Corporate Organization

Question 1

What body of law governs NY corporations?

Answer 1

The governing statutory law is the NY Business Corporation Law (BCL) NY law governs the internal affairs of incorporated businesses EVEN IF the company does NO business in NY

Question 2

What are the 3 formation reqs for corporations?

Answer 2

1) People– incorporators (adult humans; NOT entities) 2) Paper– certificate of incorporation (“articles”) 3) Acts– (i) notorize certificate of incorporation; (ii) delivery to NY Debt. of State; AND (iii) hold an organizational mtg

Question 3

What are keyaspects of being an “incorporator”?

Answer 3

1) Responsibilities: (i) execute the certificate; (ii) deliver it to the NY Dept of State; AND (iii) hold an organizational mtg 2) # of incorporators necessary: 1 or more 3) Who can be an incorporator: adult HUMANS only (no entities)

Question 4

What is the 2 purposes of the certificate of incorporation?

Answer 4

1) It’s a K b/t the corporation and its SHs 2) It’s a K b/t the corporation and the state

Question 5

What information goes into the certificate of incorporation?

Answer 5

1) MUST include key names and addresses Corporate name MUST have “corp.” or “inc” or “ltd” Addy = county in NY of the “office of the corporation” (doesn’t HAVE to be the place of primary business) Must designate the NY Sec of State as agent for service of process Additionally, you MAY have a registered agent for serv. of process Must provide an addy for fwd’ing information to the corp Name/addy of EACH incorporator 2) MAY including the duration of the corporate entity If cert has no prvn, then the corp is perpetual 3) MUST include the corporate purpose Can be as general as “engage in all lawful actitivty” If corporation ltd’s its purpose, then it can not act OUTSIDE that purpose, or it will be ultra vires 4) MUST outline its capital structure, which includes… Authorized stk (MAX # of shs that the corp can sell) # of shs per class of stk Information on par value, rights, prefrences & ltds for each class NOTE: (i) at least ONE class of stk or bonds MUST have unltd voting rights; AND (ii) at least ONE class of stk must have unltd dividend rights Info on any series of preferred stk Relevant terminology Issued stk = # of shs that the corp actually sells Outstanding stk = stk that the corporation has sol AND has not reacq’d (as part of Treasury stk)

Question 6

What are the consequences of having an ultra vires act?

Answer 6

At common law, that would mean the K could be voided. Today, ulltra vires Ks are VALID (not voided) SHs CAN seek an injunction The resp. magangers ARE liable to the corporation for ulta vires losses

Question 7

What acts must incorporators take to establish a corporation?

Answer 7

1) Ea. incorporator must sign certificate AND have it notorized 2) Must deliver the certificate to the NY Dept of State & pay filing fees Filing = CONCLUSIVE evidence of valid formation (de jure corporation) 3) Incorporators must hold an organizational mtg (or they can do it by written consent), where they… adopt bylaws elect initial BOD, which immediately takes over

Question 8

What powers AND liabilities does a corporation have?

Answer 8

A corporation is a separate legal person 1) Powers = broad enter K in its own name trnfr property buy/sell securities sue or be sued make political contributions UP TO $5k/yr per candidate/organization make charitable contributions w/o a ltd g’tee loans NOT in furtherance of corp business IFF it received 2/3d VOTE of SHARES entitled to vote (not just SHs) 2) Liability = falls on the CORPORATION itself The ppl who run the corporation (BOD; officers) are NOT liable for what the corporation does SHs (owners) also have ltd liability (i.e. they are ONLY obligated to pay the value of their stk

Question 9

What is a de facto corporation?

Answer 9

If incorporators FAIL to form a de jure corporation, they can still be TREATED as a corporation (ltd liability, EXCEPT in actions by the state) IF… 1) there is a relevant incorporation STATUTE (NY = the BCL); 2) the parties make a GOOD FAITH, colorable attempt to comply with it; AND 3) the business is being RUN LIKE a corporation NOTE: NY allows de facto corps ONLY when the incorporators did everything to file for incorporation and the Dept of State FAILED to file

Question 10

What is corporation by estoppel?

Answer 10

The theory is that one dealing with a business as a corporation, treating it as a corp MAY be ESTOPPED from denying the business’s corp status later i.e. they CANNOT later sue individual proprietors IN NY, THIS HAS BEEN ABOLISHED Individual properitors ARE liable if they fail to form a de jure corporation

Question 11

What are bylaws?

Answer 11

Used to set up procedures and responsibilities of ppl like officers, set forth the type of notice req’d for meetings, etc If bylaws are inconsistent with the certificate, the CERTIFICATE cntrls! Bylaws are NOT filed with the state (only the cert. is) Initial bylaws are adopted by the incorporators at the 1st organizational mtg AND have status of SH bylaws Pwr to repeal SHs ALWAYS have the pwr to amend/repeal bylaws (esp. BOD bylaws) The BOD may do so ONLY IF (i) the certificate; OR (ii) SH bylaw allows NOTE: corporations DON’T have to have bylaws (the certificate is ALL that is req’d)

Question 12

What is a promoter?

Answer 12

A promoter is a person acting on behalf of a corporation not yet formed i.e. the promoter may enter into a K w/ a 3d party on behalf of the corporation-not-yet-formed

Question 13

Is the corporation liable for pre-incorporation Ks?

Answer 13

The corporation is liable on the K ONLY IF it ADOPTS the K Otherwise, NO!

Question 14

Is the corporation liable for pre-incorporation Ks?

Answer 14

The corporation is liable on the K ONLY IF it ADOPTS the K Otherwise, NO!

Question 15

What 2 ways can a corporation adopt a pre-incorporation K?

Answer 15

1) Express adoption: the bd can take action to adopt the K 2) Implied adoption: arrises if the corporation KNOWINGLY accepts the benefts of the K

Question 16

Is the promoter liable for pre-incorporation Ks?

Answer 16

YES! UNLESS the K clearly states otherwise Promoter is liable UNTIL there is a novation, which is an agmt among (i) the promoter; (ii) the corporation; AND (iii) the K-ing party that the corporation will replace the promoter NOTE: adoption ALONE by the corp does NOT remove the promoter from liability (he would be jointly liable with the corp)

Question 17

What is the Secret Profit Rule?

Answer 17

A promoter CANNOT make a SECRETprofit (i.e. corporation has NO knowledge of the profit) on her dealings with the corporation itself If she does, she is LIABLE and has to “account for profit” to the corporation (i.e. return the profits) Profit calculations… 1) Sale to the corporation of property acq’d BEFORE becoming a promoter Profit = PRICE PAID BY CORP – FMV 2) Sale to the corporation of property acq’d AFTER becoming promoter Profit = PRICE PAID BY CORP – PRICE PAID BY PROMOTER

Question 18

What is the rule for “foreign” corporations doing business in NY?

Answer 18

Rule: “foreign” corporations “doing business” in NY must “qualify” “Foreign” = one that is incorporated OUTSIDE of NY (e.g. a NJ corp = foreign) NY corporation = “domestic corporation” “Doing business” = the REGULAR course of INTRAstate business activity “Qualification” =(i) applying to the Dept of State and designating the Sec of State as agent (for service of process); AND (ii) pay fees to NY for privilege of doing business Applying = giving info from certificate AND certifying good standing in home state IF a foreign corp does business in NY w/o qualifiying: it CANNOT sue in NY UNTIL it qualifies, pays fees, taxes AND accrued penalties/interest