Corps, Agency, Partnerships Flashcards
Corporation Definition
A distinct legal entity that can conduct business in its own right by buying, selling, and holding property or by suing or being sued, and by lasting forever
- limited liability
- promote investment
- governed by state laws
Promoters
Liable for pre-corp contracts unless
- Novation: agreement btw promoter, corp, TP where corp substituted
- Adoption (express/implied)
Articles of Incorp
- Name
- Agents and address
- incorporators and addresses
- duration
- purpose
Ultra Vires
Acting beyond scope of narrowly stated purpose
- shareholder enjoin action
- corp take action against directors
- state can enjoin
Incorp Timing
Sec of State
- Accepts the Fee
- Files
De Facto Corp
Treated as corp if organizers
- GF effort to comply with process
- no actual knowledge of defect
Veil Piercing
Court may “pierce the veil” of limited liability to avoid fraud or unfairness
- Alter Ego (fail formalities)
- Undercap (insufficient funds for liabilities)
- Fraud
Preferred Stock
Preference over common
- Dividends (payments to shareholders)
- Liquidation
Stock Concepts
1) Authorized (Max # can sell)
2) Issued (# sold from authorized pool)
3) Outstanding (SH possession)
4) Treasury (reacquired)
Stock Subscriptions
Ask people in advance to buy stock, before corp formed
- irrevocable for six months
Preemptive Rights
Right to acquire stock to maintain percentage of ownership any time new shares are issued
Default: No unless negotiated or included in Articles
Unlawful Dividends
Directors who vote to authorize an unlawful dividend are personally liable, jointly and severally, to the corporation for the amount in excess of the lawful amount
Defense: GF reliance on financial statements
Shareholder Meetings
Notice: 10 to 60 days
- waived by attending
Special: Notice must include purpose
Record Date
Used to determine which shareholders eligible
- fixed by directors
- 10-70 days before meeting
Only shareholder owning on record date are entitled to vote
Proxy
Authorize other to vote shares in accordance to SH wishes
- in writing
- signed by SH as of record date
- sent to secretary
- state authorization
- cannot be valid for more than 11 months, unless otherwise stated
Shareholder Approval
Quorum (majority of outstanding represented at start of meeting)
Necessary Vote (more in favor than against)
Cumulative Voting
Election of Directors
Votes = Shares x Open Positions
Derivative Lawsuit
SH at time of harm that fairly and adequately represents the interests of the corp sues on behalf of the corp
- First demand BOD bring suit
- Not required if demand would be futile
Recovery to corp
- pays SH att fees if produces “substantial benefit”
Duty of Controlling Shareholder
To minority shareholders
1) Sale of Stock to Outsider/Looter
2) Tx with corp
Removal of BOD
By SH with or without cause
EXCEPT: Staggered Board
- class elected at diff times
- only fore cause, only if articles provide
- only removed by electing class
BOD Voting
Quorum (Majority unless bylaws)
Affirmative Vote: Majority of Present
BOD Dissent
Avoid liability for decision
- enter dissent in meeting minutes;
- file written dissent before meeting adjourned; or
- Provide written dissent by certified or registered mail to the corps secretary immediately following adjournment
Duty of Care
BOD and Officers
1) Business Judgment Rule (absence of fraud, illegality, self-dealing will not disturb GF business Decisions)
2) Person in a like position would reasonably believe appropriate under similar circumstances (special skills considered)
3) Reliance on expertise defense
Duty of Layalty
No unfair benefit without effective disclosure and ratification
1) Self Dealing Tx
2) Usurp corp opp
Ratification: majority of disinterest Dir or SH
Fairness
