Organization of a Corporation Flashcards
What are the three requirements to form a corporation?
- People (incorporators)
- Paper
- Acts
What does an incorporator do?
- Executes the certificate of incorporation AND
- Deliver it to the department of state; AND
- Holds the organizational meeting
How many incorporators do you need?
One or more
Who can be an incorporator?
Adult humans only (no entities)
What is the purpose of a certificate?
- Contract between corporation and shareholders
- Contract between corp and the state
What information must be in the certificate? (4 things)
- Names (of the corporation and its incorporators) and addresses (of the corporation and its incorporators)
- Duration (optional—otherwise perpetual existence)
- Corporate purpose
- Capital structure
What names must be in the certificate?
Name of the business (must include corporation, incorporated, or limited)
Name and address of each incorporator
What is the address for the certificate?
The county of incorporation (need not be a place you do business)
Whom must be designated as agent for designation of process?
NY Secretary of State (may also name a registered agent for service of process)
What other information must be given for service of process?
An address for forwarding the process to the corporation
What is an ultra vires act and its consequences?
A corporate act beyond the stated scope of the corporation.
Consequences:
- Does not invalidate the contract (certificate)
- S-holders may seek injunction
- Responsible managers are liable to corp for losses
What must be included in the certificate about the corporation’s stock?
- What is the authorized stock (i.e., the maximum number of shares that can be sold)
- Number of shares per class
- Info on par value, rights, preferences, and limitations of each class
- Info on any series of preferred shares (at least one class must have unlimited voting rights, and at least one class must have unlimited dividend rights)
What is the effect of the State department’s filing of the certificate?
It is conclusive evidence of formation (it is a de jure corporation)
What happens next after filing the certificate
Organizational meeting (may also happen by written consent)
What happens at the organizational meeting? (2 things)
- Adopt any bylaws
- Elect the initial directors
What is the internal affairs doctrine?
The laws of the state of incorporation govern the internal affairs of the corporation (regardless of where it does business)
Can a corporation make political contributions?
Yes, but no more than $5000 per yr per candidate or organization
Can a corporation make charitable contributions?
Yes, with no statutory limitation
Can a corporation guaranty a loan that is not in furtherance of corporate business?
Yes, if approved by 2/3 of shares entitled to vote
How do you avoid corporate level taxation?
S-corp
What are the three distinguishing factors of an S-corp?
- No more than 100 s-holders
- All s-holders must be citizens (not corps)
- One class of stock that is not publicly traded
What are the two defenses to show a corporation other than through certificate?
- De facto corporation
- Corporation by estoppel (nearly dead in NY)
What are the requirements for a de facto corporation?
- Relevant incorporation statute (always met)
- Good faith attempt (colorable effort) to comply with the statute
- Business is being run as a corporation (thought abolished, but applies only in very very narrow circumstances, like secretary of state clerical error)
What is the result of a de facto corporation?
Treated as a corporation for all purposes except an action by the state (quo warranto)
What are the requirements for corporation by estoppel?
(Abolished in NY!)
Somebody who deals with a company as though it is a corporation
(Abolished in NY!)
Are bylaws required to form a corporation?
No, but they’re almost always there
If bylaws are inconsistent with the certificate, which document controls?
Certificate
Are bylaws filed with the state?
No
Who is bound by bylaws?
Who adopts the initial bylaws?
Incorporators at the organizational meeting
(these have the status of s-holder bylaws)
Who can amend or repeal the bylaws or adopt new ones?
Shareholders
When does the BoD ever get to amend or repeal bylaws or adopt new ones?
Only if the certificate or a shareholder bylaw allows
(N.B. Even then, s-holders can amend or repeal any director-adopted bylaws)
What is a promoter for pre-incorporation contracts?
A person acting on behalf of a not-yet-formed corporation
Is the corporation liable for pre-incorporation contracts?
Only if corporation adopts the contract
How can a corporation adopt a pre-incorporation contract? (2 ways)
- Express adoption (Board action), OR
- Implied adoption (Corporation knowingly accepts a benefit of the contract)
What is the secret profit rule for promoters?
In dealings with the corporation itself, Promoter cannot make a secret profit on her dealings
What are the two ways to determine if there are secret profits?
- If property acquired before becoming a promoter: Profit = price paid by corp – FMV
- If property acquired after becoming a promoter: Profit = price paid by corp – price paid by promoter
What constitutes a foreign corporation in NY?
Anything from outside NY
What does doing-business in NY for a foreign corporation mean?
The regular course of intra-state business activity (must qualify)
How does a foreign corporation qualify in NY? (3 steps)
- Register with NY Secretary of State
- Pay fees for the privilege of doing business here
- Give info from certificate and proof of good standing in home state
What is the penalty for a foreign corporation failing to qualify?
Cannot assert a claim in NY until:
- It qualifies AND
- Pays fees, taxes, penalties, and interest owed on all the time it did not qualify but should have
