Corporations

Shareholder Meetings

A corporation must hold an annual meeting of the shareholders at a time that is stated or fixed in accordance with the bylaws. Special meetings can generally be called by: 1. persons authorized under the articles of incorporation; 2. a demand from shareholders that accoutns for at least 10% of the votes to be cast at the meeting; OR 3. the board of directors for limited purposes (eg dissolution of the corporation). Generally, shareholders who are entitled to vote must be provided with notice of all annual and special meetings. For special meetings, the notice must: 1. state the purpose of the meeting; AND 2. be provided 10-60 days before the meeting commences. A quorum must be present in order for the shareholders to take action at a meeting. Unless otherwise set forth in the articles of incorporation, a quorum exists when at least a majority of the shares entitled to vote are present.

Debt Securities

ARise where a corporation has borrowed funds from outside investors and promises to repay them. Holders of debt securities DO NOT have an ownership interest. May be secured (a bond) or unsecured (a debenture) and may be payable either to the holder of the bond (a bearer) or to the owner registered on the corporation's records (a registered bond).

Classification of Shares

A corporation may choose to issue only one type of share, giving each shareholder an equal ownership right (in which case the shares are generally called "common shares/stocks"). Alternatively, ownership rights may be varied if the articles provide that a corporation's stock is to be divided into classes or series withina. class.

Direct Actions

A direct action may be brought for a breach of a fiduciary duty owed to the shareholder by an officer or director. In a shareholder direct action, any recovery is for the benefit of the individual shareholder.

Director Authority

A director does not have the power to bind the corporation in K unless there is actual authority to act. Actual authority generally can arise only if: 1) proper notice was given for a directors' meeting, a quorum was present, and a majority of the directors approved the action, or 2) there was unanimous written consent of the directors.

Liability for Unlawful Distributions

A director who votes for or assents to a distribution that violates the rules of distribution (solvency limitations, shareholder rights, etc.) is personally liable tot he corporation for the amount of the distribution that exceeds what could have been properly distributed. However, a director is not liable fora. distribution approved in good faith: 1) based on financial statements prepared according to reasonable accounting practices; or 2) by relying on information from legal counsel, accountants, etc. or a committee of the board of which the director is not a member.

Merger, Share Exchange, and Conversion

A merger involves the blending of one or more corporations into another corporation and the latter corporation survives while the others cease to exist following the merger. A share exchange involves one corporation purchasing all of the outstanding shares of one or more classes or series of another corporation. A conversion involves one business entity changing its form to another business entity, such as converting it to an LLC.

Preemptive RIght

A preemptive right is a right of a current shareholder to purchase additional shares in the corporation before outsiders are permitted to do so in order to maintain their percentage of ownership in the corporation. In most states, a corporation must "opt in" to create preemptive rights by expressly including such rights in the corporation's articles. however, in some states, preemptive rights are presumed to exist unless the orporation "opts out" by expressly barring such rights in the corporation's articles. Unless otherwise set forth in the articles, preemptive rights DO NOT exist for: 1. preferred shares that CANNOT be converted to common stock; 2. shares sold for a consideration other than cash; OR 3. shares issued by majority shareholder vote to directors, officers or employees.

Promoter Duties

A promoter has a fiduciary duty to the corporation of fair disclosure and good faith. They cannot secretly pursue personal gain at the expense of their fellow promoters or the corporation. A promoter who profits by selling property to the corporation may be liable for his profit UNLESS all material facts of the transaction were disclosed. If the promoters purchase all the stock and subsequently sell their individual shares to outsiders, the promoters CANNOT be held liable for the profits from the sale of property to the corporation. Promoters may ALWAYS be liable if plaintiffs can show that they were damaged by the promoters' fraudulent misrepresentations or fraudulent failure to disclose all material facts.

Proxy Voting

A shareholder may vote her shares in person or by proxy executed IN WRITING. Proxies are valid for 11 months unless they provide otherwise. A proxy is generally revocable by the shareholder and amy be revoked by the shareholder attending the meeting to vote himself or by subsequent appointment of a proxy. A proxy will be irrevocable ONLY IF it states that it is irrevocable and is coupled with an interest or given as security (ie the proxy has taken an economic interest in the shares).

