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Corporations Lecture

Pretty much finished, its just really sporadic, will still wanna read outlines

QuestionAnswer
What does it take to form a corporation?? -People -Paper -Act
PEOPLE -Incorporators --who execute the articles and deliver them to Sec of State --Can be a person or entity
PAPER -Articles of Incorporation --the articles are a K btwn corp and SHs --and also a K btwn corp and State
Information in Articles -Name and addresses: Corp Name (magic words: corp, co, incorp, or limited) --Name and address of each incorporator, and each intial director --name of registered agent(legal rep) and registered office (so can receive service of process for corp)
Information in Articles -Presume perpetual duration (it can last forever) -Must have statment of purpose: some statues presume general purpose and articles need not say anything about the corps purpose -Capital Stock: Authorized, Issued, Outstanding
Specific Statement of Purpose and Ultra Vires (beyond scope of articles) Rules -Common law: ultra vires contract could be voided as beyond co's capacity -Today: UV Ks valid; SH can seek injunction; responsible managers are liable to corp for UV losses
Authorized Stock -max number of shares the corp can sell
Issued Stock -number of shares the corp actually sells
Outstanding Stock -shares that have been issued and not reacquired
Capital Stock: Articles MUST include: -autohrized stock -number of shares per class -info on voting rights and preferences of each class
ACT -incorporators have notarized articles delivered to Sec of State and pay req'd fees -have a de jure corp -then, brd of driectors holds an organizational meeting, where it selects officers and adopts bylaws and conducts other approp business
Organization of a Corp -What does it take to form a corp? -Legal Significance of formation of corp -De Facto Corp and Corp by Estoppel -Bylaws -Pre-Incorp Ks -Foreign Corps
WY: Formation of Corp -corps governed by WY Bus Corp Act (WBCA) based on RMBCA -RMBCA rules apply
WY: Formation of De Jure Corp: Loans -Wy, corp may not lend money to or guarantee an obligatoin of a director, Unless: 1)loan or guarantee is auth by SHs; or 2)The corps brd of direc determiens loan or guarantee benefits the corp & approvees either specific loan or a general plan authorizi
De Facto Corporation -Reqt's: 1)there is a relevenat incorporation statute 2)the parties in GOF, colorable attempt to comply w/ it; and 3)some exercise of corp privileges (acting like a corp) -if a de jure corp is not formed than SHs are liable unless crt recognizes De Fa
Corporation by Estoppel -one who treats a bus as a corp may be estopped from denying it is a corp -applies only to K cases not tort cases
Bylaws -not filed with state; don't have to be adopt -if bylaws conflict with articles, articles will control
Pre-Incorporation Contracts 0a promoter is a person acting on behalf of a corp not yet formed. She might enter a contract on behalf of a corp not-yet formed -Corp not liable for these contracts until they ADOPT the contract(express: take action; implied: corp accepts benefits of K
Liability of Promoter -Liable on pre-incorp Ks until there is novation (an agrmt of the promoter, the corp, and the other contracting party that the corp replaces the promoter under the K) -adoption makes corp liable but doesn't relieve Promoter, both are liable
Foreign Corporations -is one incorporated outside this state (doesn't have to be foreign country) -foreign corps transacting business in this state must qualify and pay prescribed fees
Transacting Business -the regulare course of intrastate business activity -doesn't inlude occasional or sporadic activity in this state and not simply owning prop here
Foreign Corp qulifying to get cert of authority -gives info from its articles -proves good standing in home state -must have a registered agent in this state and pay fees
Foreign Corp doesnt qualify but still transacts business? -civil fine and cannot sue this state (but it can be sued and defend)
WY: Foreign Corporations -in addition to allowing them apply for admission, WY allows foreign corps to become domestic corps by filing articles of domestication with sec of state -upon issuance of certificate of deomestication, the corp treated like domestic corp under WBCA
Issuance of Stock Issuance= when the corp sells its own stock -way for corp to raise capital
Subscription -an written offer to purchase shares from a corp
Subscription: Acceptance and Revocation -a subscription doesn't become a K until it is accepted by corp -under RMBCA, a preincorp subscription is irrevocable by the subscriber for 6 months from date of sub unless provided in terms of sub or consent to revocation
Subscription: payment -unless provided in sub agrmt, subs for shares are payable on demand by brd of directors
Consideration -may be received in exchange for stock issued -Forms of Stock: allows stock to be issued in exchange for any tangible or intangible property or benefit to the corp (money, services already performed for corp). -Split over promissory notes, future servic
Amount of Consideration -RMBCA provides that brds GF determination as to the adequacy of the consid received is conclusive to whether the stock exchanged for the consid is validly issued, fully pd, and nonassessable Par=minimum issuance price No Par=no minimum issuance price
