Flashcards in Corporations Deck (67)
Corporations: Formal Definition
A corporation is a legal entity separate and distinct from its owners and managers. The corporation's principal characteristics are:
(1) Limited Liability; (2) Entity Powers; (3) Centralized Management; (4) Perpetual Existence; and (5) Free Transferability of Ownership.
Guarantying or extending loans to directors
IF in furtherance of corp business, OK if approved by majority of directors; if NOT in furtherance of corp business, OK if approved by 2/3 of shares entitled to vote.
Constitutional Rights of Corporations
Corp. is a person entitled to due process of law but not a citizen for purposes of P+I clauses.
A person acting on behalf of a corporation not yet formed. Promoter's may, but need not be, the incorporators of the corporation. Promoters have fiduciary duties of joint venturers until the corporation is organized; after incorporations, promoter-shareholders only have the rights, duties, and obligations of shareholders.
Promoter's Liability on Pre-Incorporation Contracts
Liable UNLESS (1) clear intention of the parties to bind the corporation only; or (2) there is a novation
Forming a Corporation
(1) Execute Certificate through signature of incorporators and acknowledgment by notary public; (2) Deliver to Dept of State; (3) Hold Organizational Meeting. Corporate existence commences upon filing of certificate by the Department of State (unless certificate specifies other date, within 90 days of filing). The filed certificate is conclusive evidence that a corp has been formed.
Certificate of Incorporation
"Nine Purple Cows Can Dance Around Ireland"
Name (Inc., corp., etc)
Purpose (any and all lawful purposes)
County in NY of incorporation
Capital structure (shares, description, par value, if any, details of classes and rights)
Designation of NY Sec of State as agent for service of process
Address for forwarding process to the corporation
name and address of each Incorporator
Other registered agents for service of process (names and addresses)
Duration (perpetual if not otherwise stated)
Limitation on director liability to SHs, if any
Ultra Vires Act by Corporation
The Certificate must contain a statement of corporate purpose; this can be very broad (“all lawful activity . . . .”) At COMMON LAW, an ultra vires act (beyond the scope of corporate purpose) made such acts voidable. In NEW YORK, ultra vires acts are valid, BUT (1) SHs can seek injunction; and (2) Responsible managers are liable to the corporation for ultra vires losses.
The BCL contains no requirement that any particular minimum amount of capital be paid in before the corporation may commence doing business.
The Certificate must include information about the capital structure of the corporation, including: -- Authorized Stock (maximum # of shares corp. can sell); -- Number of shares per class; -- Par value (if any); -- Information on preferences, rights, and limitations of each class of stock.
At least one class of stock or bonds must have unlimited voting rights, and at least one class of stock must have unlimited dividend rights.
Shareholders can amend, repeal, or make new bylaws by shareholder vote.
Directors can also amend, repeal,or make new bylaws, but only if the CERTIFICATE or a shareholder bylaw allows.
Foreign Corp Registration Reqs
With NY Dep't of State:
(2) Info from Certificate
(3) Proof of good standing in home state
(4) Designate Sec of State as agent for service of process
Revocation of Subscription Offer
Irrevocable for 3 months, if pre-incorporation. Revocable until offer accepted, if post-incorporation.
Non-Payment on Subscription
If no payment within 30 days of written demand:
(1) Paid less than half: keep purchase price; shares become authorized and unissued
(2) Paid more than half: try to resell; if unable, keep purchase price and shares become unauthorized and unissued, but if you can sell for a hire amount, give the difference over the original agreement to the defaulting shareholder, less any costs in securing the new buyer.
Permitted Consideration for Stock Issuance
(4) Consideration for past services
(5) Consideration for future services
Board's determination of the value of consideration for stock issuance
Determination of value is conclusively valid if made without fraud
Only if provided for in the CERTIFICATE
Only applies to issuances of stock for CASH
and issuances originally authorized in the certificate within 2 years of first formation.
New issue is NOT treasury stock.
REMOVING A DIRECTOR FOR CAUSE
(1) Shareholders at any time
(2) Directors only if cert or bylaws allow
Removing a director without cause
Only shareholders and only if cert/bylaws allow
Filling board vacancy
(1) usually directors
(2) if removed without cause, SHs
BoD -- Waiving Notice Defects
By (1) Attending the meeting; or (2) in a writing signed at any time. If required notice for special meeting not given, then any action taken is void unless waived by director to whom notice was not given.
Quorum for Board Action; Default Rule
Majority of the DULY CONSTITUTED board including any vacancies (leaving ends quorum)
Increasing Quorum for Board Action
Must be in CERTIFICATE
Decreasing Quorum for Board Action
Must be in CERT OR BYLAWS but no less than 1/3 of duly constituted board
Increasing Voting Requirement for Board Action
Must be in CERTIFICATE
Decreasing Voting Requirement for Board Action
Cannot decrease to less than majority vote of those present after establishing quorum.
Non-delegable duties of the BoD
- Set director comp
- Fill a board vacancy
- Submit a fundamental change to SH
- Amend bylaws
- CAN recommend these for full board action
Duty of Care
A director must discharge her duties in good faith with that degree of diligence, care, and skill that an ordinarily prudent person would exercise under similar circumstances in like position.
Business Judgment Standard
A court will not second-guess the business decisions of a director if made in good faith, reasonably informed, with a rational basis.
Duty of Loyalty
A D must act in good faith and with the conscientiousness, fairness, morality, and honesty that the law requires of fiduciaries.