Corporate Law

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  1. Articles of Incorporation - Requirements
    • 1. Corp. Name
    • 2. ID incorporator or Board
    • 3. Registered Agent
    • 4. Statement of Purpose
    • 5. Capital Structure

    ** Is a K between Corp and State; and Corp and Shareholders
  2. Articles - Ultra Vires Rule (articles)
    • Cannot act outside corp purpose. If So:
    • 1. K are valid
    • 2. Shareholders can seek injunction
    • 3. Directors, officers can be liable for losses
  3. Articles - De Facto Corp. (2 requirements)
    • Will still get benefit of corp., if you
    • 1. made a good faith attempt to comply; and
    • 2. exercised some corporate privledge
  4. Articles - Corp. By Estoppel (2 requirements)
    • 1. If a company treats you like a Corp. they are estopped from claiming you are not a copr.
    • 2. A company can't avoid liability by claiming they are not a corp.
  5. Pre-incorporation K's by Promoter, when liable/not
    • 1. Corp. Not liable until it adopts it, deemed adopted if it benefits from it
    • 2. Promoter: Personally liable if corp does not adopt
  6. Promoter- Secret Profit Rule and remedies
    • Promoter cannot make a secret profit in dealing w/ corp.
    • Corp can get the price paid by corp - price paid by promoter
  7. Issuance of Stock - Subscription, when can it be revoked
    • 1. Written offer to buy
    • 2. Revocation: Pre-incorp. must hold open for six months - Post incorporation is revocable
    • 3. Corp/subscriber bound when board approves
  8. Issuance of Stock - What is considered Consideration
    • Traditionally past services was adequate consideration.
    • Modernly, Promises of services and money is adequate
  9. Issuance of Stock - What happens if you issue for less than Par Value
    If stock is issued for less than par (watered stock), the board and buyer may be liable for par value if they did not act in good faith
  10. Directors - # of board members, who elects/removes
    • Traditionally 3 were required, now 1
    • Stock holders elect
    • Stock holders remove, w/ or w/o cause
  11. Directors - When are Board meetings
    • 1.Meeting is required for board to act, unless all members agree, in writing to act w/o a meeting
    • 2. Regular Meetings set in bylaws.
    • 3. Special Meetings, 2 days notice
  12. Directors - What is a Quorum, what vote is required, proxies 
    • Need to have a majority of Directors present to vote.  To pass a vote only need a majority of board that is present at the meeting.
    • No Proxies allowed
  13. Directors and Executives- Duty of Care
    • Directors and executives have a duty to act as "A prudent person would respect his own affairs". Burden on P
    • Non-feasance. Director does nothing, he is breaching his duty.

    A director does not breach his duty if it passes the Biz Judgment Rule: Investigate, deliberate, good faith, well informed.
  14. Directors - Duty of Loyalty
    Cannot have a conflict of interest.  Need to act in a manner she reasonably believes is in the corps best interest.
  15. Directors - State Law Basis of liability (3)
    • 1. Improper distributions
    • 2. Securities
    • 3. Improper loans
  16. Directors - State Law Basis of liability - What directors are not liable for acts of other directors
    • All directors liable unless:
    • 1. Dissent or abstention in writing
    • 2. Absent directors not liable
    • 3. Good faith reliance on compitent advice
  17. Officers - What officers must a corp have
    President, secretary, and treasurer.  Traditionally Pres could not be sec, modernly can be all 3
  18. Indemnification of officers and directors when can/cannot
    • If officer or director sued, can seek indemnity form corp:
    • 1. Unless D received improper benefit
    • 2. Manditory: if D was successful in his suit
    • 3. Permissive indemnification: If D settles suit, look for good faith
    • 4. Court Order: court can order Corp to pay attorney fees, but not judgment if justified
  19. Shareholders - When can you Hold Shareholders liable
    A share holder is not liable for the debts of the corp., but court may peirce the corporate veil under alter ego theory or under capitalization
  20. Shareholders - What are Derivative suits - what is the result
    • This is where a shareholder sues on behalf of the corp. Test is if the corp could have brought the suit.
    • Consequences: If he wins, corp gets judgment but pays attorney fees.  If S losses, no attorney fees and res judicata.
  21. Shareholders - Derivative suits - Requirements to bring a suit
    • 1. Own stock throughout litigation
    • 2. Damand corp bring suit first
    • 3. Verified complaint
    • 4. Corp can dismiss suit with a majority vote of dis-interested directors and judge approval
    • 5. Judge needs to approve settlement
  22. Shareholders - Voting - Record Date
    1. Record Date: The person who owned the share on the record date can vote.  Record date usually 10-60 days b4 meeting
  23. Shareholders - Voting - Proxies, requirements (3), revokation
    • 1. Writing, authorizing someone to vote
    • 2. Signed by shareholder
    • 3. Sent to corp secretary
    • 4. Good for 11 months
    • 5. Revokable even if it says non-revokable
  24. Shareholders - Voting - Voting Trusts Requirements (4), what do shareholders get
    • Requirements:
    • 1. Written agreement how shares will vote
    • 2. Sent to secretary
    • 3. Transfer legal title of shares to trust
    • 4. Shareholders receive trust certificates and retain shareholder rights
  25. Shareholders - Voting - Voting Agreement Requirements, enforceable?
    • 1. K in writing
    • 2. Some states its specifically enforceable, some states not
  26. Shareholders - Are Annual Meetings required
    • 1. No meeting if all SH agree in writing
    • 2. Court can order an annual meeting
  27. Shareholders - Special Meetings, who can call, notice/no notice
    • 1. Who can call: Board or SH with 10%
    • 2. Notice must be given to every shareholder, must give time, place, subject
    • 3. No notice, then action void
  28. Shareholders - Voting - What is Quorum, votes required, cummulative voting (when does it apply) 
    • 1. A quorum is majority of share, must be present at meeting.
    • 2. Vote requires majority of quorum - Some present can withhold their vote - some states only require a majority of those voting
    • 3. Cumulative voting only applies to voting in directors
  29. Shareholders - Stock Transfer Restrictions what is valid/not
    • 1. Right of first refusal can be reserved, Generally ok unless corp pays too little
    • 2. Restraint on alienage, generally not enforceable unles SH had notice
  30. Shareholders - Who has Right to inspect books
    • Traditionally you needed to own 5% for 6-mo,
    • modernly, any shareholder: Written notice, proper purpose related to being a SH
  31. Shareholders - Distributions, what can it be, who determines
    • 1. Can be a distribution or redeemind SH shares
    • 2. Board determines if there is a distribution
  32. Shareholders - Distributions - Who gets paid first (4 levels)
    • 1. Preferred - Paid First
    • 2. Participating Preferred - Paid as preferred then pro-rata with common SH
    • 3. Cummulative Preferred - Paid first plus back
    • 4. Common shares
  33. Shareholders - Distributions - What funds can you distribute (2)
    • 1. Earned Surplus
    • 2. Capital Surplus: Money received in excess of par, usually need to tell SH what the source is
  34. Fundimental Corp Changes - Who gets a Right of Appraisal
    Dissenting SH to a fundimental change he may be able to force the corp to buy back his shares. Available for merger and sale of corp assets

