Corporations

Corporations: De Jure Corp/

A corporation formed in accordance with all applicable laws is a de jure corporation. Corporations are created by complying with state corporate law. In a majority of states, this is a statute based on the Revised Model Business Corporation Act ("RMBCA"). When incorporation under a state's statute is defective in some way, the veil of corporate protection still may be available under the de facto corporation or the corporation by estoppel doctrines.

Corporations: Alter Ego

A corporation in which the sole shareholder uses the assets of the corporation to pay her personal bills, leaving the corporation unable to pay its own creditors.

Corporations: De facto

A de facto corporation has all the rights and powers of a de jure corporation at common law, BUT it remains subject to attack by the state. The requirements: CCC (i) there must be a CORPORATE law under which the organization could have been legally incorporated; (ii) there must be COLARABLE compliance (i.e., a good faith attempt to comply) with the incorporation laws; and (iii) the corporation must exercise CORPORATE privileges. There is no requirement that the corporation halt all business when the mistake comes to light

Corporations: Shareholders: RIght to notice under (RMBCA)

GENERALLY: written notice of a shareholders' meetings—special or annual—must be sent to the shareholders entitled to vote at the meeting. The notice must state the date, time, and place of the meeting. For special meetings, the purpose for which the meeting is called must also be stated in the notice. WAIVER: A shareholder will be held to have waived any defects in notice if the shareholder: (i) waives notice in a signed writing either before or after the meeting; or (ii) attends the meeting and does not object to notice at the beginning of the meeting. Action taken at a meeting can be set aside if notice was improper, but it is not automatically void.

Corporations: Noncumulutive prefeference

Shares that have a specific dollar amount distribution preference must be paid their preference whenever a distribution is declared; a distribution cannot be made on account of common shares unless the preference is paid.

Corporations: Sharelholder standing for DERIVITIVE CASE

The shareholder must have been a shareholder at the time of the alleged wrongful act or omission, or become a shareholder through transfer by operation of law from one who was a shareholder at that time, and he must be able to fairly and adequately represent the interests of the corporation.

Corporations: (RMBCA) Preemptive right

When a corporation proposes to issue additional shares of stock, the current shareholders often want to purchase some of the new shares to maintain their proportional voting strength. The common law granted shareholders such rights, known as "preemptive rights." Under the RMBCA, a shareholder does not have any preemptive rights unless the articles of incorporation so provide/// Even if the articles provide for preemptive rights, the rights do not apply to: (i) shares issued as compensation to directors, officers, agents, or employees of the corporation; (ii) shares authorized in the articles that are issued within six months after incorporation; (iii) shares issued for consideration other than money (i.e., shares issued in exchange for property or services); or (iv) shares without general voting rights but having a distribution preference. It follows that shares issued for monetary consideration would be subject to any applicable preemptive rights.

Corporations: Articles of incorporation NEED

he name of the corporation, the number of shares the corporation is authorized to issue, and the name and address of each incorporator are all mandatory provisions.

Corporations: Preincorporation Subscription

s irrevocable by the subscriber for six months from the date of the subscription unless otherwise provided in the terms of the subscription, or unless all subscribers consent to revocation.

Corporations: Existence Begin

the Filing of the articles of incorporation by the STATE.

Corporations: NOTICE OF SHAREHOLDER MEETING

10-60 before the meeting

Corporations: Conflicting interest transaction

A conflicting interest transaction can be upheld if: (i) the transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board; (ii) the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders (notice of the meeting must describe the conflicting interest transaction); or (iii) the transaction, judged according to circumstances at the time of commitment, was fair to the corporation. Under the RMBCA, any tangible or intangible property or benefit to the corporation can serve as consideration for shares, but this is not the standard that is used to judge a conflicting interest transaction. A transaction might offer some benefit to a corporation, but still be unfair at the time of the commitment.

Corporations: Piercing the CORP VEIL

A de jure corporation will be treated as a legal entity distinct from its owners until sufficient reason to the contrary appears. Each case is different, but there are three recurring situations in which the corporate veil is often pierced: (i) when corporate formalities are ignored and injustice results; (ii) when the corporation is inadequately capitalized at the outset; and (iii) to prevent fraud. Insolvency of the corporation due to poor management generally would not be a reason to pierce the veil, although insolvency that occurs soon after incorporation might indicate that there was undercapitalization at the outset.

