Corporations

Question 1

De Jure Corporation

Answer 1

To create a de jure corporation you need a person, paper, and act.
* Person- people who form it called** incorporators**
* Paper - the articles of incorporation
* Act - delivery of notarized articles to the secretary of state and pay any required fees.

Conclusive proof of corporate exsistence.

Corporate exsistence begins upon this filling by the state.

Question 2

Articles of Incorporation

Answer 2

To for a Corp, the articles must include:
* The name of the incorporation
* Name and address of each incorporator
* Registered agent and teh street address of the registeed office.
* Information of the corporation’s stock

Question 3

Ultra Vires Acts

Answer 3

If a corporation includes a narrow business purpose in its articles it **cannot undertake activities unrelated **to acheive the stated business purpose.
Common Law- ultra vires act were void and unenforceable
MBCA- ultra vires acts generally are enforceable and the ultra vires nature of an act can be raised in only three situations:
1. A shareholder
2. The corporation
3. The state

Question 4

De Facto

Answer 4

Colorable compliance with most statutory provisions and excercise of corporate privileges

• Insulates against personal liability of shareholders, but corporation subject to quo warranto proceeding by state

Likely does not apply, put in essay though.

Question 5

Corporation by Estoppel

Answer 5

Parties act as if there is a corporation; no requirement of following statutory provisions
* Insulates against personal liability in contract but not in tort

Likely does not apply, put in essay though.

Question 6

Promoters

Answer 6

• A person acting on behalf of a corporation not yet formed.
• Corporation is not liable for contracts made by the promoter before incorpation unless they expressly/impliedly adopt it.
• Promoter is personally liable on the contract and liability continues after the Corp is formed unless there is an express or implied novation.

Adoption only makes the corporation liable and noation releases the promoter.

Question 7

Subscriptions

Answer 7

• Written offers to buy stock from a corporation
• Under MBCA- **preincorporation **subscriptions are **irrevocable for six months **unless provided terms of the subscription agreement or all subscribers consent to revoction.
• Postincorporation subscriptions are revocable until accepted by the corporation. (Board must accept the offer.)

Question 8

Directors

Answer 8

• Must be adult natural persons, with legal capacity
• Must be more than one
• Initial directors may be **named or elected **at annual meetings
• Shareholders may remove with or without cause, if staggered only with direct cause.

Question 9

Board Action

Answer 9

• Board must act as a group. Individual directors have o authority to speak or bind Corp.
• Unanimous agreement in writing (email & separate docs OK)
• At meeting w/ quorum and voting requirements
• Directors, Incorporators, and office may ratify defective corporate actions

Question 10

Board Meetings

Answer 10

• Bylaws set the method for giving notice & Reg. meetings notice is not required
• ** Quorum** is a majority of all directors, majority of those present for Approval of Action
• Special meetings notice is required at least two days written notice of date, time, and place and need not state the purpose of the meeting.
• Failure to give notice - makes meeting voidable; unless waived
• Directors cannot give proxies.

Without quorum, the board cannot act. They can act via uanimous consent in a writing .

Question 11

Fiduciary Duties -Directors

Answer 11

A director must discharge their duties in good faith and with the reaosnable belief that her actions are in the best interest of the corporation. She must also use the care that a person in like position would reasonably believe appropriate under teh circumstances.
* ** Person challenging** director’s action has the** burden of proving ** that the statutory standard above was not met.
* Duty of care comes up with nonfeasance and misfeasance
* Duty of loyalty are conflicts of interest and the **burden is on the Defendant. **

1st- Duty of Loyalty
2nd-Duty of Care

Question 12

Business Judgement Rule

Answer 12

• The court will not second-guess a business desicion if it was made in good-faith , was informed and had a rational basis.

Question 13

Conflicting Transactions

Self-Dealing

Answer 13

Any transaction between the corporation (on one side) and (1) one of its directors, or (2) that director’s close relative, or (3) another business of the director’s.

Question 14

Standards upholding Conflicting Interest

Answer 14

Will not be enjoined, set aside, or give rise to an award pf damages because of the director’s interest if:

• It was approved by a majority of disinterested directors and shareholders OR
• Judged by the circumstances at the if it was fair to the corporation….. Write …. “ Say some courts also require a showing of fairness.”

Question 15

Corporate Opportunity Doctrine

Answer 15

Director’s fiduciary duties prohibit them from diverting a business opportunity from their corporation to themselves without first giving their corporation an opportunity to act. This is known as** “ Usurpation of a Corporate Opportunity”**

Question 16

Officers

Answer 16

• Officers are agents of teh corporation and Agency law determines the authority and powers of officers.
• 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.

Question 17

Selection and Removal of Officers

Answer 17

• Selected and removed by the Board, who also sets compensation.
• May resign any time and corp has power to remove with or without cause.
• Shareholders DO NOT hire or fire officers.

Question 18

Piercing a Corporate Veil

Answer 18

In Close Corporations ONLY- to peirce the veil and hold Shareholders personally liable.
To** avoid fraud or unfairness by shareholders in a close corporation, shareholders must have abused the privilege of incorporating and fairness **must require holding them liable. Common scenarios:
* Alter Egos- corporate formalities ignored
* Undercapitalization - not enough$ to cover liabilities
* Fraud- or exsisting perosnal obligations

Question 19

Derivative Suits

Requirements

Answer 19

• Standing → must have been a shareholder awhen claim arose or become shareholder by operation of law
• Adequate Representation→ fairly and adequately represent the corporation’s interest
• Demand Reqs. → Under MBCA, must make a written demand on the corporation to take suitable action.
• In some states Demand must be made and suit cannot be filed until 90 days after, in other states demand is seen as futile and it is not required.

Shareholder is suing to enfore the Corporation’s Claim; Corp could have brought this suit.

Question 20

Fundamental Corporate Changes

Answer 20

• Amending the articles
• Merging or Consolidating
• Transerring Substantiallyall Assets
• Converting to another form of Business
• Dissolving