corporations.txt

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Author:
jptschoepe
ID:
93213
Filename:
corporations.txt
Updated:
2011-07-06 22:05:19
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Corporations
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Corporations
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  1. Requirements of Formation
    • People -- organizer who executes and files certificate with SoS
    • Paper -- certificate of formation
    • Acts -- filing with SoS and organizational meeting
  2. Organizer
    • must be at least one to form corporation; executes and delivers certificate to SoS
    • can be an entity or an individual (at least 18)
    • need not be domiciliary or resident of Texas
  3. Certificate of Formation
    • name of the corporation (with corp., inc., or co.)
    • name and address of each organizer
    • number of and name and address of each initial director
    • name and address of registered agent
    • purpose of the corp. (to engage in all lawful activity)
    • duration (if not perpetual)
    • capital stock structure (authorized stock; class information with # of shares, par value, and rights/preferences of each class)
    • anything else not inconsistent with the law
  4. Filing & Meeting
    • File Certificate of Formation with the SoS and pay fee
    • SoS sends acknowledgment -- de jure corporation at moment of filing
    • Organization Meeting -- elect directors; adopt bylaws; conduct other business (requries majority of initial directors by 3 days notice)
  5. Piercing the Corporate Veil
    • courts may pierce when: (1) the corporate privilege has been abused; and (2) piercing is necessary to prevent fraud or achieve equity
    • commonly occurs if: (1) corp. used as alter ego; (2) corp. is undercapitalized; (3) corp. formed to avoid existing obligations or perpetrate a fraud
  6. S Corp.
    • avoids double taxation
    • requirements: (1) 100 or fewer shareholders; (2) all of whom are U.S. citizens or residents; (3) only one class of stock; and (4) not publicly traded
  7. Limited Liability w/out De Jure Status
    • De Facto corp: (1) law under which business could operate (TBOC); (2) a good faith colorable attempt to incorporate; and (3) some exercise of corporate privileges (acting as if corp. existed)
    • Corp. by Estoppel: (1) pary who treats a corporation as if it existed is estopped from claiming it doesn't; (2) typically only K and not tort
    • Both doctrines may be abolished in Texas; we don't know
  8. Pre-Incorporation Ks
    • Corporation: not liable unless adoption (by vote or accepting benefits)
    • Promoter: remains liable until a novation
  9. Ultra Vires Activity
    • ultra vires contracts are valid
    • shareholders may sue to enjoin ultra vires activity or to recoup losses from the board/officers resulting from ultra vires acts
  10. Subscriptions
    • Written signed offers to buy stock
    • pre-incorporation: irrevocable for 6 months unless otherwise agreed
    • post-incorporation: revocable until accepted by corp.
    • subscriber is not a shareholder until stock paid for
  11. Consideration for Stock
    • any form is acceptable; even past consideration
    • board's determination as to value is conclusive absent fraud
    • par stock: corp. must receive at least par value (set in certificate) or stock is watered
    • board and purchasers are liable to corp. for amount of watered stock (consideration below par not paid)
    • bona fide transferees of watered stock are not liable
    • treasury stock is no par
  12. Pre-Emptive Rights
    • right of existing shareholders to retain their percentage of ownership upon a new issuance of stock for money
    • must be provided for in the certificate to exist
    • do not exist in the first 6 months of existence
  13. Statutory Director Rules
    • must be at least one natural person
    • elected by shareholders at annual meeting by plurality vote
    • can be removed with or without cause by a majority of shares
    • cannot give proxies for voting
    • cannot enter into voting agreements
  14. Requirements for Board Action
    • unanimous written consent; or
    • in a proper meeting
    • notice: only required for special meetings; email sufficient if authorized
    • quorum: majority of all directors
    • voting: majority of directors present
  15. Director/Officer Duty of Care
    • burden on plaintiff
    • a director/officer must act: (1) in good faith; and (2) with the same degree of care and prudence that a person in a like position under similar circumstances would use
    • Business Judment Rule: no liability if: (1) good faith; (2) informed (did homework); and (3) a rational basis exists for the decision
    • nonfeasance/inaction -- requires a showing of causation for loss to the corp.
  16. Director/Officer Duty of Loyalty
    • burden on defendant
    • director/officer must act: (1) in good faith; and (2) with a resonable belief that his actions were in the best interests of the corporation
    • business judgment rule does not apply
    • common scenarios: (1) interested director transaction; (2) usurpation of corporate opportunity; and (3) competing ventures
  17. Interested Director Transactions
    • a deal betwen the director (or another business of the director) and the corporation
    • transaction will be set aside unless: (1) the deal was fair to the corp. when approved; or (2) (a) both his interest and all material facts were disclosed at the time of approval; and (b) the deal was approved in good faith by the shareholders or a majority of disinterested directors
    • interested directors may still count towards a quorum
  18. Usurpation of Corporate Opportunities
    • A director/officer may not usurp an opportunity in which he has reason to believe the corporation might be interested
    • he cannot take action until: (1) he informs the corp.; and (2) the corp. rejects the opportunity
    • remedy -- convey property to corp. at price he paid for it; or if already sold to BFP then constructive trust imposed on profits
  19. Competing Ventures
    • Director/officer may not compete with the corporation without their approval
    • remedy -- constructive trust on profits
  20. Determining Which Directors are Liable
    • All present directors are presumed liable unless dissent or abstention is noted in the corporate records
    • dissent or abstention can be by: (1) placing it in the minutes; (2) giving note to corp. secretary at meeting; or (3) sending registered letter to corp. secretary immediately after the meeting
    • good faith reliance on financial statements or other information provided by professionals can shield director from liability
  21. Officer Issues
    • selected by the board (not the shareholders)
    • only President and Secretary required
    • agents of corp. (President has inherent authority to bind corp in the ordinary course of business but not to convey real property)
    • one person can hold multiple offices
    • owe the same duties of care and loyalty as directors
  22. Indemnification of Directors / Officers
    • prohibited if held liable (in court holding or judgment) for willful or intentional misconduct
    • required if wins at judgment on entire case
    • permitted in all other situations if compliance with the duty of loyalty is found by a vote of disinterested directors, shareholders, or independent counsel
    • if found to have received an improper personal benefit, reimbursement is limited to costs and attorney's fee (not the judgment)
    • court may also order reimbursement
    • litigation expenses may be advanced if: (1) submits an affidavit of good faith belief of eligibility for reimbursement; and (2) promises to repay if not found eligible

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