Corporations Flashcards
(44 cards)
Org of TX Corps: Person
Organizer (person or entity) executes the certificate and delivers it to Secretary of State
Org of TX Corps: Paper
Certificate of Formation—
names and addresses. Can preserve name with secretary of state for 120 days.
o Name of Corp: Assumed name certificate with secretary of state and county clerk in county of its registered office (or principal office). Cannot sue (but can be sued) in TX until it does this
o Name and address of each organizer
o Number of initial directors
o Name and address of each initial director/managers
o Name of the corporate agent
No duration, then assumed perpetual Cert
Must Include a Statement of Purpose
Capital structure (authorized stock: max/issued: actually sells/outstanding: shares corp has issued and not reacquire) o Must incl (1) authorized stock, (2) number of shares per class, and (3) info on par value, voting rights, and prefs of each class
Statement of Purpose (basis for Ultra Vires and Deriv Suit)
Can be general; must be in Certificate of Formation
Ultra Vires Act (making co do things it has no power to do) to enjoin acts that stray from this:
—valid K (not illegal) but SHs can sue for an injunction;
—responsible managers liable to corp for ultra vires losses (through derivative action: (i) P must own shares at time of challenged act (or by op of law); (ii) fairly and adequately rep corp int; (iii) b4 instituting must make demand on board to take action and wait 90 days for response—unless board rejects sooner or delay would cause irreparable damage)
Deriv suit can be dismissed if majority of disinterested, ind BoD determine in good faith, after reasonable inquiry, that continuation of suit not in Co’s best int
Org of TX Corps: Act
Organizers sign cert, deliver to secretary and pay the required fee. On filing, corp existence begins.
Other Steps to Forming an Org
Org Meeting: Board holds this meeting. There, board (1) selects officers, (2) adopts bylaws, and (3) may transact other co business. 3 days’ notice of meeting.
Bylaws: Internal document. Required but are internal (no filing). Can repealed by board or SHs. Certificate takes precedence if conflict
Defective Incorporation (De Facto Reqs and Estoppel)
De Facto Corp Requirements: If so then treated as a corp for all purposes except an action by the state.
• There is a relevant incorp statute
• Parties made good faith, colorable attempt to comply with it AND
• Some exercise of corp privileges (acting like we have a corp)
Corporation by Estoppel: 1 who treats a business as a corp may be estopped from denying that it is a corp.
Pre-Incorporation Ks
Promoter is a person acting on behalf of a corp not yet formed. May K w/ a 3rd party on behalf of a corp not yet formed.
Corp is not liable on pre-incorp Ks until it adopts the K. Adoption makes the corp liable too but does not relieve Promoter (both are liable)
Promoter, unless K says differently, is liable on pre-incorp Ks until there is a novation (i.e., an agreement of the promoter, corp, and other King party that the corp replaces the promoted under the K).
Foreign Corps (Long Arm Statute)
Must qualify/register and pay prescribed fees to transact in TX. Applies by giving basic information from certificate and proving good standing in home state. Then can sue in TX.
If no register, (1) civil fine and (2) co cannot sue in TX from a claim arising from business in TX.
Subscriptions
written, signed offers to buy stock from corp)
Pre-incorporation subscriptions are irrevocable for 6 months
Post-incorporation subscriptions are revocable until accepted by the corp
Corp and subscriber oligated under the subscription agreement when the board accepts the offer and co notifies the subscriber in writing.
Subscriber whose subscription has been accepted becomes a SH when she pays for the stock.
Preemptive Right
Default is no preemptive rights
Right of an existing SH of c-stock to maintain her % of ownership by buying stock (incl treasury stock) whenever there is a new issuance of stock FOR MONEY (not options to officers)
Cert of Formation must explicitly mention this right. Also, no preemptive rights if the issuance is within 6 months of formation of the corp (unless cer says otherwise)
TBOC says written waiver of right required; no preemptive right wrt officer compensation absent explicit right on certificate
Directors—Statutory Requirements
Adult Natural Persons
Number: Just 1+, initially set in cert and then in cert or bylaws.
Election: Initial named in cert, thereafter SHs elect at annual meeting
Entire board is elected each year unless bylaws provide for a “classified board”—half or thirds elected each year
Removal: SHs can remove before board member’s term expires with or without cause.
Vacancy: Board or SHs fill.
Board must act as a group, individual directors not agents of the corp. No authority to speak for or bind the corp. Officers are agents of the corp.
Board action by:
(1) unanimous written consent to do something or (2) a meeting satisfying quorum and voting reqs.
Notice Required for Board Meetings
Notice (stating date, time, and place—need not state the meeting’s purpose) only required for special meetings.
Failure to prvide notice means whatever happened at meeting is voidable unless directors not notified waive notice defect: by (1) in writing at any time or (2) by attending the meeting without objecting at the outset to the meeting.
Meeting can be held outside of TX; notice determined by bylaws; NO proxies
Board’s Role
Board manages the business. Sets policy, supervises officers, declares distributions, decides when the corp should issue stocks, etc.
