Corporations - Formation Flashcards
Key Players of a Corporation
Shareholders - owners of corp
Directors (board of directors) - the group in charge of management
Officers - agents of corp
Key Characteristics of a Corporation
Limited liability for owners, directors, and officers:
- Shareholders not personally liable unless veil pierced
Centralized management:
- board of directors manage the corp by appointing and delegating daily duties to officers
Free Transferability of ownership
- shareholders are free to sell their shares to others unless provided otherwise
Continuity of Life
-exists perpetually
Double Taxation
- unless elect into S corp status
Taxation of Corporations
C Corps have double tax (at entity level when the corp earns income and again at shareholder level upon distribution)
S Corps follow Subchapter S and get single-level passthrough taxation
What Does it Take to Form a Corporation? PPA
People - one or more incorporators
Paper - articles of incorporation
Act - notarized articles delivered to secretary of state and pay required fees
PPA - People
To form corp, need 1 or more persons who form it known as incorporators. They execute the articles and deliver them to the Secretary of State. The incorporators must comply with all statutory reqs.
Incorporators can be humans or entities. Don’t need to be a citizen of that state to incorporate there.
PPA - Papers
Articles of incorporation are a K between the corp and the shareholders as well as between the corp and the state.
Required Contents:
- name of corp (including corp., co., inc., ltd.)
- name + address of each incorporator
- name of registered agent + address of registered office
- Info on the corp’s stock
No duration required in corp’s articles - presumed perpetual existence
Statement of Purpose - traditionally include a statement of business purposes. Absent any statement, MBCA presumes corp is formed to conduct any lawful business.
PPA - Act
Incorporates will have notarized articles delivered to the secretary of state and pay required fees. If the secretary of state’s office accepts the articles for filing, that’s conclusive proof of valid formation.
Corporate existence begins upon this filing by the state. This creates a DE JURE CORPORATION.
Then, the board of directors holds the ORGANIZATIONAL MEETING, where it selects officers and adopts any bylaws and conducts other appropriate business.
Ultra Vires
If a corp includes a narrow business purpose in its articles, it can’t do things unrelated to that business purpose. An ultra vires activity is one that’s beyond the scope of the articles.
At CL, any ultra vires K could be voided as beyond the company’s capacity. Today, under MBCA, ultra vires Ks are valid. They’re generally enforceable.
Ultra vires nature of an act can be raised only in 3 situations:
1) Shareholder may sue the corp to enjoin a proposed ultra vires act
2) Corp may sue an officer or director for damages for approving an ultra vires act; and
3) State may bring an action to dissolve a corp for committing an ultra vires act
Capital Structure
Authorized stock - the max number of shares the corporation can sell
Issued stock - the number of shares the corp actually sells
Outstanding stock - the shares that have been issued and not reacquired
The articles must include 1) the authorized stock; 2) if the company has different classes of stock or series within a stock, the number of shares per class and a distinguishing designation for each class; and 3) information on the voting rights, preferences, and limitations of each class of stock
Internal Affairs Doctrine
The internal affairs (roles and duties of directors, officers, and shareholders) of a corp are governed by the law of the state of incorporation.