Voting Trust

A voting trust is a written agreement of shareholders under which all of the shares owned by the parties to the agreement are transferred to a trustee, who votes the shares and distributes the dividends in accordance with the provisions of the voting trust agreement. A copy of the trust agreement and the names and addresses of the beneficial owners of the trust must be given to the corporation. The trust is not valid for more than 10 years, unless it is extended by agreement of the parties.

Amendment of Articles of Incorporation

Articles can be amended if there is a MAJORITY vote from the directors and shareholders. However, minor amendments may be made by the board of directors without shareholder approval.

Common Stock

Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders have the lowest priority int he ownership structure (ie in the event of liquidation, common stockholders have rights to company assets ONLY AFTER bond holders, preferred stockholders, and other debt holders have been paid in full).

Director Duty of Care

Directors AND officers owe the corporation a fiduciary duty of are. This duty includes: 1. the duty to take reasonable steps to monitor the corporation's management; 2. the duty to be satisfied that proposals are int he corporation's best interest; 3. the duty to disclose material information to the board; AND 4. the duty to make reasonably informed decisions. In making such decisions, directors and officers may rely on information from others whom they reasonably believe are reliable! If a director breaches the duty of care, he may be held personally liable for damages. A corporation's articles may limit the liability of directors and officers for bad judgment, but NOT FOR BAD FAITH MISCONDUCT.

Duty of Loyalty (HIGHLY TESTED)

Directors and officers have a duty to avoid implicating their personal conflicting interests in making business decisions for the corporation. A director/officer has a conflicting interest in a transaction when the director/officer or a family member either: 1. is a party to the transaction; or 2. has a beneficial interest in the transaction of such significance to the director/officer that the interest would reasonably be expected to exert an influence on the director/officer's judgment if called upon the vote on the transaction. A conflicting interest transaction will not be enjoined or give rise to an award of damages due to the director's interest in the transaction if: 1. 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; 2. 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 (notice of the meeting must describe the conflicting interest transaction); OR 3. The transaction, judged according to the circumstances at the time of the commitment, was fair to the corporation (courts will look to the corporate need to enter into the transaction, financial position of the corporation, and available alternatives). The mere presence of the interested director at the meeting to approve does not affect the action. Remedies include enjoining the transaction, setting the transaction aside, damages, and similar remedies. FINAL NOTE: Remember, if a director will benefit from a transaction her corporation is about to enter into, the director must disclose this information to the board (or to the shareholders). Disinterested directors (or the shareholders) must then approve the transaction. If there is no disclosure, the transaction can be set aside unless it is fair to the corporation. Alternatively, the corporation can recover damages equal to the director's profit.

Directors Meetings

Directors may act in regular or special meetings. Regular meetings may be held WITHOUT notice; special meetings require two days' written notice of the date, time, and place of meeting. Attendance constitutes waiver of any required notice unless attendance is for the sole purpose of protesting lack of notice. A quorum must be present in order for the directors to take action or vote. Unless otherwise set forth in the articles, a quorum exists when at least a majority of the directors are present (can be no fewer than 1/3 of the board members). Unlike shareholders, a director can break the quorum by withdrawing from the meeting. Any action required to be taken by the directors at a formal meeting may be taken by unanimous consent, in writing, without a meeting.

Removal of Directors

Directors may be removed by the shareholders for cause or without cause. However, a director elected by cumulative voting cannot be removed if the votes case against removal would be sufficient to elect her if cumulatively voted at an election of directors. Similarly, a director elected by voting group of shares can be removed only by that class.

Distributions

Distributions can take the form of dividends, redemptions of shares, repurchases of shares, distribution of assets upon liquidation, etc. At least one class of stock must have a right to receive the corporation's net assets on dissolution. Beyond this rule, distributions are generally discretionary. Unless otherwise set forth in the articles of incorporation, a shareholder does NOT have any right to receive distributions (whether in the form of dividends or otherwise) from the corporation. Dividends and distributions are generally paid to the shareholders at the full discretion of the board. However, a distribution is not permitted if, after giving it effect , either: 1. the corporation would not be able to apy its debts as they become due in the usual cours of business (ie the corporation is insolvent in the bankruptcy sense); OR 2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the articles permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights on dissolution of shareholders whose preferential rights are superior to those receiving the distribution (ie the corporation is insolvent in the balance sheet sense). Moreover , if the board of directors refuses to issue distributions in bad faith, but not necessarily in bad judgment, the shareholders may be able to compel distribution.

