Corporations Flashcards
(39 cards)
Requirements of Articles of Incorporation
- The name of the corporation 2. The maximum number of shares the corporation is authorized to issue 3. The names and addresses of: - the board of directors, - the incorporators executing the articles, and - the initial registered agent
Formation of the Corporation
Formed when the articles of incorporation are filed with the secretary of state
Amendments to the Articles
Articles of Incorporation may be amended if there is a majority vote from the directors and shareholders. Minor amendments may be made by the board of directors without shareholder approval
Corporate Bylaws
Written rules of conduct that must be initially adopted by the incorporators or board of directors. They provide for the ordinary business conduct of the corporation If there is a conflict between the bylaws and AoI, the articles govern
Amendments to Bylaws
May be amended or repealed by the corporation’s shareholders. Board of directors may also amend/repeal UNLESS the shareholders expressly specify otherwise
Promoter Liability
A promoter is personally liable for any contracts entered into on behalf of the corporation so long as both parties to the transaction know that the corporation has not yet been formed. Not personally liable if: 1. There is a novation where parties agree to release promoter from liability, or 2. Promoter is able to obtain indemnity from the corporation
Shareholder Liability
Generally, shareholders of a corporation are NOT personally liable for the debts of the corporation. Exception is the doctrine of piercing the corporate veil
Piercing the Corporate Veil
Courts will allow a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when: 1. Shareholder utilizes the corporation for personal reasons (“alter ego”) 2. Shareholder failed to follow corporate formalities 3. Corporation was undercapitalized 4. There is fraud or illegality present Once the corporate veil has been pierced, courts generally hold ALL the shareholders liable
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 in the ownership structure.
Preferred Stock
Represents ownership in a corporation.
It does not always have voting rights.
Has preference over common stock with respect to:
- dividends
- liquidation
Authorized Shares
The maximum number of shares that a corporation is legally permitted to issue under its articles of incorporation.
To increase the amount, the AOI must be amended with a majority vote from the directors and shareholders.
Outstanding shares
Total number of shares issued by the corporation and held by the shareholders. Each outstanding share is entitled to one vote, unless otherwise provided in the articles
Treasury stock
Consists of shares that a company issued and subsequently reacquired.
Shares that the corporation reaquired are not considered outstanding and cannot be counted in a shareholder vote
Preemptive Rights
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
Preemptive Rights do not exist for:
- Preferred shares that cannot be converted to common stock 2. Shares sold for a consideration other than cash 3. Shares issued by majority shareholder vote to directors, officers, or employees
Distribution Rights
A shareholder normally does NOT have any right to receive distributions (either in form or dividends or something else) from the corporation
BUT if board of directors refuses to issue distributions in bad faith, the shareholders may be able to compel distribution.
Annual Meetings
The corporation must hold an annual meeting of shareholders at a time that is stated or fixed in accordance with the bylaws. Shareholders who are entitled to vote must be provided with notice of the meeting.
Special Meetings
Can be called by: 1. People authorized under the AOI 2. A demand from shareholdes that accounts for at least 10% of the votes entitled to be cast at the meeting; or 3. The board of directors for a limited purpose Must be given notice that states the purpose and be provided 10-60 days before the meeting
Notice for Special Meetings
The notice must:
- State the purpose of the meeting and
- Be given 10-60 days before the meeting commences (in most states)
Insufficient notice can allow a shareholder to challenge any meetings taken at the meeting
- But notice is waived by actually attending
Vote by Proxy
Allows a shareholder to vote without physically attending the shareholder’s meeting by authorizing another person to vote her shares on her behalf. Valid proxy must exist in the form of a verifiable electronic transmission or a signed written appointment form. Freely revocable by the shareholder unless the recipient of the proxy has an economic interest in the shares.
Definition of Corporation
A distinct legal entity that can conduct business in its own right by buying, selling, and holding property or by suing/being sued.
There is limited liability.
It can last forever.
Shareholders:
Directors:
Officers:
Shareholders: Investors, ultimate owners in the residuary interest
Directors: Elected by shareholders; responsible for major decisions
Officers: Run the corporation on a daily basis
Issue Shares
Number of shares from the authorized pool that the directors have actually sold
Par Value Stock
A corporation may, but is not required, to issue stock at a par value.
If it does, it must sell the shares for at least the minimum par value amount.
If it is required, it will be set at a nominal amount.
