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31 Cards in this Set
- Front
- Back
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CORPORATIONS
Governing Law (Beginning a Corporation - Articles of Incorporation) (AOI) |
a.)must state corp’s complete name & refer to corp status, e.g. “Inc.”
b.) Name distinct from other corps in state c.)Address for service of process & official notices d.)Specify securities or shares corp will issue e.)Authorize classes of shares, #shares/class, privs, limits / prefs f.)May state corp’s purposes & powers g.)Other possib provis e.g. voting, membershp reqs, mgmt & indemnif |
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CORPORATIONS
Traditional Model of Formal Corp Decision-making |
Board of Directors - Manages the corp’s business and makes business policy
Officers - Act as agents of the board and execute its decisions Shareholders - Elect the board and decide on major corp actions or fundamental changes |
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CORPORATIONS
Governing Law (Common Stock) |
i.)Final owners of the company, equity interest
ii.)Dividends sometimes paid iii.)Allowed to vote for the board iv.)Last in line (if dissolves, are last to be paid) |
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CORPORATIONS
Governing Law (Preferred Stock) |
i.)A hybrid combining ownership of common stock and the senior nature of debt
ii.)Fixed dividend – If corp pays a dividend at all, pays preferred SH’s first iii.)Contingent vote |
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CORPORATIONS
Governing Law (Derivatives) |
i.)Stock options that derive from common stock
ii.)Call option allows an option to buy stock at a set price iii.)Put option allows an option to sell stock at a set price |
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CORPORATIONS
Governing Law Incorporator/Promoter = |
a.)person/entity who incorporates the corp, brings together people & assets, files relevant docs
b.)Often makes K’s for the benefit of the corp even before it has been formed |
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CORPORATIONS
Governing Law Liability for Promoter |
a.)When promoter makes K for benefit of contemplated corp, promoter personally liable for K & remains liable even after corp formed.
b.)Exception – If party contracting w/promoter knew corp not in existence & waived right to go after promoter, promoter not liable |
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CORPORATIONS
Governing Law Liability for the Corp (for K's before its existence) |
a.)corp may be bound by ratification, adoption, novation, or by continuing to accept the benefits of the K
b.)Corp & promoter may be jointly and severally liable |
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CORPORATIONS
Governing Law De Facto Corporation – Promoter’s defense if sued |
a. Was there a corporation statute? (always present)
b. Was there a colorable attempt to apply? (only real factor) c. Was there some attempt at a corporate action? |
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CORPORATIONS
Governing Law Ultra Vires Doctrine |
a.)Traditionally, doctrine used to invalidate corp transactions beyond powers stated in corp’s charter
b.)Modernly state enabling statutes authorized general purpose clauses and virtually unlimited powers |
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CORPORATIONS
Governing Law Ultra Vires Doctrine (applies when) |
i.)Corp parties create restrictions in the AOI on corp activities
ii.)Corp engages in activities not directly related to profit seeking, such as charitable giving; Board takes actions that undermine SH’s power |
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CORPORATIONS
Cantor v. Sunshine |
A promoter isn’t liable for K’s he signs only as president of a de facto corp
There was a de facto corp b/c there was colorable attempt to organize corp b4 consummation of K, and an exercise of corp owners by the negotiations and eventual K with D |
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CORPORATIONS
Governing Law (Donations - Corp Interests Other Than Profits for Shareholders) |
a.)Traditionally, Corps act strictly for SH’s profit, maximize wealth
b.)Modernly, Corps allowed to donate to charities -Donats reasonb in amt & bear some relatshp to corp’s interest -direct bene not requ, but important -Some states(NY), allow consider affect its EE’s, customers, creditors, communities (<>true DE, except in takeover) |
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The Corporate Structure
(Traditional Model) |
1.)Tradit corp model - BOD makes business policy and decisions
2.)officers act as agent execute BOD decisions 3.)SH’s elect BOD, decide on fundamental changes 4.)Inverted pyramid with SH’s at the top, BOD in the middle, & officers = bottom |
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The Corporate Structure
(Central Problem of Corps) |
a.)Central problem w/ corporate governance = separation of finance and control
b.)Board and the management team control the company, not the SH’s c.)Mgmt needs to try & maximize net present value of corp |
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The Corporate Structure
(Modern Corporate Practice - Role of Officers / Executives) |
a.)Management ordin locat w/executives, not BOD, i.e. central figure=CEO
b.) Limited role of BOD in managing corp = result of critical constraints imposed by modern board practice c.)Typical BOD includes a # of directors that are tied to corp’s executives, esp. to CEO d.)Board members often =econ, friend ties w/CEO |
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The Corporate Structure
(Recent Changes in Corp Structure) |
1.)Shift, large #shares held by institut. investors (e.g., pension funds, banks, investment co.)