Equity Shares

Equity securities (shares) give their holders an ownership interest in the issuing corporation. Shares described in the AOI are authorized shares. Those shares that have been sold are issued an outstanding. Shares that have been reacquired by the corporation through repurchase or redemption are authorized but unissued; BUT if the articles so provide, the number of authorized shares is reduced by the number of shares repurchased.

Merger Approval

Generally, both a merger and a consolidation require: 1) the recommendation of an absolute majority of the board of directors; AND 2) the agreement of each corporation by an absolute majority of the shareholders. ***This pretty much applies for conversion too.

Piercing the Corporate Veil

Generally, shareholders of a corporation are NOT personally liable for the debts of the corporation. However, under the doctrine of piercing the corporate veil, courts will disregard a corporate entity and hold individuals personally liable for corporate obligations. Courts will allow a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when: 1. the shareholder has dominated the corporation to the extent that the corporation may be considered the shareholder's alter ego (eg a shareholder utilizes the corporate form for personal reasons); 2. the shareholder failed to follow corporate formalities; 2. the corporation was undercapitalized (ie inadequately funded AT THE TIME OF FORMATION to cover debts and prospective liabilities); OR 4. There is fraud or illegality present. If the veil is pierced, normally only active shareholders (ie active int he operation of the business) will be held personally liable. Liability is joint and several. NOTE: Easily pierced in tort cases, but not in contracts cases since parties who contracted with the corporation had an opportunity to investigate its stability.

Shareholder Liability

Generally, shareholders owe to fiduciary duty to the corporation and may act in their own interests. Shareholder liability is generally limited to the liabilities discussed for unpaid stock, piercing the corporate veil or the absence of a de facto corporation.

Right of Appraisal

If a corporation approves a fundamental change, shareholders who dissent form the change may have the right to have the corporation purchase their shares (known as the right of appraisal). The following are among those who have a right to the appraisal of remedy: 1) any shareholder entitled to vote on a plan of merger and shareholders of the subsidiary in short form merger; 2) shareholders of the corporation whose shares are being acquired in a share exchange; and 3) a shareholder who is entitled to vote on a disposition of all or substantially all of the corporation's property. Appraisal rights are not available to shareholders of publicly held corporations. Before the vote, the shareholder must deliver written notice of her intent to demand payment for her shares if the proposed action is taken. She cannot vote in favor of the proposed action.

Ultra Vires Acts

If a corporation includes a narrow business purpose in its articles, it may not undertake activities unrelated to achieving the stated business purpose. Under common law, ultra vires acts were void and unenforceable. Under the MBCA, ultra vires acts generally are enforceable. NOTE: Under modern statutes, ultra vires defenses are very limited, so you should avoid letting a corporation out of a K just because the subject matter is outside the corporation's stated purposes.

Voluntary Dissolution

If shares have not yet been issued or business has not yet commenced, a majority of the incorporators or initial directors may dissolve the corporation by delivering articles of dissolution to the state. All corporate debts must be paid before dissolution, and if shreas have been issued, any assets remaining after winding up must be distributed to the shareholders. A corporation that has been dissolved continues its corporate existence but it is not allowed to carry on any business except that which is appropriate to winding up and liquidating its affairs. A claim cannot be asserted against a dissolved corporation.

Derivative Action

In a derivative action, the shareholder is asserting the corporation's rights rather than her own rights. Recovery in a derivative action generally goes to the corporation rather than the shareholder bringing the action. Nevertheless, the corporation is named as a defendant. To commence and maintain a derivative proceeding, a shareholder must have been a shareholder at the time of the act or omission complained of or must have become a shareholder through transfer by operation of law by one who was a shareholder at that time. Additionally, the shareholder must fairly and adequately represent the interest of the corporation. Procedural Requirements: A shareholder must make a written demand on the corporation to take suitable action. A derivative proceeding may not be commenced until 90 days have elapsed from the date of demand, unless: 1) the shareholder has earlier been noticed that the corporation rejected the demand; or 2) irreplaceable injury to the corporation would result by waiting for the 90 days to pass.