Treasury Stock -stock the company issued and then reacquired -it is considered authorized but unissued, and the corp can then resell it\ -if it does resell, the brd sets any issuance price it wants
Watered Stock -traditionally, if par value stock was issued for less than its par value, the original purchaser and directors who auth sale would be liable for difference -RMBCA-no water prob (look to G/R in amt of consid card)
Pre-emptive Rights -the right of an existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock FOR MONEY
Pre-Empitive Rights Do not apply to: -shares issued as compensation to Directors, officers, agents, or EEs of corp -Shares authorized in articles that are issued w/in 6mos after incorp -shares issued for consid other than money -shares w/out general voting rights
Directors -1 or more persons -Initial directors named in articles- SHs thereafter elect directors at annual meeting
Removal of Directors -SHs can remover directors before their terms expire w/ a vote of a majority of the shares entitled to vote -w/ or w/out cause -if SHs remove they have to replace
WY: Removal of Directors by Judicial proceedings -crt may remove director of corp if crt finds that: 1) the director engaged in fraudulent conduct w/ respect to the corp or its SHs 2) the director grossly abused the position of director 3)the director intentionally inflicted harm on the corp
Brd of Directors Acting: can only act in 2 ways -unanimous agreement in writing; or -at a meeting (which has to satisfy the quorum and voting req'ts) (Conference call counts)
Notice of Meetings -General meetings: no notice required -Special meetings: Yes: must state time and place --failure to give proper notice=void meeting unless those not notified waived -cannot give proxies or enter into voting agrmts
Quorum for Meeting of Board -must have a majority of all directors to do business, unless a different % is stated in bylaws) -if a quorum is present at a meeting, passing a resolution requires only a majority vote of those PRESENT -Quorum can be lost if ppl leave (cannot take act)
Role of Directors -Generally, brd of directors manages the bus of corp -sets policy, supervises officers, declares distributions, determines when stock will be issued, recommends fundamental corporate chagnes to shareholders, etc
Delegating to committee -can delegate but committee cannot set director compensation or declare dividends -can recommend things to full brd for review -cant fill vacancies, amend articles, adopt, amend or repeal bylaws, approve a plan of merger, auth reacquisition of shares, e
WY: Action May be taken w/out meeting by unanimous written consent -if it's taken by requisite # of directors -if less than unaimous consent, corp must give nonconsenting or nonvoting directors written notice of the action no later than 10 days after written consents sufficient to take action have been deliv'd to corp
Directors Duties -typical fiduciary duties: -duty of due care, duty of loyalty, and duty to protect the interests of the other intracorporate parties
Directors Duties: Duty of Standard of Care -director owes the corp of duty of care -must act in good faith & do what a prudent person would do with regard to her own business: --Nonfeasance (director does nothing) --Misfeasance (brd does something that hurts corp)(think business judgment rule)
Business Judgment Rule -so a crt will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis
Duty of Loyalty Standard -Burden on D -director must act in good faith & w/ a reasonable belief that what they do is in the corps best interest -BJR doesnt apply because it never applies where there is a conflict of interest
Duty of Loyalty Interested Director Transaction -this is any deal btwn the corp & one of its directors (or a close relative of a director) or another business of the director's
Duty of Loyalty: Competing Ventures -Director can't compete w/ her corp -rmeedy if they go into competition: constructive trusts on profits
Duty of Loyalty: Corporate Opportunity (expectancy) -Director cannot USURP a corp opportunity, meaning the director cannot take a (personal investment) until he (1)tells brd about it and 2)waits for the brd to reject the opportunity
WY: Directors Duties and Liabiliites -in determining the "best interests" of the corp, directors may consider: 1)the interests of the corps EEs, suppliers, creditors, and customers 2)the economy of the state and nation 3)the impact of any action on the communities in/near the corp facilit
4)the long-term interests of the cor & its shareholders, including the possibility that those interests may be best served by the continuing independence of corp; and 5)any other factors relevant to promoting or preserving public/community interests
In Determining Whether a director has breachced the duty of care, WY crts will consider: -the length of time person served as director -the way the corp has been managed in the past; and -whether the director is an officer or EE so as to be more familiar w/ the corp affairs
In WY, a person who alleges that a director is liable for an action or failure to act must establish: -that there is no valid defense based on provisions in the articles, approval by directors/shareholders or disclosure of business opportunity
In WY, P must also show any of the following: -director acted in bad faith -director made a decision that he didnt reasonably believe to be in the corps best interest or as to which he was not reasonably informed -the director lacked objectivity due to a personal or business relationship w/....
