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(Final) Corporations > Incorporation > Flashcards

Incorporation Flashcards

1
Q

Texas Business Organizations Code

A

TBOC

organization that governs Texas corporations

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2
Q

To form a corporation

A

Need: person, paper and an act

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3
Q

Person

A

An organizer who executes the certificate and delivers to secretary of state

Can be a person or another entity

Does not have to be a TX resident

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4
Q

Paper

A

The Certificate of Formation

  1. need name and address of company
  2. need name and address of organizer
  3. number of initial directors
  4. name and addresses of directors
  5. name of the corporate agent and post office address
  6. statement of purpose
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5
Q

Name of the Corporation requirement

A

all corporation names must include either:

  1. corporation
  2. company
  3. Incorporated

abbreviation of these are OK

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6
Q

Reserving a company name

A

before forming company you can reserve a company name with the Secretary of State for 120 days

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7
Q

Duration of a company

A

not required to be specified in the certificate of formation

if not, will last forever

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8
Q

statement of purpose

A

in the certificate of formation

Does not need to be specific, but if it is then the corporation’s actions must stay within the stated purpose’s scope

Outside scope: ultra vires activity

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9
Q

*Ultra Vires Activity

A

When corporation is acting outside the scope of its stated purpose

  • *ultra vires acts are not voidable by the corp.
  • SH can sue for an injunction
  • the responsible managers are liable to the corporation for ultra vires losses
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10
Q

*Stock requirements for the Certificate of Formation

A

Must include:

  1. authorized stock
  2. number of shares per class
  3. Information on par value, voting rights and preferences fo each class
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11
Q

Authorized Stock

A

The maximum number of shares of stock that the corporate can sell

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12
Q

Outstanding stock

A

shares the corporation has issued and not reacquired

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13
Q

The Act

A

The organizer signs the certificate of formation, delivers it to the Texas Secretary of state and pays the required fee.

Electronic submissions are OK

Secretary of state then will file it and send an acknowledgment of filing to the corporation

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14
Q

Effect of the Secretary fo state filing the certificate of formation?

A

Corporation existence begins!!!

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15
Q

Organizational meeting

A

Held by the initial directors of a corporation after the articles of formation are filed

Board:

  1. selects officers
  2. adopts the initial bylaws
  3. may transact other company business

3 day notice required before the meeting

Does not need to be held in TX

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16
Q

Bylaws

A

Operating manual for the corporation

Required for all TX corporation unless a closed corporation

Not filed with the state, an internal document

Can be repeal by the Board or SH

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17
Q

Bylaws and Certificate of Formation conflict?

A

the certificate will take precedence

Except for number of directors which can be set out in the bylaws

18
Q

Internal Affairs Rule

A

TX law will govern the internal affairs of a corporation formed in TX even if the corporation does no business in TX

19
Q

Entity Status

A

Corporation is a separate legal entity that can be sued, sue, hold property and serve as a partner in a partnership

20
Q

B-corp

A

is formed for profit and also to pursue some benefit to a broader social-policy cause

must be stated in the certificate that this type of corporation is being formed

21
Q

Income Taxation

A

C corps will pay taxes on profits and SH pay taxes on dividends- double taxation

Can avoid by creating an S-corp

22
Q

S-corp

A

has 100 or fewer SH all of whom are humans (no corporation SHs)

only one class of stock that is not publicly traded

23
Q

Limited Liability

A

SH are only liable to pay for their stock and not for any of the business’s obligations

Directors will also not be liable for the corporation’s obligations

Reason why we form a corporation

24
Q

Defective Incorporation

A

When we wrongly thought there was a corporation

Two doctrines that can be relied on to stop SH.organizer from being liable for what the business did when a business was no in fact formed:

Person asserting either must be unaware that a corporation was not actually formed when joined

  1. De facto Corporation
  2. Corporation by Estoppel
25
Q

De Facto Corporation

A

Requirements:

  1. there is a relevant incorporation statute (always TBOC)
  2. parties made a good faith, colorable attempt to comply with it; and
  3. some exercise of corporate privileges (acting like a corporation)

Doctrine may be abolished in TX- “Unsure”

26
Q

Corporation by Estoppel

A

One who treats a business as a corporation may be estopped from denying that it is a corporation

If you have no reason to know that it is not a corporation and you treat and do business with it like it is a corporation you may be stopped from trying to sue the proprietors individually once you find out that not an actual true corporation

Applies in contract cases, not tort

Doctrine may be abolished in TX- “Unsure”

27
Q

Pre-Incorpoation Contracts

A

We knew there was not a corporation

Liability of the corporation will depend on whether the corporation adopts the contract

28
Q

A promoter

A

a person acting on behalf of a corporation not yet formed

Can contract with 3P on behalf of the not yet formed corporation

29
Q

Liability of a promoter

A

Unless the contract clearly says otherwise, the promoter is liable on pre-incorporation contracts until there is a Novation.