Short Form Merger

In many states, if a parent corporation owns at least 90% of the stock of a subsidiary, the subsidiary may be merged into the parent without approval from shareholders of either corporation.

Cumulative Voting

Instead of the normal one share, one vote paradigm, the articles may provide for cumulative voting in the election of directors. Under cumulative voting, each shareholder is entitled to the number of votes equal to the number of his voting shares multiplied by the number of directors to be elected. Basically, voters cast as many votes as there are seats, but voters are not limited to giving only one vote to a candidate. They can put multiple votes on one or more candidates. This is a more favorable method for minority shareholders.

Officer Standard of Conduct

Officers must carry out their duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner they reasonably believe to be in the best interests of the corporation.

Shareholder Rights After Declaration of Distribution

Once a distribution is lawfully declared, the shareholders generally are treated as creditors of the corporation and their claim for the distribution is equal in priority to the claims of other secured creditors. However, a distribution may be enjoined or revoked if it was declared in violation of the solvency limitations, the articles or a superior preference right.

Officer Powers

Ordinary rules of agency determine the authority and powers of officers. Authority may be actual or apparent. Unauthorized actions may become binding on the corporation because of ratification, adoption or estoppel. The corporation is liable for actions by its officers within the scope of their authority, even if the particular act in question was not specifically authorized.

Stock Subscriptions

Promises from subscribers to buy stock in the corporation. Under the MBCA, preincorporation subscriptions are IRREVOCABLE FOR SIX MONTHS unless otherwise provided in the terms of the subscription. Unless otherwise provided, payment is upon demand by the board. Demand may not be made in a discriminatory manner. A subscriber who fails to pay may be penalized by sale of the shares or forfeiture of the subscription and any amounts paid thereon, at the corporation's option.

Sales of Substantially All Corporate Assets

Shareholder approval is required for the corporation to sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property if the disposal if NOT in the corporation's usual and regular course of business. However, if the disposal of assets is in the corporation's usual and regular course of business, shareholder approval is NOT required (unless otherwise set forth in the articles).

Corporation Liability on K PreIncorporation

Since the corporate entity does not exist prior to incorporation, it is not bound on the K entered into by the promoter in the corporate name PRIOR TO INCORPORATION. The corporation may become bound by expressly or impliedly adopting the promoter's K.

Voting Rights

The articles of incorporation may provide that holders of certain shares cannot vote unless specific conditions are satisfied. However, such shareholders are still entitled to receive notice even though their shares have non-voting status. Unless otherwise provided by the law or the articles, all shareholders' vote are counter equally, regardless of class. So, absent an agreement to the contrary, each share is entitled to one vote. The articles may provide for weighted voting or contingent voting. Additionally, the articles may provide for cumulative voting.

Officers Generally

The board of directors generally delegates day to day management of the corporation's business to the officers elected by the board. The board may remove officers at any time with or without cause. However, such removal may result in a breach of K action if the board is violating an employment agreement (mere appointment not enough).

Board of Directors (Generally)

The directors are responsible for management of the business and affairs of the corporation. Absent a provision otherwise, the directors need not be shareholders in the corporation. Subject to any limitation imposed by law or the articles, the board of directors has full control over the affairs of the corporation. The directors are elected at each annual shareholders' meeting, absent any other limitation in the articles. Vacancies on the board generally may be filled by the shareholders or the directors.

Corporate Opportunity Doctrine ***HIGHLY TESTED

The directors' fiduciary duties prohibit them from diverting a business opportunity from the corporation to themselves without first giving their corporation an opportunity to act. Arises only if a director takes advantage of a business opportunity in which the corporation would have an interest or expectancy. Does not extend to every conceivable business opportunity. The closer the opportunity is to the corporation's line of business, the more likely a court will find it to be a corporate opportunity. The corporation's lack of financial ability to take advantage of the opportunity is not a defense. The director should still present the corporation with the opportunity. Remedies; If a director does not give the corporation an opportunity to act, but rather usurps the opportunity, the corporation can recover the profits the director made from the transaction or may force the director to coney the opportunity to the corporation, under a constructive trust theory, for whatever consideration the director purchased the opportunity.

