1: ORGANIZATION OF TEXAS CORPORATIONS Flashcards
I. FORMATION REQUIREMENTS
A&C
If the certificate of formation is in order, what does the Secretary of State do?
What is the effect of the Secretary of State’s filing the certificate?
Must the organizational meeting be held in Texas?
put it in– All Texas corporations are governed by the Texas Business Organizations Code
A. People: Organizers. We must have one or more.
can be entity, dont need to be TX resident
execute the certificate, and deliver it to the secretary of state
C. Act. 1.
Organizers sign the certificate, deliver it to the Texas Secretary of State, and pay the required fee. Electronic submission is OK. Fax of signature is OK.
A: files it and send ackowledgement of filing to the corporation; the corporate existence begins
- Then the board holds an organizational meeting. At the meeting, the directors (1) select officers, (2) adopt any bylaws, and (3) transact other company business. Should give three days’ notice of the meeting.
no
WHY DOES IT MATTER THAT SOMEONE FORMED A CORPORATION?
What law governs the internal affairs?
A corporation is a ?
A regular “C Corporation” pays tax on income. That means there’s “double taxation” – income tax is paid by the entity and by the shareholders on their dividends. How can we (legally) avoid income tax at the corporate level?
C. Generally, if the corporation incurs a debt or breaches a contract or commits a tort, are the directors or officers liable for it? Generally, are the shareholders liable for it?
internal affairs doctrine: state of incorporation/ formed
B. A corporation is a separate legal person. It can sue and be sued, hold property, serve as partner in a partnership, etc. form S corp. (S Corps have 100 or fewer shareholders, all of whom are human U.S. citizens or residents, only one class of stock, which is not publicly traded.)
C. Corp. itself is liable; no, no
This is “limited liability” – that shareholders are liable only to pay for their stock, not for the business’s obligations.
DE FACTO CORPORATION AND CORPORATION BY ESTOPPEL
A. De Facto Corporation (DFC).
Organizers execute a proper certificate, and their lawyer tells them he will deliver it to the Secretary of State. Unbeknownst to the organizers, the lawyer fails to do so, and the organizers operate the business as a corporation. Are they personally liable for business debts?
The proprietors failed to form a de jure corporation, so they will be personally liable for what the business does (because it’s just a partnership). Under these doctrines, the business is treated as a corporation, so shareholders are not liable for what the business did.
***Anyone asserting either doctrine must be unaware of failure to form de jure corporation.
A. De Facto Corporation (DFC). Requirements:
- There is a relevant incorporation statute (there is – the TBOC).
- The parties made a good faith, colorable attempt to comply with it. And
- Some exercise of corporate privileges (acting like we have a corporation).
- - If DFC applies, the business is treated as a corporation for all purposes except in an action by the state.
yes; unless court applies DFC, need to meet 3 requirements, and ***this doctrine maybe abolished
BY LAWS
A. Must a corporation have bylaws?
– Are bylaws filed with the Secretary of State?
B. Who adopts the initial bylaws?
C. Who can repeal or amend the bylaws of a corporation or adopt new ones?
D. If bylaws conflict with certificate of formation, which takes precedence?
yes; except in a close corporation
But the TBOC does not require any particular content in bylaws. Generally, they are for internal governance—e.g., lay out responsibilities, set regular meeting times and places, prescribe methods of notice.
no
the board at the organizational meeting adopt
board or shareholders; The certificate can reserve this power to shareholders exclusively.
the certificate; except the bylaw can set number of directors
V. PRE-INCORPORATION CONTRACTS
Liability of the corporation
Liability of the promoter.
A. A promoter is a person acting on behalf of a corporation not yet formed. She might contract with a third-party on behalf of a corporation that is not yet formed.
B. Liability of the corporation. A corporation is not liable on pre-incorporation contracts until it adopts the contract.
express (by board action) or
***implied (if the corp accepts the benefit of the contract )
C. Liability of the promoter. Unless the contract clearly says otherwise, the promoter is liable on pre-incorporation contracts until there is a novation; i.e., an agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the contract.
VI. FOREIGN CORPORATIONS
Foreign corporations transacting business in Texas must qualify and pay prescribed fees.
another state… anything outside of TX
Intrastate transactions on a recurring basis. That means the regular course of business in Texas, not just sporadic activity.
Qualify by getting a certificate of authority from Texas Secretary of State. Apply by giving basic information from certificate and proving good standing in home state.
VI. FOREIGN CORPORATIONS
What happens if a foreign corporation transacts business in Texas without qualifying?
1, civil fine; 2, the corp cant sue in TX on a claim arising from business in TX
(Although it can be sued and defend.)
Five fact patterns:
1,Issuance of stock 2, Organization of corporation 3. Directors and officers 4. Shareholders 5. Fundamental corporate changes
I. FORMATION REQUIREMENTS
paper
- Information in certificate of formation:
name address, duration
A candy company has “Bank” in its corporate name. ok?
If the corporation does business under a name other than that in the certificate, it must?
B. Paper: Certificate of Formation
- a. Contract between corporation and shareholders
b. Contract between corporation and state - Information in certificate of formation:
a. Names and addresses.
it must have corporation, company or incorporated, or abbreviation
A: That’s no good because it misleads the public about its purpose; banks must be formed under a special purpose statute
A: If the corporation does business under a name other than that in the certificate, it must file an assumed name certificate with the Secretary of State and the county clerk in the county of its registered office (or of its principal office if principal office is in Texas). Cannot sue in Texas until it does so (but can be sued).
2) Name and address of each organizer.
3) Number of initial director(s).
4) Name and address of each initial director. or whoever manage
5) Name of the corporate agent (“registered agent”) and post office address for the corporate agent. (This agent is official legal representative for the corporation, e.g., can receive service of process for the corporation).
b. duration: it has perpetual existence even if COF says nothing
I. FORMATION REQUIREMENTS
paper
- Information in certificate of formation:
a statement of purpose.
The certificate of Vance Refrigeration, Inc. says the corporation’s purpose is to “manufacture refrigeration machinery.” Then the corporation goes into the condo business.
Capital structure
c. The certificate must include a statement of purpose. It could be general
Doing this is an ultra vires activity (it’s beyond the scope of the certificate). At common law, any ultra vires contract could be voided as beyond the company’s capacity. Today, how do we handle ultra vires?
1, ultra vires contracts are valid
2, shareholders can seek injunction
3, the responsible managers are liable to the corporation for ultra vires loses
d. Capital structure (stock). Definitions:
– Authorized stock – maximum number of shares the corporation can sell.
– Issued stock – shares the corporation actually sells.
– Outstanding stock – shares the corporation has issued and not reacquired.
The certificate of formation must include: (1) Authorized stock, (2) number of shares per class and (3) info on par value, voting rights and preferences of each class.
B. Corporation by estoppel:
– Corporation by estoppel generally applies only in what kinds of cases?
B. Corporation by estoppel: one who treats a business as a corporation may be estopped from denying that it is a corporation.
– You do business with people who hold their business out as a corporation. They think it’s a corporation. So do you. You write checks to the “corporation” and deal with it as a corporation. But there is no corporation. You sue the proprietors individually. Under this doctrine, you cannot win. You are estopped to deny that the business was a corporation.
– Can also prevent the business from avoiding liability by saying it was not a proper “corporation” when it entered a deal.
contract not tort
may be abolished