A novation is an agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the contract.

Adoption by corporation only makes the corporation liable too, but does not relieve P because there has to be a novation.

30
Q

Adoption of a pre-incorporation contract

A

When adopted by the corporation, they will become liable for the contract

Express: board takes an action adopting the contract

Implied: will arise if the corporation accepts a benefit of the contract

31
Q

Foreign Corporations

A

A foreign corporation transacting business in TX must register and pay prescribed fees

Regular business, not sporadic activity

32
Q

What happens if a foreign corporation transacts business in TX without registering?

A
  1. there is a civil penalty
  2. the corporation cannot sue in TX on a claim arising from business in TX

It CAN be sued just cannot not sue

Can get ability to sue back if it pays back fees and registers

33
Q

*Assumed Name Certificate

A

An entity formed by filing, which is any anything besides a general partnership and a sole proprietorship, has a requirement for its name that it designate its
entitle type in the name.

This means a limited partnership would have to include “limited partnership” in its name or an abbreviation of that.

But any entity may operate under a name by filing an assumed name certificate in the county of the principal office is located.

The assumed name certificate sets forth the owner, it states the legal name of the entity if it is an entity that filed a certificate of formation with the secretary of state and the assumed name under which the business will be operating.

34
Q

*Remedies for ultra vires activity

A
  • injunction
  • derivative suit (if SH meets test)
  • direct suit
  • AG can also sue to enjoin
35
Q
  • Restrictions on Certificate of Formation
A

Not allowed:

  • illegal purpose for the corporation
  • limiting liability for breach of duties of care and loyalty (but can require corp. to indemnify)

Allowed

  • loans to officers as long as they provide a benefit to the corporation (e.g. compensation plans, etc.)
  • profit-sharing: as long as the profit-sharing is not like a partnership but like a corporation (where profits go to corporation, and then to extent allowable, distributions)
  • donate funds to charity: as long as the BJR is followed
  • limiting liability for money damages to the corporation or shareholders for actions taken or omissions.
36
Q

*When Must and When May a Corporation Indemnify

A

May: if director found liable, settles, or pleads nolo contendre, she may be completely indemnified if she acted in good faith. All amounts owed (including attorney’s fees, costs of defense, costs of judgment, and reimbursement for advance payments of fees; except, in derivative action, if director or officer is found to have improperly received benefit or if liability was imposed, she can only receive reasonable expenses and not judgment cost)

Must: reasonable expenses if she is “wholly successful” in proceeding against her in her corporate capacity.

37
Q

*Forming Document: What must be filed and with whom must it be filed

A

Organizers must sign and deliver Certificate of Formation to the Secretary of State who sends back an acknowledgment

38
Q
  • Forming Document: What is required?
A
  • name of corporation
  • name and address of initial directors
  • purposes for which the corporation is to be formed (can be as broad as “any lawful purpose”)
  • duration of corporation if it not perpetual
  • capitol structure and shareholders’ rights
  • named and address of registered agent
39
Q
  • Forming Document: Legal Effect of Properly filing Document
A

corporation becomes a de jure corporation and has all the rights of corporation (e.g. its own legal entity, sue and be sued, enter into contracts, be a partner of a partnership)

40
Q
  • Requirements to form a close corporation
A

The same steps as forming a regular corporation + the certificate of formation must state: “This corporation is a close corporation.”

41
Q
  • What are the benefits of a close corporation?
A
  • taxes: can elect to be a pass-through tax entity. In typical corporations, taxed are paid twice (once when corporation paid and once when distributions are received)
  • same limited liability as regular corporations
  • limits on stock that would ordinarily be restraints on transferability
  • practical flexibility on notice to SH, quorum, voting requirements bc can suit them to company

more flexible bc don’t answer to public shareholders

(Final) Corporations (5 decks)

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