Organization of NY Corps Flashcards
Formation Requirements
- incorporator executes certificate, delivers it to Dept of State, and holds organizational meeting
- need 1 or more incorporators
- adult humans only can be incorporators
certificate of incorporation
purposes: K between corp and SH, K between corp and state
info corporate name (must say corp., inc. ltd., etc.); address (county in NY of office of incorp–doesn’t have to be a place where corp actually does business); designates NY Secretary of State as corp.’s agent for service of process; and include address for forwarding process to corp; MAY also name registered agent for service of process; MAY make statement of duration (if not, perpetual existence)
statement on corporate purpose is required (ultra vires Ks-beyond scope of certificate- are valid today; SH can seek an injunction; responsible managers are liable to C for ultra vires losses)
info on capital structure (stock):
- authorized stock is max number of shares corp can sell
- issued stock is # of shares corp actually sells
- outstanding stock is stock corp has sold and is not reacquired
-no minimum capital requirement before corp. commences doing business
info on stock in certificate
must include:
1) authorized stock
2) # of shares per class
3) info on par value, rights, preferences, and limitations of each class
4) info on any series of preferred stock
*at least one class of stock/bonds must have unlimited voting rights and at least one must have unlimited dividend rights
acts for filing
- each incorporator signs and acknowledges it before notary and delivers it to NY dept of state
- once dept files, that filing is conclusive evidence of valid formation (have de jure corp at that point)
- after filing, incorporators hold an organizational meeting (or do it by written consent) where they adopt bylaws and elect initial directors. once directors are elected, board takes over management
features of corp after formation
i) limited liability (corp is separate legal person; SH only liable to pay for their stock, not what business does)–corp. is liable for what it does
ii) centralized management
iii) continuity of existence
iv) free transfer
- authority to act from BCL, certificate, bylaws, and NY law
- if incorp. in NY, NY law governs internal affairs even if co. does no business in NY
- corp. can make political contributions up to $5k per year per candidate or org
- corp. can make charitable contributions with no statutory ceiling
- corp. can guaranty a loan not in furtherance of corp. bus if approved by 2/3rds of shares entitled to vote
-corp. cannot be formed to defeat existing creditors
corporation distinguished from other forms
-partnership is not a separate entity so each partner is jointly and severally liable for management and debts
de facto corp. doctrine
de facto corp. must show:
1) there is a relevant incorp. statute (BCL)
2) parties made a good faith, colorable attempt to comply with it; and
3) business is being run as a corp.
if these conditions are met, business is treated as a corp. for all purposes except in an action by the state
-this form was thought to be completely abolished in NY but case law suggests it may be alive ONLY if: proper certificate and delivered, but dept fails to file it (without rejecting it)
corp. by estoppel
one dealing with a business as a corp., treating as a corp. may be estopped from denying the business’s corporate status. so person, under this theory, cannot sue individual proprietors BUT abolished in NY–in NY, proprietors are liable if they fail to form a de jure corp.
bylaws
corp. can exist without bylaws but almost every corp. has them (to set up procedures and responsibilities of people like officers, set notice, etc.)
- certificate controls if bylaws are inconsistent with it
- bylaws not filed with the state
- outsiders not bound to bylaws, it is an internal doc
- incorporators at organizational meeting adopt bylaws (have status of a SH bylaw)
- SH can amend/repeal/adopt new bylaws (board only has this power if certificate or SH bylaw says so, and even then SH can amend or repeal any director-adopted bylaw)
pre-incorporation Ks
- a promoter is a person acting on behalf of a corp not yet formed (ie someone who is involved in founding of business and formation of corp)
- corporation is liable for promoter’s pre-incorp. Ks only if it adopts the K (either expressly through board action or impliedly, which arises if corp. knowingly accepts a benefit of the K)
- promoter is liable on pre-incorp Ks until there is a novation (not just adoption) OR the intention of the parties was evidently to bind K only. If corp adopts K but there is no novation, both corp. and promoter are liable
-as between promoters, promoters have FD of joint venturers until corp. is organized. after incorp., rights, duties, etc. of SH
secret profit rule
(promoter dealing with corporation itself)
- promoter cannot make a secret profit on her dealings with the corp. if she does, she is liable (and has to account for profit by returning it to the corp)
- re sale to corp of property acquired before becoming promoter: profit = price paid by corp. - FMV
- re sale to corp of property acquired after becoming promoter: profit = price paid by corp - price paid by promoter
NO SECRET PROFITS if promoter discloses profits to corp., and receives its consent or ratification for profits after, and notice for profits before
foreign corps
foreign corps. doing business in NY must qualify
- foreign if incorporated outside NY (state and intl)
- incorp. in NY= domestic
- “doing business”= regular course of intrastate business activity
- foreign corp. can qualify by applying to NY Dept of State and designating Secretary of State as agent for service of process (include in app info from certificate and proof of good standing in home state)
- also has to pay fees for privilege of doing business in NY
- if a foreign corp. does business in NY without qualifying, it cannot sue in NY until it qualifies and pays fees/taxes/accrued penalties and interest
competition
in NY, corporation is entitled to freedom from competition by those charged with the promotion of the corporation’s interests. Prohibition extends to directors.
Noncompetition duty is owed to corp but shareholders are allowed to recover if damages that would be paid to corp would primarily benefit person that breached the duty
