Corporate Law Issue Statements

Front 1

Opening Argument

Back 1

The Washington Business Corporations Act governs allowing any lawful act; the Act’s default provisions control unless modified by the Articles of Incorporation or bylaws.

Front 2

Incorporator

Back 2

• An incorporator/promoter is a fiduciary, who owes the corporation a duty of good faith, loyalty, fair dealing, and can make no secret profit. He is personally liable for any pre-incorporation contracts.

Front 3

Corporation as a general PS

Back 3

• Until corporate articles are properly filed, the entity is treated as a general partnership and shareholders as general partners with unlimited liability.

Front 4

Filing Corporate Articles

Back 4

• Articles of Incorporation must be filed with the Washington Secretary of State and include corporate name, registered agent, and stock information. Until the “de facto” corporation becomes “de jure,” the shareholders are treated as general partners with unlimited liability.

Front 5

Duty of Loyalty

Back 5

• Corporate directors, officers, or senior executives are fiduciaries with a duty of loyalty. They must stay informed about business affairs and the corporation’s financial situation.

Front 6

Conflicts of Interest

Back 6

• Directors must not engage in conflicts of interest such as competing with the corporation, usurping a corporate opportunity or engaging in appropriation of a corporate trade secret.

Front 7

Interested Transactions

Back 7

• Interested transactions (between directors or officers and the corporation) must be disclosed in the corporate minutes, be at market terms, and be approved by a majority of non-interested directors or shareholders.

Front 8

Personal Liability

Back 8

• The corporate articles may restrict personal liability of directors, officers, and managers for simple negligence, but not for knowing violations of law, intentional misconduct, or personal benefit to which they are not properly entitled.

Front 9

Business Judgment Rule

Back 9

• The Business Judgment Rule protects directors and/or officers who make honest errors of judgment after reasonable investigation.

Front 10

Shareholders’ right to vote

Back 10

• Shareholders have a right to vote for directors and resolutions at the annual meeting held after proper notice.

Front 11

Shareholders’ right to inspect

Back 11

• Shareholders must receive annual financial statements within 120 days of the fiscal year end and have the right to inspect and copy relevant books, records, and shareholder lists after written demand.

Front 12

Shareholder dissent

Back 12

• Shareholders dissenting from a fundamental corporate change shall receive the fair value of their shares in cash. If agreement is not reached on the price, a court will be petitioned to render a judicial determination.

Front 13

Shareholder liability

Back 13

• Shareholders are not liable for the acts or liabilities of the corporation unless there was a balance owed on their subscription agreement, they received dividends that rendered the corporation insolvent, or the corporate veil is pierced to avoid unjust enrichment.

Front 14

Piercing the corporate veil

Back 14

• A corporate veil may be pierced and shareholders held personally liable if the corporate shell was used to perpetuate a fraud or the shareholders treat the entity as their alter ego by disregarding corporate formalities. A court may also subordinate shareholder loans to the claims of outside creditors.

Front 15

Direct Action

Back 15

• A shareholder’s legal remedies in clued a “direct action” if the act had a direct negative impact on their personal finances.

Front 16

Derivative Action

Back 16

• Shareholders’ derivative action is available if the damage is to the corporation and requires a written demand on the directors to pursue the claim if it would not be futile. After 90 days, the lawsuit is brought in the corporation’s name and if there is substantial benefit, the legal expenses of the shareholders are to be paid.

Front 17

Judicial Dissolution

Back 17

• A shareholder may seek a judicial dissolution if there was illegal or fraudulent activities, the majority is oppressing the minority shareholders, there is a waste of assets, or there is a corporate deadlock.