2.)Increase in institut.invess increased role SH’s in modern corps 3.)Conflicts of Int may prevent institut invests from voting against mgmt’s wishes 4.)SH’s vote or make proposals to corp, elect individs as direcs represent their interest &can consult w/mgmt on import. issues |
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Allocation of Power Between Board Management and Shareholders
(General Corp Authority Rule) |
a.)SH’s can’t overrule direcs on care & mgmt of corp busin
b.)Corp’s business managed by direcs c.)gen., agent obeys principal, but here SH’s can’t command direcs (Charlestown Boot v. Dunsmore) rule = SH’s no power over mgmt of corp & can’t order direcs particular acts managing corp busin. SH’s must elect board to manage & then step back |
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Allocation of Power Between Board Management and Shareholders
(Removal of Directors) |
a.)DE – Can’t remove Dir. w/out cause
b.)CA – SH’s can remove director w/o cause c.)NY – Allows no firing without cause (default rule) d.)Directors don’t’ have the power to remove other directors either e.)Some states=courts remove directors in narrow situations |
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Formalities Required For Actions By The Board
(Meetings) |
i.)A single director has no power
ii.)Normally, directors must act at a duly convened meeting at which a quorum is present |
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Formalities Required For Actions By The Board
(Meetings - Notice) |
i.)Formal notice not required for regular board mtgs
ii.)If regular meeting, directors on notice of date, time, & place iii.)If special mtg, notice: of date; time; place must be given to every director |
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Formalities Required For Actions By The Board
(Meetings - Quorum) |
A majority of the full board; a majority of the authorized number of directors
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Formalities Required For Actions By The Board
(Meetings - Quorum & Voting) |
Assuming a quorum present, the affirmative vote of a majority of present Dirs. required for action
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Formalities Required For Actions By The Board
(Meetings - Consequences of Noncompliance) |
a.)Lack of quorum, lack of the requisite affirmative vote, or uncured defect of notice = render board action ineffective
b.)However, in closely held corps, formalties seldom followd results of noncompli less clear-cut |
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Authority of Corporate Officers
(Actual Authority) |
Determined by the AOI and the bylaws
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Authority of Corporate Officers
(Apparent Authority) |
a.)CEO -bind corp 2 K’s (usual/reg. course of busin), not extraord. “Extraord"=
*outside appart auth. of CEO *w/large econ magnit relat to corp assets/earnings *Extent of risk involved *Time span of action’s effect *Cost of reversing action b.)Vice-Presidents -VP has little or no apparent authority c.)Secretary - certify corp recs e.g. board resolutions |
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Authority of Corporate Officers
(Ratification) |
Ratification may only occur where a corp
i)knowing all the facts, ii)accepts and uses the proceeds of an unauthorized K executed on its behalf iii)even if officer lacks both actual & apparent authority |
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Formalities For Actions Taken By The Shareholders
(Meeting and Notice) |
Notice of place, time and date is required for the annual meeting of the SH’s & for any special meetings
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Formalities For Actions Taken By The Shareholders
(Quorum) |
A majority of shares entitled to vote = quorum, unless AOI sets higher/lower #
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Formalities For Actions Taken By The Shareholders
(Voting) |
1)Qualifying - must own on “record date”
2)Ord. Matters: Vote of a majority SH req. 4 ordinary matters 3)Fundament. Changes:(e.g., Bylaws amend., merger, sale substant. assets, dissolut.) req. majority or 2/3 of all voting shares. 4)Elect Directors - Reqs plurality vote (e.g. candids w/most votes) even if < maj of votes 5)Written Consent - SH’s act by written consent in lieu of mtg |
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Formalities For Actions Taken By The Shareholders
(Shareholder Voting) |
Straight Voting
a.)SH casts for each candidate a number of votes equal to SH number of shares Cumulative Voting a.)A SH can cast for any single candidate # of votes = # shares X # of directors to be elected b.)Allows for greater representation, but there is also more dissent |
