BarBriCorporations Full Outline.docx

BarBriCorporations Full Outline.docx

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BarBriCorporationsFullOutline

FormationRequirements

∙

（1）Incorporators:

musthaveatleastonepersonorentity;mustsign&fileAoI.

∙

（2）ArticlesofIncorporation:

articlesareacontractbetween（i）Corporation&Shareholdersand（ii）betweenCorporationandState.

oInformationrequiredinArticles:

▪（i）NamesandaddressesofCorporation（Corp,Company,Incorporated,Limited）

▪（ii）NamesandaddressesofeachIncorporator

∙SPLIT:

somestatesrequirenamesandaddressesofinitialdirectors.

∙NameofAgentforserviceofprocess:

officiallegalrepresentative

▪（iii）StatementofDuration（requiredonlyiflessthanperpetualexistence）.

▪（iv）StatementofPurpose

∙GeneralStatementofPurposeisok（i.e.“toengageinanylawfulactivity"）

∙UltraVires=whencorporationactsbeyondthecopeofthearticles.

oToday;UltraVirescontactsarevalid;butShareholderscanseekaninjunctionandofficers,directors,&employeesareliabletoCorporationforUltraVireslosses.

▪（v）CapitalStructureorStock

∙AuthorizedStock-maximum#ofsharesthecorporationcansell.

∙IssuedStock-numberofsharesthecorporationactuallysells

∙OutstandingStock-sharesthathavebeenissuedandnotreacquiredbythecorporation.

∙Articlesmustinclude:

Authorizedstock,numberofsharesperclassandinformationonparvalue,votingrightsandpreferencesofeachclass.

∙（3）FilingandFee

oIncorporatorsmustfilearticleswithSecretaryofStateandpayrequiredfee.AcceptancebySecretaryofStateisconclusiveproofofvalidformation.ThiscreatesaDEJURECORPORATION.

oInsomestates,Secretary’sissuanceofcertificateofincorporationisconclusiveproofofvalidformation.

LegalSignificanceofFormationofCorporation

∙InternalAffairsDoctrine:

rolesanddutiesofdirectors,officers,andshareholdersaregovernedbythelawofthestateofincorporation.

∙LimitedLiability:

shareholders（owners）arenotpersonallyliablefordebtsofcorporation.Thisistheprincipleof“limitedliability,”whichmeansthatshareholdersgenerallyareliableonlyforthepriceoftheirstock.

∙SeparateLegalPerson:

Acorporationisaseparatelegalperson.Itcansueandbesued,itcanholdproperty,itcanbeapartnerinapartnership,itcanmakecharitablecontributions,itmustpayincometaxesasanentity.

DefectiveCorporation

∙DeFactoCorporation:

o（a）thereisarelevantincorporationstatute;（b）thepartiesmadeagoodfaith,colorableattempttocomplywithit;and（c）someexerciseofcorporateprivileges.

oExample:

IncorporatorsdraftandsingarticlesandmailthemtoSecretaryofState.Theythinktheyformedacorporation,butthearticleswerelostinthemail.

oIfapplicable,treatedascorporationforallpurposesEXCEPTinanactionbythestateforexceedingitspowers（calledQuoWarranto）.

∙CorporationbyEstoppel

oOnedealingwithabusinessasacorporation,treatingitasacorporationmaybeestoppedfromdenyingthebusiness’corporatestatus.

oCanbeinvokedagainst

（1）thecorporationfromavoidinganobligation;

（2）thosewhodealtwiththecorporation

oThisisonlyvalidincontractactions,nottort.

∙Statusofthe2doctrines:

Abolishedinmanystates.

Bylaws

∙Forinternalgovernance-e.g.layoutresponsibilities,setregularmeetingtimesandplaces,prescribemethodsofgivingnotice.

∙Whoadopts?

BoardofDirectors@theorganizationalmeeting.

∙Whocanamend/repeal?

Generally,onlytheshareholderscanamend/repealthebylaws（somestatestheBoardofDirectors）.

∙Inmoststates,adoptionofbylawsisnotaconditionprecedenttoformationofacorporation.

PromoterLiability&Pre-IncorporationContracts

∙Apromoterisapersonactingonbehalfofacorporationnotyetformed.

∙LiabilityonPre-IncorporationContracts

oRule:

AcorpisnotliableonpreincorporationcontractsuntilitADOPTStheK.

oAdoption:

1of2ways:

▪

（1）Express:

BoardofDirectorsacttoadoptthecontract

▪

（2）Implied:

CorporationacceptsabenefitoftheK.

▪Adoptiondoesnotrelievethepromoterfromliability.OnlyNovationdoes.

∙LiabilityofthePromoteronPre-IncorporationContracts

oUnlessthecontractclearlyprovidesotherwise,thepromoterremainsliableonpre-incorporationcontractsuntiltherehasbeenaNovation.

▪Novation=anagreementofthepromoter,thecorporation,andtheothercontractingpartythatthecorporationwillreplacethepromoterunderthecontract.

∙SecretProfitRule

oPromotercannotmakeasecretprofitonherdealingswiththecorporation.

oThiscanhappenwherepromoteracquirespropertyeither1）beforebecomingpromoteror2）afterbecomingapromoter.

oWhatpromoterpaidisirrelevant,allwecareaboutisPricePaidbyCorporation-FairMarketValue.

oPromoterisonlyliableiftheprofitisSECRET.NotaproblemifCorp.knew.

