Forming a Corporation
Requirements of the articles of incorporation?
1) Name of Corporation
2) Name and address of all incorporators
3)registered agent/street address of registered office
4) Info on corporations stock
What is the main limitation when De Facto corporation is raised as defense against personal liability?
Person must have been UNAWARE that the corporation was not properly formed.
How may a corporation gain capital?
Borrow money/issue bank a security (bank is creditor not owner)
Sell stock
What is the basic duty of a director?
How many directors are required?
Management of the business and affairs of the corporation.
One or more.
What are officers of a corporation?
How are officers determined?
AGENTS OF CORPORATION, CORPORATION IS PRINCIPAL.
Officers selected and removed by board, by-laws of corporation will note duties of officers, how many officers/titles.
What is an "ultra vires act"?
Act outside the scope of the corporations business purposes.
Common law: Void
MBCA: generally enforceable unless suit brought by shareholders/corporation/or state in response to ultra vires act.
What is a Corporation by Estoppel.
Corporation not correctly formed but those who CONTRACTED with it cannot now deny the corporations existence to get out of the contract.
CONTRACT CASES ONLY.
Define: Authorized Shares, Issued and Outstanding Shares, and authorized but Unissued Shares?
Issued and Outstanding Shares= shares that have been sold
Authorized but Unissued Shares= shares reacquired by corporation
How may directors be removed?
Exception?
With or without cause by a vote of the shareholders.
IF STAGGERED BOARD- removal must be for cause.
Can shareholders hire or fire Officers?
NO ITS THE BOARDS JOB
When is a corporation considered to be officially formed?
Corporate existence begins upon filing notarized articles of incorporation with the secretary of state.
What is a De Jure Corporation
One formed correctly by abiding by all statutory formation requirements.
Define "Issuance of Stock"
Define: "Subscription"
Share Option= right to purchase shares in the future under predetermined terms by the board of directors.
Issuance of Stock= Corporation sells its own stock.
Subscription = written offers to buy stock from a corp.
How must Director's act?
What 2 ways may the act in terms of decisions for the corp?
MUST ACT AS GROUP
1) unanimous agreement in writing
2) at a meeting with a quorum vote.
When may we hold directors personally liable?
How may a director avoid such liability?
may be liable to improper distributions, loans, ultra vires acts (outside scope of corporate purpose), and for breaching fiduciary duties.
Director dissenting to transaction at issue and its on the minutes, or director not present at meeting where transaction approved
What is a de facto corporation?
One that fell short of statutory requirements of forming a corporation. 3 requirements:
1) There is a relevant incorporation statue
2) parties made good faith effort to comply but fell short
3) there has been some exercise of corporate privilege. (i.e. acting as if a corp)
What is a Promoter and what obligation/duty do they have with a corporation?
Fiduciary Duty to the corporation, fair disclosure and good faith.
What may be consideration for stock?
What is "Par Stock"
What is "Watered Stock"
Consideration may be and tangible or intangible property or benefit to the corporation.
Par stock = minimum issue price (non-par means no minimum issue price)
Watered Stock = When par value stock is issued for less than par value.
Fiduciary Duties owed to Corporation by Directors?
1) Duty of Loyalty
2) Duty of Care
3 categories of indemnification of Officers.
1) NO INDEMNIFICATION- director is liable to corp & received improper benefit.
2) MANDATORY INDEMNIFICATION- Officer was successful in defending themselves at proceeding.
3) PERMISSIVE INDEMNIFICATION- corporation may indemnify if they want and find: acted in good faith, and believed conduct was in best interest of corp.
When may a promoter be reimbursed if held personally liable under a K?
May be able to get reimbursement from Corporation if Corp received benefit from K.
Who is liable for the contracts entered into by a promoter?
CORPORATION NO LIABLE SINCE NOT IN EXISTENCE YET. MUST EXPRESSLY ADOPT K TO BE HELD LIABLE.
Promoter= personally liable for K's, liability continues until Corporation is formed, only relieved from liability via express or implied NOVATION.
What is a "Pre-Emptive Right" to maintain % of ownership?
Right of an existing shareholder to maintain their percentage of ownership when new stock is issued.
RIGHT MUST BE IN ARTICLES OR NO RIGHT EXISTS.
2 Common Scenarios that involve potential breach of the Duty of Loyalty?
1) Self Interested Transaction. (director benefits from transaction personally)
2) Corporate Opportunity Doctrine. (director learns of business opportunity due to their role, and steals it for themselves.)
What is required to avoid liability for self-dealing/corporate opportunity doctrine?
Full disclosure by interested director
approval by a majority of disinterested investors
approval by a majority of votes by disinterested shareholders
fairness to the corporation