Exceptions: close corps/committee of 1+ directors (if bylaw or cert allows, board can appoint a committee to which it can delegate power (could declare distributions) but cannot amend bylaws, select officers or recommend a fundamental corp change to SHs)
Duty of Care
A director owes a duty of care to the corp. She must act in good faith and exercise ordinary care and prudence. She must do what a prudent person would do in similar circumstances. Non-delegable fiduciary duty.
Nonfeasance (director does nothing): liable only if his breach caused a loss to the corp (tough to show). Causation required.
Misfeasance (the board does something that hurts the corp-causation is clear): Not liable if meets the BJR (presumption that when the board took the act it did appropriate homework. Burden on P to show board either did not do HW or did something very dumb.)
Duty of Loyalty
Conflict of interest, burden on D
Director owes the corp a duty of loyalty. Must act in good faith and with a reasonable belief that her act is in the corp’s best interest.
Interested Director transaction: Set aside unless (1) deal was fair to the corp when approved OR (2) her interest and the material facts were disclosed or known and the deal was approved in good faith by either of the two groups: (a) SHs or (b) majority of disinterested directors (even if less than a quorum)
Competing Venture: Cannot compete without approval of majority of disinterested SHs.
Corporate Opportunity: Director cannot usurp a corporate opportunity (anything director has reason to know co would be interested in). Means the director cannot take it until he: (1) tells the board and (2) waits for the board to reject the opportunity.
Damages: Must sell at cost and corp gets profit. Corps can renounce in cert of formation or by board action.
Director Liability
Directors may be liable to the corp for improper distributions, improper loans, ultra vires acts, and breaches of fiduciary duties.
A director is presumed to have concurred w/board action unless her dissent or abstention is noted in writing (put in the mnutes; sending a note to the corp sec at the meeting; or sending a resgistered letter to the corp sec immediately after the meeting) in corp records
Director Defenses to Liability
Not liable if absent from the meeting;
good faith reliance on info represented by an officer or provided by a competent professional or by an employee or by a committee of which the director relying was not a member. No good if person giving info was incompetent
Officers (Duties; Status; Selection and Removal)
Owe the same duties of care and loyalty as directors
Status: Officers are agents of the corp. Can bind the corp by acts w/in their authority. President has inherent authority to convey corp real prop only if the board gives such authority. Outside, may have inherent authority to bind the corp to a K entered in ordinary course of business.
Selection and Removal: Officers are selected by and removed by the board, which alse sets office compensation.
Note: SHs hire and fire directors who hire and fire officers.
Indemnification of Directors and Officers (Forbidden; permitted; eligibility determination; lit expenses advancement)
Corp forbidden from reimbursing when the director/officer is held liable for willful or intentional misconduct in performing a duty to the corp
Corp required to reimburse if wins judgment on the entire case
—Court can order reimbursement if it finds justified on the facts
Corp permitted to reimburse neither of above, but was held liable to the corp or to have received an improper personal benefit, can only get expenses and attorney’s fees (not the judgment)
Eligibility determined by (1) majority of disinterested directors or committee or shares or (2) ind legal counsel
Can advance lit expenses if D/O gives an affidavit of her good faith that she believes acted in good faith and with reasonable belief actions in corp’s best interest and a written undertaking to repay the expenses if determined she did not
SHs / SH Mgmt Agreement
Do not manage corp unless close corp (may not have a board): (1) few SHs and (2) private stock. Cert must call it a “close corp”
SH Mgmt Agreement (SMA): Sets up alt mgmt. in the close corp. (1) in cert or bylaws and approved by all SHs or (2) written agreement of all SHs
• Stock certs should note close corp status and what the mgmt. structure is, but failure to do so does not affect close corp status
• The corp should deliver to each SH a copy of the agreement but failure to do so does not affect its validity
• Once the corp starts operating under the SHs’ agreement, it may deliver a Statement of Op to the Sec of State for filing. Manner of op = matter of public record.
• Once the statement of op is filed, agreement is binding on all SHs and transferees.
Whenever the corp is managed by someone other than a BoD, they also owe of duties of care and loyalty.
SHs do not owe each other fiduciary duties as a matter of law. But a court may find a fiduciary duty depending on the facts of a given case.
When SH liable for Corp Debts
Pierce the Veil when: (1) SHs abused privilege of incorporating and (2) limited liability would be unfair.
Only happens in close corps. Never automatic. No PCV for a K claim unless SH made the corporation commit fraud for his own personal benefit.
Derivative Suits
SH must:
- Have stock ownership when the claim arose or received by “op of law” (e.g., inheritance or divorce decree) from someone who did.
- Fairly and adequately rep the corp’s interests (own stock throughout lit)
- Make a written demand on directors that the corp bring suit (can’t file suit until 90 days after demand unless demand is rejected before that or waiting 90 days would cause irreparable harm to the corp)
- Demand never excused (even if futile) and must set forth claim with particularity
Corp must be joined as D cuz did not sue on its own.
Not settle or dismiss without court approval
Corp may move to dismiss based on finding of disinterested, ind directors that the suit is not in the company’s best interest. Court must dismiss if finds made in good faith and by ind, disinterested SHs.
SH Voting: Who Votes? (Eligibility)
Vote if you are the record SH as of the record date. Voter eligibility cutoff set no more than 60 days (no less than 21 days for merger or consolidation) before the meeting (if no record date is set then deemed date of notice of meeting given)
