Chapter 33 Life and Death of a Corporation

Foreign Corporation

A corporation must register in every state in which it is doing business.

Foreign Corporations

A foreign corporation is one that does business in any other state besides the state of incorporation.

STATE OF INCORPORATION

Companies generally incorporate in the state in which they will be doing business. However, if they intend to operate in several states, they may choose to incorporate in a jurisdiction known for its favorable corporate laws, such as Delaware or Nevada.

What happens after incoporation?

Directors and officers are elected, unless all shareholders agree to not have a board of directors.

Corporation by Estoppel

If a party enters a contract believing in good faith the corporation exists, he cannot later take advantage of the fact that it does not.

How does the death of a corporation work?

May be voluntary (shareholders vote) or forced (by court order).

PROMOTERS

Promoters are personally liable for contracts they sign before the corporation is formed unless the corporation and the third party agree to a novation.

The Charter

Required Provisions A corporate charter must generally include the company's name, address, registered agent, purpose, and a description of its stock. The charter must be signed by at least one incorporator. (pp. 820-824) Optional Provisions A company's charter may include a number of optional provisions, such as cumulative voting and indemnification for officers and directors. (pp. 824-826)

De Facto Corporation

The promoter has made a good faith effort to incorporate and has actually used the corporation to conduct business.

De Jure Corporation

The promoter has substantially complied with the requirements for incorporation, but has made some minor error.

Issuing Debt

corporations often need to borrow funds for start-up

PIERCING THE CORPORATE VEIL

court may, under certain circumstances, pierce the corporate veil and hold shareholders personally liable for the debts of the corporation.

Minute Book

holds records of all meetings.

Terminaation of a Corporation Process

hree-step process requiring a shareholder vote, the filing of "Articles of Dissolution," and the winding up of the enterprise's business.

Bonds

long term debt secured by company assets

Debentures

long term, unsecured debt

Shareholder Agreements

set procedures for voting stock

Bylaws

set the rules for the corporation

Notes

short term, either secured or unsecured

Piercing the Corporate Veil a court may hold shareholders liable for debt in four circumstances?

•Failure to observe formalities (such as holding meetings, keeping records) •Commingling of assets (using corporate funds to pay personal debts, etc.) •Inadequate capitalization (the corporation should obtain insurance against liability for torts) •Fraud (injured party may recover from the guilty party, even if the action was the corporation's)

Charter's Optional Provisions

•Indemnification of Directors •Under most state statutes, a corporation may include in its charter a provision to pay any liability they incur from doing their job. •Directors are usually liable for their own misconduct. •Cumulative Voting •Under a cumulative voting system, a shareholder is allowed to pool his shares and vote them all for the same person.

What is stock?

•Stock can be: •Authorized and unissued •Authorized and issued or outstanding •Treasury stock (been issued, then bought back by company) •Par value - minimum issue price •Classes and series •Owners of preferred stock have preference on dividends and liquidation. •Common stock is last in line for any corporate payouts, including dividends and liquidation.

How is a corporation terminated?

•Terminating a corporation is a three-step process: •Vote by a majority of the shareholders. •Filing Articles of Dissolution with the Secretary of State. •Winding up - paying debts and distributing assets.

What is the Promoter's Liability Before the Corporation is Formed?

•The promoter is personally liable on any contract signed before formation. •The corporation is not liable unless it adopts the contract after incorporation. •Even if the corporation adopts the contract, the promoter is still liable until the third party agrees to a novation (new contract), unless the contract clearly indicates that the other party is relying only on the corporation, which he knows does not yet exist.

How do foreign corporations qualify top do business?

•To qualify, a corporation must register in any states where it is "doing business." •Opening an office or establishing any other ongoing presence is doing business. •An unqualified company that is doing business cannot file a lawsuit until it has registered. It can, however, defend itself against a suit and it can file a lawsuit if it is NOT doing business in that state.

Incorporation Process

•Where to Incorporate •In a state -either the home state of the business or a state which has favorable laws for corporations (often Delaware) •Charter's Required Provisions •Name of corporation •Address and Registered Agent •Incorporator -person who signs the charter and delivers it to the Secretary of State for filing (perhaps the lawyer or the promoter) •Purpose - this can be a broad statement, such as "to conduct lawful business" •Stock - number, par value and types offered.