duty of Care
  2. Duty of Loyalty
  3. Obligations of Good Faith and Fair Dealing
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10
Q

Corporations (Formation)

Pre-Incorporation Contract Liability:
Promoters

A

Promoters are personally liable on pre-incorporation contracts and remain liable on those contracts even after the corporation is formed, unless novation occurs

If Promoter Signs in their Own Name –> Personally Liable
If Promoter Signs in the Name of a Nonexistent Corporation AND the Third Party is UNAWARE –> Personally Liable
If Promoter Signs in the Name of a Nonexistent Corporation AND the Third Party is AWARE –> Not Personally Liable, but presumption towards Third Party

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11
Q

Corporations (Formation)

Pre-Incorporation Contract Liability:
Corporation

A

Corporations are not liable for pre-incorporation contracts, unless one of the following occurs:
1. Adoption
2. Novation
3. Ratification (in some jurisdictions)

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12
Q

Corporations (Formation)

Pre-Incorporation Contract Liability:
Adoption

A

A Corporation may adopt a pre-incorporation contract by manifesting an assent to be bound, either expressly or impliedly

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13
Q

Corporations (Formation)

Pre-Incorporation Contract Liability:
Novation

A

A Promoter may assign the pre-incorporation contract to the Corporation, transferring both the benefits and burdens

A contract can be assigned without novation –> burdens remain

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14
Q

Corporations (Formation)

Pre-Incorporation Contract Liability:
Ratification

A

A Corporation may ratify a pre-incorporation contract, either expressly or impliedly, transferring both the benefits and burdens

Ratification relates back to the date the contract was entered into

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15
Q

Corporations (Formation)

Articles of Incorporation

A

sThe state of incorporation’s corporations code specified what must be included in the articles of incorporation

Articles of incorporation tend to be bare bones because they are public and may be costly to amend

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16
Q

Corporations (Formation)

Articles of Incorporation:
Required Provisions

A
  1. Name and Address (registered office/address)
  2. Agent for Service of Process
  3. Corporate Purposes (corporate purpose clause)
  4. Description of Stock
    a. Number of authorized shares
    b. Share classes (common, preferred, class a, etc)
    c. Rights associated with shares
    d. Par value
  5. Incorporators - name and address of each incorporator
    Other Elements as Required by State Law

Required If Applicable

  1. Shareholder preemptive rights
  2. Altering default liability rules for certain breaches of fiduciary duty
17
Q

Corporations (Formation)

Articles of Incorporation:
Naming Requirements

A

Must reflect corporate status

Cannot be misleading

Some states allow names to be reserved or registered

18
Q

Corporations (Formation)

Articles of Incorporation:
Corporate Purpose Clause

A

Refers to the business the corporation intends to conduct

19
Q

Corporations (Formation)

Articles of Incorporation:
Shareholder Preemptive Rights

A

The shareholder’s right to maintain their historic ownership percentage when new stocks are issued.

20
Q

Corporations (Formation)

Articles of Incorporation:
Defects

A

Despite defects in incorporation documents, some corporations may still be considered legal corporations under the de jure or de facto corporations doctrines

21
Q

Corporations (Formation)

De Jure Corporation

A

A corporation “of right”

A Corporation that has substantially or strictly complied with the appropriate state statutes for incorporation

Its existence and validity cannot be attacked or challenged by any party, including the state of incorporation

22
Q

Corporations (Formation)

De Facto Corporation

A

A corporation “in fact”

A corporation that has:

  1. Made a good faith attempt to comply with the appropriate state statutes for incorporation,
  2. Conducted business of the corporation in good faith as if the corporation existed,
    AND
  3. Exists in a state that recognizes the De Facto Doctrine

Its existence and validity cannot be attacked or challenged by any Third Party, but the state of incorporation may bring an action to declare the corporation invalid

23
Q

Corporations (Formation)

Neither De Jure nor De Facto

A

A corporation’s existence and validity may be attacked when it has NOT:

  1. Substantially or strictly complied with the appropriate state statutes with regard to incorporation,
  2. Made a good faith attempt to comply with the appropriate state statutes with regard to incorporation, or
  3. Conducted its business in good faith as if it existed

A third party may recover from individual would-be shareholders (unlimited personal liability)

24
Q

Corporations (Formation)

Post-Incorporation Organizational Meeting:
Required Matters

A
  1. Election of Initial Directors
  2. Appointment of Officers
  3. Adoption or Ratification of Pre-Incorporation Contracts
  4. Adoption of Bylaws
  5. Issuance of Stock
  6. Other Necessary Approvals and Actions
25
Q

Corporations (Formation)

Post-Incorporation Organizational Meeting:
Election of Initial Directors

A

The initial board of directors serves until the first meeting of shareholders, where their successors will be elected

  1. Directors named in articles
    –> directors take over from incorporators
  2. Directors not named in articles
    –> Incorporators elect at meeting, then directors take over
  3. Dummy board named in articles
    –> dummy directors resign and are replaced
26
Q

Corporations (Formation)

Post-Incorporation Organizational Meeting:
Pre-Incorporation Contracts

A

The initial directors will formally consider whether to ratify or adopt, with or without novation, any pre-incorporation contracts

27
Q

Corporations (Formation)

Post-Incorporation Organizational Meeting:
Bylaws

A

The initial directors (or incorporators) will be presented the bylaws for adoption

Typical Contents:
(1) Directors
(2) Officers
(3) Shareholders
(4) Annual & Special Meetings
(5) Voting Procedures
(6) Financial Matters

28
Q

Corporations (Formation)

Post-Incorporation Organizational Meeting:
Issuance of Stock

A

The initial directors should:

  1. Fix the stock price
  2. Authorize officers to begin issuing stock

Business Associations - Fall 2022 (Dexter) (13 decks)

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