a person having a material interest in the challenged conduct -there was a sustained failure to devot attention through appropriate inquiry -the director rec'd a financial beneft to which he was not entitled
WY:Corporate Opportunity Doctrine -Brd generally decides -a driectors taking advantage of a corp business opportunity may be approved either by directors or share holders
Officers -same dutes of care and loyalty as directors -officers are agents of corp -shareholders hre and fire directors, but the brd hires and fires officers. Generally then, SHs do NOT hire and fire officers
Indemnification of Directors and officers -Not allowed: if direc/offic held liable to corp or to have rec'd improper personal benefit -Mandaotry: if direc/off successful in denfending on the merits -Permissive: anything not mandatory or allowed-e.g. case against them settles
Eligiblity Standard for Permissive Indemnification -must show acted in good faith and w/ the reasonalbe belif that her actions were in companys best interest
Can SHs be held liable for the acts or debts of the corp? -G/R: NO Exception: SH might be personally liable for what the corp did if the crt "pierces teh corporate veil"=closed corps only
Piercing the Corp Veil: PCV 1. SHs must have abused the privilige of incorporating and 2. Fairness must require holding them liable --crts may PCV to avoid fraud or unfairness
Classic Fact Patterns -alter ego -undercapitalization-fails to invest enough to cover prospective clients
SH Derivative Sutis -SH is suing to enforce the corps claim, not her own personal claim -the corp is not pursuing its onw claim, so SH steps into prosecute it for corp -Always ask: could the corp have brough the suit
Requirements for bringing SH derivative suit 1. stock ownership when claim arose & throughout suit or have gotten it by operation of law (inheritance & divorce) 2.Adequate representation of the corps interest 3. make a writtne demand on ocorp that the corp bring the suit 4.corp must be joined-as
WY: Shareholder Derivative Suits (SH as P): Dismissal if not in corps best interest -whether it is in BI of corp made by: 1)majority vot of qualified directors present at brd meeting if qualified directors constitute quorum 2)majority vote of a committee consisting of at least 2 qualified directors appointed by majority vote of....
qualified directors appointed by majority vote of qualified directors present at brd meeting, regardless of wehther such qualified director constitue quorum or 3)a crt-appointed panel, on motion by corp
WY: Derivative Action: Suit to appoint Custodian or Reciever -Crt may appoint custodian in a suit by SH if it is established that 1)the directors are deadlocked in the management of the cor affainst, the SHs are unable to break the deadlock, and irreparable injury to the corp is threatened or being suffered or...
2)the directors are acting fraudently and irreparable injry is threated or being suffered -custodian may exercise all of the pwrs of the corp to extent necessary to manage business
Shareholder Distributions -3 types 1.dividends 2. to repurhcase SHs stock; or 3.redemtpion (a forced sale to corp at price set in articles)
Types of Stock -Preffered (pd first) -Participating-pay again -Cumulative -Common
Fundamental Corporate Changes -Characteristics of Fundamental Corporate Change -Amendment to Articles -Mergers -Transfer of all or substantially all of the assets not in the ordianry course of business or share exhange -Dissolution
Characteristics of fundamental corporate change -brd cannot do them alone. Need 4 things: 1. brd action adopting a resloution of fundamental change 2. brd submits proposal to SHs w/ written notice 3.must get SH approval 4.Needa doc to Sec of state to deliver
Amendment of the articles -Brd of Director action and notice to SHs -Shareholder approval -if approved, deliver amended articles to Sec of State -No rights of appraisal (no right to force corp to buy your shares)
Mergers -Brd of director action and notice to SHs -SH approval -No SH approval req'd if a 90% or more owned subsidairy is merged inot parent corp (short form merger) -if approved, surving corp deliveres articles of merger w/ Sec of State -Right of Appraisal
Dissolution -voluntary: -involuntary
Voluntary dissolution brd of directors action and approval by a majority of shares entitled to vote -file notice of intent ot dissolve w/ sec of state -corp stays in existence to wind up -notify creditors they can make claim
Involuntary Dissolution -SH can petition because of: 1)Director abuse, waste of assets, misconduct 2)director deadlock that harms corp; or 3)Sh have failed at 2 consecutive annual meetings to fill a vacant brd position
Dissolution in not the end of the corp: its the beginning of a process that will end the corp existence ...
Winding up consists of 1)gatherin all assets 2)converting to cash 3)paying creditors and 4)distributing remainder to SHs, prorata by share unless there is a liquidation preference (pay first, like dividends)
WY: Voluntary Dissolution: Effect -an unkown claim against a dissolved copr is barred unless a proceeding to enforce the claim is commenced w/in 3 yrs after publication of notice
Created by: sachav3