Corporations: Directors Conflicting Interests

A director has a conflicting interest with respect to a transaction if the director knows that she or a related person: (i) is a party to the transaction; (ii) has a beneficial financial interest in, or is so closely linked to, the transaction that the interest would reasonably be expected to influence her judgment if she were to vote on the transaction; or (iii) is a director, partner, etc. of another entity with whom the corporation is transacting business and the transaction is of such importance to the corporation that it would in the normal course of business be brought before the board. Nevertheless, such a conflicting interest transaction will not be enjoined or give rise to an award of damages if: (i) the transaction was approved by a majority of the directors (but at least two) without a conflicting interest after all material facts have been disclosed to the board; (ii) the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to the shareholders; or (iii) the transaction, judged according to circumstances at the time of commitment, was fair to the corporation. The scenario here most likely to be found to be an impermissible conflicting interest transaction is the one where the director places the deciding vote to approve an interest free loan to his start-up company. While it might be a conflict of interest for a corporation to hire a director's relative, the fact that the grandson is qualified for the job and is being paid a fair wage indicates that the transaction was fair to the corporation and thus would be permissible.

Corporations: Shareholder Proxy for voting

A shareholder may vote his shares either in person or by proxy executed in writing by the shareholder or his attorney-in-fact. A proxy is valid for only 11 months unless it provides otherwise. During that time, the shareholder may revoke the proxy at any time. A proxy will be irrevocable only if the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest

Corporations: BYLAWS

BYlaws are adopted by the directors, but can usually be modified or repealed by either the directors or the shareholders. In comparison, amendment of the articles usually requires a vote of both the directors and the shareholders. Thus, it is less difficult to change a corporate rule contained in the bylaws than it is to change a rule contained in the articles. If future flexibility is desired with regard to a particular aspect of corporate management, the aspect should be addressed in the bylaws rather than the articles. It is incorrect to say that either one is the sole domain of the shareholders and that the directors are not involved in changing them.

Corporations: Duty of Care

Directors are vested with the duty to manage the corporation to the best of their ability; they are not insurers of corporate success, but rather are merely required to discharge their duties: (i) in good faith; (ii) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and (iii) in a manner the directors reasonably believe to be in the best interests of the corporation. In discharging her duties, a director is entitled to rely on information, opinions, reports, or statements (including financial statements), if prepared or presented by any of the following: (i) corporate officers or employees whom the director reasonably believes to be reliable and competent; (ii) legal counsel, accountants, or other persons as to matters the director reasonably believes are within such person's professional competence; or (iii) a committee of the board of which the director is not a member, if the director reasonably believes the committee merits confidence.

Corporations: Corp by ESTOPPEL

IF YOU TREAT IT AS ONE, YOU WONT BE ABLE TO ARGUE IT ISNT ONE Under that doctrine, persons who treat an entity as a corporation will be estopped from later claiming that the entity was not a corporation. The doctrine can be applied either to an outsider seeking to avoid liability on a contract with the purported corporation, or to a purported corporation seeking to avoid liability on a contract with an outsider.

Corporations: Board meetings

Regular no notice is needed. For a special meeting there must be a 2 day notice.

Corporations: 16(B)

Section 16(b) of the Securities Exchange Act of 1934 would not be triggered because he was not a 10% shareholder at the time he purchased the additional 11% of the stock. Section 16(b) provides that any profit realized by a director, officer, or shareholder owning more than 10% of the outstanding shares of the corporation from any purchase and sale, or sale and purchase, of any equity security of his corporation within a period of less than six months must be returned to the corporation. For the purposes of section 16(b), a person is a more than 10% shareholder if he directly or indirectly owns more than 10% of any class of equity security of the corporation at the time immediately before both the purchase and the sale. The purchase that brings a shareholder over the 10% threshold is not within the scope of section 16(b).

Corporations: Shareholder(plaintiff) lawsuits

Shareholders are entitled to enforce their own claims against the corporation, officers, directors, or majority shareholders by direct action. In such a case, any recovery is for the benefit of the individual shareholder, or, if the action was a class action, for the benefit of the class. There is no fiduciary duty to share the recovery. Shareholders also may sue derivatively to enforce a corporate cause of action, as long as they meet the requirements specified by law and they have made necessary demands on the corporation or the directors to enforce the cause of action. In a derivative action, the recovery generally goes to the corporation rather than to the shareholders bringing the action, but the shareholders can recover reasonable expenses (including attorneys' fees). In either capacity, direct or derivative action, the shareholder may sue for herself and for others similarly situated.