    Perfect the right: Written notice of dissent, demand appraisal
  35. Fundimental Corp Changes - What does it require to Amend Articles (4)
    • Requires:
    • 1. Board Approval
    • 2. Notice to all shareholders
    • 3. Majority of shares who are entitled to vote
    • 4. File w/ SOS
    • 5. No appraisal right unless an affected class
  36. Fundimental Corp Changes - What does it require for Mergers and consolidations (4)
    • 1. Board approval
    • 2. Shareholder notice and approval (except a short form merger where corp owns 90% of a subsidiary, then only director vote)
    • 3. File Articles
    • 4. There is a right of appraisal
  37. Fundimental Corp Changes - What does it require to Transfer all Assets (4)
    • 1. Board approval
    • 2. Notice and majority of SH approval
    • 3. Right of appraisal
    • 4. B generally does not assume corp liability
  38. Fundimental Corp Changes - Dissolution - Voluntary - what does it require (2)
    • 1. Board and SH approval, or
    • 2. Unanimous, written SH agreement
  39. Fundimental Corp Changes - Dissolution - InVoluntary, who can what does it require (2)
    • 1. Shareholder petition because of Board waist, misconduct
    • 2. Debtor, corp wont pay its debts
  40. Securities Laws - State liability - Controlling shareholder sale of stock (4 limitations)
    • Free to sell, courts impose some duties:
    • 1. Looter: SH has duty to investigate if buyer is buying to run company into ground
    • 2. Disguised sale of assets: The premium paid needs to be for controlling interest, not company assets
    • 3. Minority Detriment: Cannot put minority SH in a bad position
    • 4. Non-disc of special facts.  Must Abstain or Disclose. Duty to disclose if a reasonable shareholder would need the info to buy
  41. Securities Laws - Fed 10b-5 (Deceit) - Elements (8)
    • 1. Instrumentaility in interstate commerce (mail, telephone)
    • 2. Possible D: Any person or entity
    • 3. Possible P: SEC, private buyer, seller
    • 4. Bad Act: Misrep, fail to disclose, tipping
    • 5. Bad act must be in connection w/ sale
    • 6. Bad act must involve a material fact
    • 7. Scienter: Intent to defraud or deceit
    • 8. Reliance: presumed in cases of non-disclosure and public misrep
  42. Securities Laws - Fed 16b (Speculation) - Elements (4)
    • 16b is used to recover of directors and officers that bought and sold corp stock based on insider info. Elements:
    • 1. Must be a reporting co: 500SH or 10MM assets or listed on the exchange
    • 2. D must be a bigshot in corp
    • 3. D must have bought or sold stock
    • 4. Must have been "short swing" bought and sold w/i 6-months
    • 5. All profits for each occurance is recoverable
  43. Exam Statements of Law: Presidents right to act on behalf of company under agency theory
    President has authority to act as an agent for company, such authority includes: actual, apperant, or ratified by board.
  44. Exam Statements of Law: When is a promoter liable for a pre-incorporation contract:
    Promoters remain liable on pre-incorporation contracts, even if ratified by corp, unless the agreement itself agrees not to hold  promoter personally liable, in such case K is considered an offer to corp.
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Corporate Law

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