Corporations Law Flashcards
What is a corporation
A seperate Legal entity
- SH have limited liability (only investment)
- Shares are freely transferable (liquidity)
- No fixed date of dissolution (perpetual)
- BOD - Centralized Management
What is a Promoter and Incorporator?
- Promoter - Prepares corp for commencing business
- bears significant responsibility
- Incorporator - in charge of setting up (sometimes a promoter)
Special Obligations of Promoters
Need to disclose when receiving stock for services
Subscription for Shares
Promise to purchase a prescribed # of shares for a specified amount after formation
- lasts 90 days
- creditors can enforce if corp goes insolvent
K’s w/ 3d
Not liable for K’s made by promoters unless ratified after formation
Certificate of Inc.
Must be filed w/state
Must include
- name
- purpose
- # of shares
- county, designation of Sec of State
- Registered Agent name and address
Org Meeting
Formal Meeting
- Adopt bylaws
- elect directors
- conduct any other business
Bylaws
May contain any provision relating to business; rights of power; conduct of affairs
- may change w/majority of SH casted at a meeting
Purposes and Powers
Formed for any lawful purpose
- may have additional requirements if professional services (ex. health-related)
Defense of Ultra Vires
Corp cannot be obliged to undertake a K or activity beyond the scope of its powers
Controversial Corp Activities
BOD can
- Bind K’s beyond their term (unless unreasonably lengthy)
- Donate to Political campaigns
- Reasonable charitable donations
Limited Liability of SH
SH not personally liabile for debts and obligations of the corp
- 10 largest SH have unlimited liability for unpaid employee wages/benefits
Piercing the Corp Veil
What does it mean to pierce?
“To prevent fraud and injustice”
Pierce when:
- abuse of corporate form
Courts look to:
- alter ego? Evading K obligations?
- inadequately capitalized
Factors that determine Capital Structure (3)
Risk
Return
Control
Issuance of Shares
If corp used all authorized shares can still get BOD and SH approval for more
- SH have financial rights to dividends
Shares are authorized / issued / outstanding
Par Value
Minimum amount taht must be paid
No Par = No minimum amount required
Appropriate Consideration for Shares
No Requirement that each SH pay some consideration, but w/o fill disclosure may raise FD
Adequate Consideration:
- Money or Property,
- performance of services,
- obligations to pay
- prior performance
IN order to pay Dividends
Needs to pass two tests
- Equitable Insovlency Test
- Balance Sheet Insolvency Test
Corp MUST also have a surplus = Net assets exceed stated capital.
- Stated capital -> aggregate amount received by the corp based on par of shares of stock
Directors and Officiers Fiduciary Duties
Duty of Care:
- Make a decision in Good Faith and of oridinary prudent person in a like position
Duty of Loyalty:
- Pur corporate interests ahead of their own; test is to look at fairness
- You cannot usurp or self-deal
BJR?
A rebuttable presumption that Directors are better equipped than courts if they actions are
- Disinterested
- Reasonably Diligent
- Good Faith
If not met, court may review and the Director may be held personally liable. Court looks to the decision-making process, so bad decisions are allowed.
- No BJR if done illegally, bad faith, Neg.
Corporate Opportunity Doctrine
Cannot exploit info/opportunities acquired or made available bc of corporate position for personal gain
Unless, after full disclosure, Corp declines to persue or are clearly unable to exploit. (Financial inability of Corp is not sufficient exception)
Test -> Interest / Line of Business / Fairness
Derivative Actions
Harm primarily done to the Corp, so Corp should have relief. Any harm to the SH is derivative bc it comes out of their position
Procedural Requisites, P must:
- have been a SH during the alleged harm
- must have continued to be a SH throughout the litigation
If D is successful, Res Judicata and P must pay for legal fees
To Bring a SH Derivative Suit
- SH must make a demand upon the BOD
- Demand is futile if majority of BOD is interested, D’s fail to inform themselves of the transaction, or D fails to execute BJR
