Outline

Question 1

To form a Corporation

Answer 1

Articles of Incorporation must be filed with the Secretary of State where it is to be incorporated.

Question 2

Articles of Incorporation require:

Answer 2

1. Name of corp. with Corp., Co., or Inc.
2. Name and address of each incorporator
3. Registered agent who can receive service of process
4. Number of stock shares authorized

Question 3

De jure corporation

Answer 3

A corporation formed in accordance with law.

If not formed within the law it may be de facto or corporation through estoppel.

Question 4

De jure corporation requires

Answer 4

Person - incorporators
Paper - Articles of Incorporation
Act - articles filed with secretary of state

Question 5

Ultra vires acts

Answer 5

activities beyond the scope of the stated business purposes

Question 6

Bylaws vs. AOI

Answer 6

If bylaws and articles conflict, articles win

Question 7

De Facto Corporation

Answer 7

1. good faith, substantial effort to comply with statute
2. business had a legal right to incorporate; and
3. parties had good faith belief and acted as though they had formed a corporation

Question 8

corporation by estoppel

Answer 8

If a third party treats an organization as though it were a corporation, it may be estopped from denying its corporate existence. For it to apply:

1. parties consistently treated the org. as though it was a corp.; and
2. if one party were allowed to deny the existence, it would obtain an unfair advantage.

ONLY applies to contracts claims, NOT torts

Question 9

Duty of Care

Answer 9

Often comes up as nonfeasance or misfeasance.

Requires that each member of the Board, when discharging his duties, shall act:

1. in good faith
2. in a manner the director reasonably believes to be in the best interest of the corporation

Look for BJR defense

Question 10

Business Judgment Rule

Answer 10

The PIGs did their homework

Presumption that when the board took the action it did appropriate homework.

Court will not second guess business decisions made:

1. in good faith
2. with the care that an ordinarily prudent person would exercise
3. in a manner reasonably believed to be in the best interest of the corporation

Question 11

Nonfeasance

Answer 11

Director does nothing

Question 12

Misfeasance

Answer 12

Board makes a decision that hurts the business

Question 13

BJR does not protect if Plaintiff can show:

Answer 13

1. Fraud
2. Illegality or wrongful conduct
3. Conflict of Interest (duty of loyalty analysis)
4. Bad Faith
5. Egregious/Irrational Decision
6. Waste
7. Uninformed Decision
8. No decision, where one should have been made

Question 14

Duty of Loyalty - Common scenarios

Answer 14

1. Self-dealing
2. Competing ventures
3. Usurp Corporate opportunity

Question 15

Duty of Loyalty - Self-dealing

Answer 15

will be set aside UNLESS;

1. deal was fair to the corp. or
2. interest and relevant facts were disclosed or known and the deal was approved by majority of disinterested directors or shareholders

When duty of loyalty violated, corp can recover damages equal to director’s profits

Question 16

Duty of Loyalty - Competing ventures & damages due

Answer 16

Cannot compete directly with corporation

Corp. gets a constructive trust on profits

Question 17

Duty of Loyalty - Usurp Corp. Opportunity

Answer 17

Director must offer deal to corp. before taking it for himself.

Must wait for the board to reject it.

Corp. can recover profits made from the transaction or force conveyance of the opportunity to the corp.

Question 18

Piercing the Corporate Veil

Answer 18

To pierce the corporate veil and hold shareholders personally liable:
Abuse & Fairness
1. the shareholders must have abused the privilege of incorporating; and
2. fairness must require holding them liable

Question 19

Common scenarios justifying Piercing the Corporate Veil

Answer 19

1. Alter Ego - shareholders treat corp. assets as their own, commingle, and such
2. Undercapitalization - at time of formation there was not enough capital to reasonably cover prospective liabilities
3. Fraud, Avoidance, Evasion - shareholder using entity to avoid existing obligations

Question 20

Derivative Suit

Answer 20

Brought on behalf of corporation by shareholder. Could corporation have brought the suit?

ex. injury to corporation

Requirements: SAD
Standing
Adequate
Demand

1. standing - was a shareholder at time of act or omission
2. Adequately represent the corp’s interests
3. Filed a written demand

Question 21

Direct action

Answer 21

Action brought by shareholder on his own behalf.

Ex. shareholder denied preemptive rights, payment of a dividend, oppression in a close corp.

Question 22

Directors

Answer 22

manage the corp.

cannot vote by proxy or agreement

presumed to act reasonably

Question 23

Shareholders

Answer 23

own the corp.

must receive notice for meetings

CAN vote by proxy/agreement

Question 24

Officers

Answer 24

agents of the corp. (president, secretary, treasurer, etc.)

likely have actual or apparent authority to enter into contracts

Question 25

Promoter’s Liability

Answer 25

Ordinarily liable on contracts they enter into on behalf of to-be-formed corporation.

Liable until:

1. Novation or
2. Release

Corporation not liable for pre-incorporation contract UNLESS:

1. Board expressly adopts agreement
2. Knowing acceptance or retention of the benefits

Question 26

Requirements for a Derivative Suit

Answer 26

SAD
Standing
Adequate
Demand

1. standing - was a shareholder at time of act or omission
2. Adequately represent the corp’s interests
3. Filed a written demand