Chapter 30

Liability of Shareholders on dissolution

1. General Rule: No personal liability of shareholders 2. Exceptions (unpaid capital, corp. property in shareholder's possession)

Corporation owned by shareholders Directed by board of directors Board of directors elected by shareholders Run by officers, officers hired by board of directors

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Antitrust Considerations

Federal and state laws control mergers that could affect free trade 1. Horizontal - 2 corp.s in same industry (most government scrutiny) EX> Verizon & T-Mobile merging 2. Vertical - supplier and customer corps EX> Verizon & Samsung merging 3. Conglomerate - corps in unrelated industries (least scrutiny) EX> Owns a bunch in different industries (farming, technology, banks, movie theaters)

Procedures by state law

Generally, board approves, then shareholders approve 1. Complete info must be provided 2. Supermajority vote of shares 3. New articles and bylaws 4. State approves new entity

Filing Articles of Incorporation

a. California Requirements: i. One person ii. Name (not "bank," "trust", "insurance" or misleading) iii. Powers (Corp. C. §207 reference) iv. Name & address of incorporator v. Initial stock structure (class, # of shares) b. Filing fee

Common variations

a. Public b. Private c. For profit d. Non-profit e. Domestic f. Foreign (qualify where you do business) g. Professional

Dissolving a corporation

a. Unanimous consent by shareholders b. Notice to Creditors (personal liability for failure) c. Distributions: i. To Creditors first ii. Surplus to Shareholders d. Filing form with state

Unlike other entities a corporation:

a. survives death/bankruptcy of owners b. has separate rights (due process, speech)

Major changes in corporation's existence

1. Consolidation: two or more corporations form a new corporation 2. Merger: two or more corporations come together voluntarily (hostile possible, too), with one remaining in existence 3. Acquisition: asset(s) of one entity purchased by corporation. The seller remains in existence.

Rights of Dissenting Shareholders (varies by state)

1. Demand buyout by corp. 2. Enjoining a merger 3. Methods of assessing value of dissenting shareholder shares (assets, earnings, market price in various mixes) Tender offer is evidence of value.

Liability of Successors

1. Surviving corp liable for obligations of disappearing corp. 2. Acquisition of assets of target corp avoids this.

Bylaws are the operating procedures for the corporate form. Size of board, officers, meetings, etc.

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Nature of Corporations

A corp. is an artificial, intangible entity created under state law. (50 important differences) It cannot exist without compliance with those laws.

Dissolution Commenced by

The State (quo warranto proceedings) RARE b. Shareholders: i. When deadlocked ii. When illegal, fraudulent, or oppressive conduct by other shareholders is present iii. When necessary to protect rights of minority shareholders (lockout) c. Unpaid Creditors (a receiver is common) 1. Procedures for Liquidating a Corporation (collect assets, pay debts, distribute surplus) 2. Liability of Shareholders on dissolution 1. General Rule: No personal liability of shareholders 2. Exceptions (unpaid capital, corp. property in shareholder's possession)

BASIC OPERATION OF CORP.

a. A corporation is owned by its shareholders. b. % of shares owned indicates control and dividend income c. Shareholders must meet annually d. There can be more than one class of shares e. Corporation can borrow $ through non-voting bonds. f. Shareholders elect directors g. Usually directors' terms are staggered h. Cumulative voting possible i. Board of Directors (must meet annually) retain officers and direct corp. policy j. Officers run the corporation, as directed

Piercing the Corporate Veil

1. Loss of major advantage of form 2. Aimed at imposing personal liability on shareholders or corporate parents a. Alter Ego Theory: the corporation is organized, controlled, and operated in disregard of its separate existence. 1. Undercapitalization 2. Failure to follow corp. formalities 3. Weak/missing corp. records 4. No payment of dividends 5. Corp. funds siphoned by owner(s) 6. Corp. is façade for owner(s) b. Promotion of Justice Theory: the corporate existence is "unjust." 1. Used to avoid following a law or regulation 2. Used to perpetuate a fraud [Either theory must be pleaded in a complaint against the corp. and its shareholders and must be proven by claimant at trial.] [Commonly alleged against small corp.s, even if proof not certain.]

Procedures for Liquidating a Corporation

Collect assets, pay debts, distribute surplus