ForeignCorporations

∙ForeignCorporations（incorporatedoutsideofthisstate）transactinginthisstatemustqualifybygettinga“certificateofauthority”fromSecretaryofStateandhavearegisteredagentinthestate

∙Transacting=regularcourseofintrastatebusinessactivity.Notoccasionalorsporadicactivityorholdingrealestate.

∙Consequencesofforeigncorp.transactingwithoutqualifying=civilfineandcorpcannotsueinthestate.

ISSUANCEOFSTOCK

∙Issuanceofstockoccurswhenacorporationsellsortradesitsownstock.Itisawaytoraisecapitalforthecorporation.

∙Subscriptions=writtenofferstobuystockfromcorporation

oPreincorporationsubscription--Apre-incorporationsubscriptionisirrevocableforsixmonthsunlessitprovidesotherwiseorallsubscribersagree.

oPostincorporationsubscription--Revocableuntilacceptance.Corporationandsubscriberbecomeobligatedwhentheboardacceptstheoffer.Atthatpoint,thesubscriberisobligatedtobuythestockandthecorporationisobligatedtoselltoher.

oCallforpaymentmustbeuniformwithineachclass-musttreateveryonethesame.

∙Consideration=whatthecorporationmustreceivewhenitissuesstock

oTraditionalRule:

（1）money（cashorcheck）,

（2）tangibleorintangibleproperty,or（3）servicesalreadyperformedforthecorporation.

oModernTrend:

（1）,

（2）,（3）,（4）futureservices;（5）promissorynotes.

oAmountofConsideration:

▪ParValue（minimumissuanceprice）ifCorpsetsone.Youcanalwaysgetmore.

▪IfNoParValue,BoardofDirectorssetsaprice.

▪TreasuryStock=stockthatwaspreviouslyissuedandhasbeenreacquiredbythecorporation.Thecorporationcanthenresellit.TreasuryStockisalwaysNOPARvalue（evenifitsayspar）.Corpcansellitforanyprice.TheBODisresponsibleforputtingvalueonthestockbyactingingoodfaith.

▪WateredStock=IfCorporationIssuesparstockforlessthanparvalue

∙TheDirectorsANDtheBUYERareliableforwateredstock.Directorsarealwaysliable.Buyernotliableifactedingoodfaith（nonotice）.

oPreemptiveRights=therightofanexistingshareholdertomaintainher%ofownershipbybuyingstockwheneverthereisanewissuanceofstockformoney（cashandequivalent）.Somestatesdonotconsidertreasurystockorun-issuedsharesasanewissuance,andthuspreemptiverightsdonotattach.

oIfthearticlesdonotdiscusspreemptiverights,thereisasplitwhethertheSHwillhavepreemptiverights.

▪Traditionally,preemptiverightsexistunlessthearticlesprovideotherwise.

▪Moderntrendsayspreemptiverightsdonotexistunlessthearticlesprovideforthem（thistrendmaybethemajoritytoday）

oPreemptiveRightsexistonlyifitis$.Ifacorpissuesstocktoacquireproperty,thennopreemptiverightsexist.

DIRECTORSandOFFICERS

∙StatutoryRequirementsforDirectors

oNumber-1ormoreadulthumanbeings

oElection-shareholderselectdirectors（attheannualmeeting）.Canelecttheentireboardorcanstaggertheboardbyhalvesorthirds（“staggeredboard”）.

▪“Classifiedboard”=directorsaregroupedintodifferentclassesandeachclassiselectedbyadesignatedclassofshares.

oRemoval:

ShareholderscanremovedirectorsbeforetheirtermsexpireWITHORWITHOUTCAUSE.Requiresthevoteofamajorityofsharesentitledtovote.

▪Insomestatesacourtmayremoveadirectorforfraudorgrossabuse（mostlikelyinaclosecorporation）.

oVacancy–Generally,theBoardfillsthevacancyontheBoard.IfvacancycamebecausetheSHremoved,theSHmustselectareplacement.Alsoifdirectorwaselectedbyaclassofshares,thatclassshouldselectthesuccessor.

oBoardAction:

ThereareONLYtwowaystheboardcantakeavalidact.

（1）unanimouswrittenconsenttoactwithoutameeting,or

（2）ameetingthatsatisfiesQUORUMandVOTINGREQUIREMENTS.

▪Aconferencecallqualifiesasameeting-justsoalldirectorscanheareachothersimultaneously.Ifneither

（1）nor

（2）ismet,theactisVOIDunlesslaterratifiedbyavalidcorporateact.

▪Noticeisnotrequired,unlessitisforaspecialmeeting.

▪NoProxiesorVotingagreementsallowedforDirectorvoting.TheyarevoidasagainstPublicPolicy.

▪Quorum=musthaveamajorityofalldirectorstodobusiness（unlessadifferent%isrequiredinbylaws）.Ifaquorumispresentatameeting,however,passingaresolution（whichishowtheBoardtakesanactatameeting）requiresonlyamajorityvoteofthosepresent.（9directors,need5foraquorum.Need3foraresolution）.Ifthereisnoquorum,theactisvoid.

∙QuorumofBoardcanbe“broken”ifpeopleleave,andoncethatpersonleaves,theBODcantdoanythingelse.

∙RoleofDirector–managesthebusinessofthecorporations

oThedirectorshaveaccesstocorporaterecordssotheycandischargetheirresponsibilities.

oCommittees:

Boarddelegatessubs