Corps Flashcards
Shareholders:
Are the owners of the corporation
Board of directors
the group in charge of managing the corporation
Corporation
A corporation is a legal entity that exists separate from its owners, thus shielding the owners and managers from liability. Its existence begins on the date the Articles of Incorporation are filed with the Secretary of State, unless a delayed effective date is specified.
Articles of Incorporation
The AoI must contain: 1) corporate name; 2) number of shares the corporation is authorized to issue; 3) the address of the corporation’s initial registered office and the name of its initial registered agent at that office; and 4) the name and address of each incorporator.
Corporate Liability:
A corporation is not liable for a preincorporation contract unless the corporation knows the material terms and accepts the benefits of the contract.
De Facto Corporation
A DFC is a corporation that exists but through some error, it was not legally incorporated. A DFC exists where the entity made a good faith attempt to incorporate, is otherwise eligible to incorporate, and took some action indicating that it considered itself a corporation. Must be aware that Corporation was not properly formed.
Corporation by Estoppel
Any person or entity that treated a business as a corporation may be later estopped from denying that the business is a corporation, even if a valid corporation was not formed.
Promoter:
A promoter is a person acting on behalf of the corporation that has yet to be formed. Under the MBCA, anyone who acts on behalf of a corporation knowing that it is not in existence is jointly and severally liable for the obligations incurred.
Ultra Vires Acts
When a corporation’s activities are outside the scope of their AoI, such activities are deemed UVAs. Under common law, UVAs are void and unenforceable. However, under the Revised Model Business Corporation Act (RMBCA), UVAs are generally enforceable if they benefit the corporation. However, individual directors and officers who approved these UVAs can be held personally liable. UVA claims are raised when 1) a shareholder sues to enjoin the UVA; 2) the corporation sues an officer; or 3) a state brings action to dissolve the corporation based on UVA.
Piercing the Corporate Veil:
Generally, Shareholders are not personally liable for liabilities of the corporation. However, a court will pierce the veil if 1) the corporation is acting as the alter ego of shareholders; 2) the corporation was inadequately capitalized at formation or 3) to prevent fraud.
Duty of Loyalty
Directors have a duty to act in good faith, With a reasonable belief that their actions are in the best interests of the corporation. Business judgement rule does not apply.
Conflicting Transactions
Any transaction between the corporation and one of the directors, director’s close relative, or another business of the director violates the duty of loyalty.
Duty Of Care
Director has a duty to use the care that a person in like position would reasonably believe appropriate given the circumstances. Business judgment rule applies.
Business Judgment Rule (BJR)
The BJR is a rebuttable presumption that a director reasonably believed their actions were in the best interest of the corporation.
Derivative Suits
If a shareholder believes the corporation has been wronged but the directors have not done anything to enforce its rights, the shareholder may bring a shareholder derivative suit to enforce the corporations rights. In order to bring the suit, the shareholder must have been a shareholder at the time of the wrong and must also fairly and adequately represent the corporations interest.