Corporations: PRE-in Corporation contract liability

Since the corporate entity does not exist prior to incorporation, it is not bound on contracts entered into by the promoter in the corporate name. A promoter cannot act as an agent of the corporation prior to incorporation, since an agent cannot bind a nonexistent principal. The corporation may become bound on promoter contracts by adopting them. ADOPTION MAY BE EXPRESSED OR IMPLIED. The effect of an adoption is to make the corporation a party to the contract at the time it adopts, although adoption of the contract by the corporation does not of itself relieve the promoter of his liability. A novation is required to release the promoter from liability.

Corporations: Limitations of DIRECTORS libility (RMBCA)

The articles of incorporation can LIMIT or ELIMINATE directors' personal liability for money damages to the corporation or shareholders for action taken, or failure to take action, as a director. However, no provision can limit or eliminate liability for: BHDI (i) the amount of a financial BENEFIT received by the director to which she is not entitled; (ii) an intentionally inflicted harm on the corporation or its shareholders; (iii) unlawful corporate distributions; or (iv) an intentional violation of criminal law.

Corporations: FUNDEMENTAL CHANGE

The basic procedure for adopting a fundamental corporate change is the same for all fundamental changes: ANAF (i) a majority of the board of directors ADOBPTS a resolution recommending the fundamental change; (ii) NOTICE of the proposed change is sent to all shareholders (whether or not entitled to vote); (iii) the change is APPROVED by the shareholders; and (iv) the change is FORMALIZED in articles (e.g., articles of amendment, articles of merger, etc.), which are filed with the state.

Corporations: President power

The president of a corporation has implied authority to enter into contracts on behalf of the corporation in the ordinary course of corporate affairs. As an officer of the corporation, the president is an agent of the corporation and receives her power to manage from the directors. The president's authority may be actual or apparent. If authority exists, actions taken by a corporate officer (such as entering into contracts) bind the corporation. An officer's actual authority includes not only the authority expressly granted to the officer by the directors, the bylaws, the articles, and statutes, but also any authority that may be implied by the express grant. The business judgment rule protects directors whose reasonable decisions turn out to be poor or erroneous in hindsight. It does not give authority to a corporation's president to run the corporation in any manner she sees fit.

Corporations: 10b-5

Under rule 10b-5, it is unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of any security, to: (i) employ any device, scheme, or artifice to defraud; (ii) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (iii) engage in any act, practice, or course of business that operates or would operate as a fraud or a deceit upon any person, in connection with the purchase or sale of any security. A violation of the rule can result in a private suit for damages, an SEC suit for injunctive relief, or criminal prosecution. To recover damages under rule 10b-5, a private plaintiff must show that: (i) the defendant engaged in some fraudulent conduct; (ii) the fraudulent conduct was in connection with the purchase or sale of a security by the plaintiff; (iii) the fraudulent conduct involved the use of some means of interstate commerce; (iv) the plaintiff relied on the fraudulent conduct (although this can be presumed based on the fraud on the market theory); and (v) the defendant's fraud caused the plaintiff damages. The focus is on a sale or purchase by the plaintiff; the defendant need not have purchased or sold any securities. Thus, a nontrading defendant, such as a company that intentionally publishes a misleading press release, can be held liable to a person who purchased or sold securities on the market on the basis of the press release.

Corporations: Shareholder Inspecting Records

Under the RMBCA, any shareholder may inspect the corporation's books, papers, accounting records, shareholder records, etc. To exercise this right, the shareholder must give five days' written notice of his request, stating a proper purpose for the inspection (i.e., a purpose related to the person's interest as a shareholder). The RMBCA includes an exception to this general rule, but a corporation's accounting records do not fall under the exception. Under the exception, any shareholder may inspect the following records regardless of purpose: (i) the corporation's articles and bylaws, (ii) board resolutions regarding classification of shares, (iii) minutes of shareholders' meetings from the past three years, (iv) communications sent by the corporation to shareholders over the past three years, (v) a list of the names and business addresses of the corporation's current directors and officers, and (vi) a copy of the corporation's most recent annual report.

Corporations: Directors Removal

Under the RMBCA, directors may be removed with or without cause by the shareholders, unless the articles of incorporation provide that removal may be only for cause.

Corporations: Promoter Liability

who signs a contract in the name of a planned, but as of yet unformed corporation, remains personally liable on the contract once the corporation is formed unless the parties agree to a NOVATION. Generally, a promoter's liability on a pre-incorporation contract continues after the corporation is formed, even if the corporation adopts the contract and benefits from it. The promoter's liability can be extinguished only if there is a NOVATION—an agreement among the parties releasing the promoter and substituting the corporation.