Shareholders Right to Inspect

Under the MBCA, a shareholder may inspect the corporation's books, papers, accounting records, shareholder records, etc. upon FIVE DAYS written notice stating a proper purpose (ie a purpose reasonably related to the person's interest as a shareholder) for the inspection. The shareholder need not personally conduct the inspection, he may send an attorney, accountant or other agent. The MBCA provides an exception to the general rule. It provides that any shareholder may inspect the following records regardless of purpose: 1) the articles of incorporation and bylaws; 2) board resolutions regarding classification of shares; 3) minutes of the shareholders' meetings from the past three years; 4) communications sent by the corporation to shareholders over the past three years; 5) a list of the names and business addresses of the corporation's current directors and officers; and 6) a copy of the corporation's most recent annual report. Procedural requirements to inspect: Generally, a shareholder must: 1. make a written demand to inspect corporate books and records and allow the corporation a reasonable amount of time to respond (usually 5 days); AND 2. conduct the inspection during regular business hours at the corporation's principal office.

Promoter Liability with 3P

Under the MBCA, anyone who acts on behalf of a corporation knowing that it is not in existence is jointly and severally liable for the obligations incurred. Thus, if a promoter enters into an agreement with a. 3P on behalf of a planner, but unformed corporation, the promoter is PERSONALLY LIABLE on the K. The promoter's liability CONTINUES AFTER THE CORPORATION IS FORMED, even if the corporation adopts the K and benefits from it. However, the promoter will not be personally liable if: 1. There is a novation where the parties agree to release the promoter from liability in favor of holding the corporation solely liable; OR 2. The promoter is able to obtain indemnity from the corporation (usually requires that the promoter did not violate any fiduciary duties). NOTE: Keep in mind, the promoters are FORMING a corporation. For there to be a valid K, someone must be bound with the 3P. It can't be the corporation since it does not exist; therefore, the promoter is liable even though she was acting on behalf of the corporation to be formed. If the promoter is held personally liable on the preincorporation K, he may have a right to reimbursement from the corporation to the extent of any benefits received by the corporation.

De facto Corporation

Under the common law, a de facto corporation has all the rights of a de jure corporation, but remains subject to direct attack in a quo warranto proceeding by the state. For the de facto corporation to exist there must have been: 1. a statute under which the entity could have validly incorporated; 2. colorable compliance with the statute and a good faith attempt to comply; and 3. the conduct of business int he corporate name jand exercise of corporate privileges. The MBCA provides that persons who act on behalf of a corporation knowing that there has been no incorporation are jointly and severally liable for all liabilities created in so acting. Thus, the de factor doctrine can only be raised as a defense to personal liability by a person who is unaware that there is no valid incorporation.

Indemnification of Officers, Directors and Employees

Unless limited by articles, a corporation MUST indemnify a director or officer who prevailed in defending a proceeding against the officer or director for reasonable expenses, including attorneys' fees and expenses incurred. A corporation MAY indemnify a director for reasonable expenses incurred in unsuccessfully defending a suit brough against the director on account of the director's position if the director: 1. acted in good faith; 2. believed that her conduct was in the best interests of the corporation and not opposed to the best interests of the corporation or unlawful. HOWEVER, a corporation may not indemnify a director who is unsuccessful in defending a direct or derivative action in which the director is found liable tot he corporation or an action charging that the director received an improper benefit.

Dissenter's Rights

After a merger or consolidation takes place, dissenting shareholders opposed to the merger or consolidation may either: 1) challenge the action; OR 2) receive payment determined at the fair market value of their shares IMMEDIATELY BEFORE the merger/consolidation took effect. A dissenting shareholder who opts to receive fair market value for their shares loses the right to challenge the action absent a showing of fraud.

