Corps 1 Flashcards
Formation Issues: There are 3 SCENARIOS under which …:
[Co properly formed?
If so, PCV?]
a Co can EXIST:
1) De Jure Co
2) De Facto Co
3) Co by Estoppel
A DE JURE Co is formed when ..: =>Result?
INCORPORATORS SIGN & FILE the AoI w/ the SoS. [AoI needs: 1) NAMES of O/D/& Agent 2) Describe Co's PURPOSE and Duration & 3) state its Capital STRUCTURE.] In a DE JURE Co, the D/O/ & SHs are generally immune from PERS. LIAB. for Acts of the Co (b/c Co =Separate Legal Entity =>LIMITED LIABILITY).
*De Facto Co, which is ABOLISHED in many states:
Even if a de jure formation fails, a Ct may use the equit. doctrine of DE FACTO corp. formation if there’s:
1) relevant INCORP. STATUTE
2) COLORABLE GF ATTEMPT to comply w/ it &
3) the Co has EXERCISED any corporate PRIVILEGES.
Co by Estoppel, which is ABOLISHED in many states, …:
Typically applies only to CONTRACT Vs:
=> DoesNOT help TORT V.
Altern., Ct may find a Co by ESTOPPEL where a 3P who TREATS an Entity LIKE a Co is estopped from denying the Co status to avoid liability.
Estopps: 1) K Ps +2) Co itself
[from asserting invalid formation as DFN 2avoid K].
Bylaws:
1) Amended & REPEALED by:
The SHs
(sometimes: by the Bd).
2) If Bylaws conflict with AoI:
=> AoI control.
Pierce Corporate Veil: GR +When?:
(to make SH liable for Co’s dDebts)
[Cf. LLC:
Cts won’t pierce LLC for lack of formalities, b/c LLC STATUTES require LESS FORMALITY than for Co].
GR: MGT & SH areNOT PERS. LIABLE for corp. oblig. b/c Co is its own legal entity. [+Parent too]
BASIS for PIERCING the VEIL of NONliab. to hold SHs liable: is to PREVENT FRAUD or INJUSTICE
IF the Co was:
1) UNDERcapitalized at Formation
2) merely an ALTER EGO of its SH
3) Or formed to commit a FRAUD.
Basis for PIERCING the VEIL (Details):
+*Cts. will allow a TORT V…:
[Cf.: Corp. NonLiability does NOT shield a person (D/O) from liability for ooScope (=his OWN) Torts]
1) UNDERcapital.: (=NOT ADEQ. FUNDED to meet FORES. LIAB.
[SH loans doNOT count.]
2) ALTER EGO: by TREATING Co & Pers. ASSETS as interchangeable.
[SHAM: O/D=Same /Commingle funds. CCA: SLOPPY Admin.].
*Cts. will allow a TORT V. to reach the PERS. assets of a SH who
1) SERIOUSLY IGNORED Formalities
2) AND some INJUSTICE Occurred.
*Pre-incorp. K. LIABILITY: Trigger / Definition: Subscriber makes written offer to buy stock FROM a Co NOT YET formed. Note: Pre-incorp. offer: is IRRevocable for 6 mts.
The Co is liable: when it ADOPTS by: 1) expr. Bd ratification or 2) impl. by accepting the BEN of the K. PROMOTER is liable: always, unless 1) K expr. RELEASES him 2) OR there's a NOVATION.
Secret Profits:
[++Discuss: CL, 10b-5, & 16b
if Stock changes hands!]
1) PROMOTER canNOT make SECRET PROFITS by selling Property to the Co!
2) Deals must be DISCLOSED & FAIR.
**SELF-Dealing: Transactions ..: ([Dir buys/sells from/to the Co => inherent c.o.i.]): \++Dirs CAN set their own Compensation, but it must be REAS. CA: Breach of DoL if: Excessive =WASTE of corp. ASSETS.
b/w the Co & a Dir, who has a PERS. C.o.I., MUST be SET ASIDE, UNLESS: 1) Ct Deems the DEAL FAIR 2) Or Dir shows!: all MAT. FACTS were DISCLOSED & 3) Tx APPROVED by either: a) DISinterested maj. of the Bd b) Or the maj. of SHs.
Directors’ DoL (BoP on D)
**A Dir owes the Co & Each SH a DoL to 1) act in GF and 2) in the Co’s best interest, which includes a duty to not engage in … +Remedy:
(If C.o.I. =>No BJR applies!)
1) INSIDER Trading
2) SELF-Dealing (see)
[at the expense of Co]
3) USURPING a Co Opport.,
CA1: NOT in LINE of biz.
[=no reas. interest/Expectancy]
CA2: DISCLOSED & WAITED for the Bd. to DELCINE the Opport.
[=>CT /Sell to Co @COST]
4) & COMPETING w/ the Co
[=>1) DMG or 2) INJ.]
WHICH Dir. are liable for Bd action?+CA
[*ULTRA VIRES Act =ooSCOPE of AoI’s biz. PURPOSE:
ML: D/O =Competent=>K =VALID.
=>1) Co may Sue O/D for DMG.
2) SHs: can Seek an INJ.
++IMPROPER LOANs:
SOX prohibits loans to EXECUTIVES in large Co]
ALL Bd. members PRESENT in mtg. are PRESUMED to AGREE
=PERS. liable. 4 the D’s breach.
CA: Dir. who:
1) DISSENTED in writing [minutes]
2) was ABSENT
3) GF DFN: reas. relied on REPORTS by EXPERTS
[Competent +Non-N. selected: EE, O, Profess’l, Committee].
GR: O/D SUED in such CAPACITY is entitled to …+CA:
[NO CAP on DMGs: to LIMIT Dirs’ PERS. liab. IF:
1) BREACH of DoL [DoC OK]
2) INT. MISCONDUCT
3) Or WRONGFUL FINANCIAL BENEFIT ]
REIMBURSEMENT for all EXPENSES incurred for any corporate purpose IF: D/O PREVAILS in defending.(=MANDATORY indemnification)
CA: If UNsuccessful:
PERMISSIVE: Co MAY indemnify IF: O/D Acted in GF.
[**CONSIDERATION paid to Co for issued stock. +CA:
Trigger: Description of the Pr used to PAY for STOCK TO BE ISSUED by Co.]
VALID CONSIDERATION:
Co may ACCEPT any: 1) INTANGIBLE Pr 2) TANGIBLE Pr 3) & PAST services rendered to the Co. CA: 1) FUTURE Services 2) UNsecured Promissory Notes.
[AMOUNT of Valid CONSIDERATION +CA:
&
REMEDY:]
1) PAR stock MUST be sold at par price [=MIN. value, set in AoI] ELSE (if issued < par value =>) Watered Stock. REMEDY: C'ors can ELECT to sue for water the Dirs=Co, who auth'd issuance, OR the (non-BFP) Buyer. 2) TREASURY stock: can sell at any price. 3) “No Par”stock (=any STATED value, set by Bd).
