Formation/Stock Issuance Flashcards
Corporations
Corporations are legal entities separate and apart from their SHs and may only be created by fililng certain docs with the state.
- limited liability for owners, directors, and officers
- considered a person entitled to due process, equal protection and attorney-client privilege.
Formation
To form a corp, we need a Person, Paper, Act.
1. one or more persons (incorporators) to sign articles and delivery them to Secretary of State
2. Articles of Incorporation
3. Notarized articles delivered to SoS and pay required fees.
Articles of Incorporation
Articles are a K between corp and SHs, also K between corp and state
Requirements:
- name of corp
- incorporators’ address
- registered agent and street address of registered office
- info about corp’s stock
- Statement of purpose (any lawful business usually)
Ultra Vires
Corp has the power to engage in any lawful business. However, corp may limit business in which it may engage by having a narrow purpose provision in AoI. A corp may not carry on business outside scope of purpose.
- At common law, ultra vires K was said to be illegal
- However, by statute, ultra vires doctrine often quite limited.
May only be raised by:
1. SH seeking to enjoin proposed UV action
2. corp seeking damages against officers/directors who authorized UV act, or
3. state, seeking to dissolve corp for engaging in UV act
Capital Structure (Stock)
Articles must include info about corps stock:
1. Authorized stock (max number of shares)
2. different classes of stock, shares per class, and distinguishing designation for classes, and
3. limitations of each class of stock
Internal Affairs Doctrine
The itnernal affairs of a corp are governed by the law of the state of incorporation.
De Factor Corporation
May allow incorporator to escape liability if they were unaware of the failure to form a de jure corp.
Requirements:
1. there must be a relevant incorporation statute (will always be met)
2. Parties made GF, colorable attempt to comply with statute, and
3. Some exercise of corp privileges (parties were acting as though there was corp)
Corporation by Estoppel
Persons who have dealt with entity as if it were corp will be estopped from denying the corp’s existence.
- Prevents parties from backing out of K (only applicable in contract cases)
Bylaws
Bylaws are an internal document. Not required to have bylaws and they are not filed with the state.
- BoD or SHs can amend or repeal bylaws.
- If Bylaws and AoI conflict, AoI controls bc they are a K with the state
Promoter
person acting on behalf of a corp not yet formed. Enters into K’s on behalf of corp not yet formed.
- Promoters owe fiduciary relationship with each other and corporation (disclosure and GF)
- Corp’s not bound on Ks entered into by promoter unless it adopts the K
- Promoter is personally liable on K even after corp is formed unless there is novation releasing them
Foreign Corporations
Foreign corps transacting business in state must register and pay prescribed fees.
Debt Secutiries
When corp borrows money (bond). Promise Corp will repay loan with interest.
- Holders of debt securities do not have ownership interest in the corp
Equity Securities
When investor buys ownership interest in the corp. Money invested does not create a debt.
Issuance
When a corp sells its own stock.
Subscriptions
Written offers to buy stock from a corp
- Preincorporation Subscription: irrevocable for 6 months unless otherwise provided
- Postincorporation Subscription: revocable until accepted by the corp