Judicial Dissolution

Shareholders may seek judicial dissolution on any of the following grounds: 1. deadlock of the directors resulting in irreparable injury to the corporation; 2. directors have acted illegally, oppressively, or fraudulently

Restrictions on the Transfer of STock

Stock transfer restrictions must be reasonable (eg a right of first refusal). A 3P purchaser is bound by the provisions of the agreement restricting transfer of stock if: 1) the restrictions existence is conspicuously noted on the certificate (or is contained in the information statement required for uncertificated shares), or 2) the 3P had knowledge of the restriction at the time of the purchase.

Corporation Generally

A corporation is a legal entity distinct from its owners and may be created only by filing certain documents with the state. The owners of a corporation (called "shareholders") generally are not personally liable for the obligations of the corporation; neither are the corporation's directors or officers. Generally, only the corporation itself can be held liable for corporate obligations. Generally, the right to manage a corporation is not spread out among the shareholders, but rather is centralized in a board of directors, who usually delegate the day to day management duties to officers. Ownership of a corporation is freely transferable and the corporation may exist perpetually and generally is not affected by changes in ownership.

Promoter

A promoter acts on behalf of a corporation that is yet to be formed (usually assists in the planning and formation of the new business).

Business Judgment Rule

Directors have the duty to manage to the best of their ability. They must discharge their duties: 1. in good faith 2. with the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and 3. in a manner that the directors reasonably believe to be int he best interest of the corporation. Directors who meet this standard will not be liable for corporate decisions that in hindsight turn out to be poor or erroneous. At common law, this was known as the business judgment rule. Under this rule, a court will not second guess the decisions of a direct/officers so long as the decisions are made in line with those requirements. In discharging her duties, a director is entitled to rely on information, opinions, reports, or statements (including financial statements), if prepared or presented by: 1) corporate officers or employees whom the director reasonably believes to be reliable and competent; 2) legal counsel, accountants, or other persons as to matters the director reasonably believes are within such a person's professional competence; or 3) a committee of the board of which the director is not a member, if the director reasonably believes the committee merits confidence.

Corporation Formation

Generally, a corporation is formed when the articles of incorporation are filed with the secretary of state (unless the articles specify a delayer effective date). The articles of incorporation MUST set for the following: 1. the name of the corporation; 2. the maximum numbers of shares the corporation is authorized to issue; AND 3. the names and addresses of: a. the first board of directors; b. the incorporators executing the articles of incorporation; AND c. the initial registered agent. Strict compliance with these requirements creates a de jure corporation.

Share Exchange Approval

Only the shareholders of the corporation whose shares will be acquired need approve a share exchange; a share exchange is NOT a fundamental corporate change for acquiring the corporation.

Preferred Stock

Preferred stock is a security that represents ownership in a corporation. Preferred stock does NOT always have voting rights. Shares of stock are preferred if their holders are: 1. entitled to receive payment of dividends BEFORE any payment of dividends to another class of stockholders (eg common stockholders); OR 2. entitled, in the vent of liquidation or dissolution, to receive any payments or distributions BEFORE another class of stockholders (eg common stockholders).

Eligibility to Vote

Shareholders of record on the record date may vote at the meeting. The record date is fixed by the board of directors but may not be more than 70 days before the meeting. If the directors do not set a record date, the record date is deemed to be the day the notice of the meeting is mailed to the shareholders. Unless the articles provide otherwise, each share is entitled to one vote.

Personal Liability of Directors

The articles may limit or eliminate directors' personal liability for money damages to the corporation or shareholders for actions taken or for failure to take action. However, the articles may not limit or eliminate liability for financial benefits received by the director to which she is not entitled, an intentionally inflicted harm on the corporation or its shareholders, unlawful corporate distributions, or an intentional violation of criminal law.

Shareholder Management

The power to manage the corporation is generally vested in the directors. Shareholders have no direct control in management of the corporation's business. The MBCA does allow shareholders to enter into agreements to dispense with the board and vest management power int eh shareholders. Absent an agreement, shareholders exercise only indirect control of the corporation through their voting power, by which they elect and remove directors, adopt and modify bylaws, and approve fundamental changes in the corporate structure.

Administrative Dissolution

The state may bring an action to administratively dissolve a corporation for reasons such as the failure to pay fees or penalties, failure to file an annual report, and failure to maintain a registered agent in the state.