Pa Corp

Front 1

De Facto Corporation

Back 1

REQ
(1) relevant incorporation statute,

(2) parties made a good faith attempt to comply with statute, (ex. articles lost in mail on way to PA State Dept), and

(3) entity is acting like a corporation (i.e. treated as a corporation for all purposes except action by state)

Front 2

Pre-Incorporation Contracts:
The Promoter

Back 2

Defined as
(1) person acting on behalf of corporation,

(2) corporation not yet formed,

(3) fiduciary duty of fair disclosure AND good faith

liability for: (1) breach, fraud or misrepresentation, or (2) obtaining upaid or watered stock

Front 3

Pre-Incorporation Contracts:
Liability of Corporation

Back 3

(1) corporation not liable on preincorporation contracts UNTIL it adopts (action by Board) the contract, or

(2) Corporation adopts impliedly if it accepts the benefits of the contract

Front 4

Pre-Incorporation Contracts:
Liability of Promoter

Back 4

Rule: promoter remains liable on the preincorporation contract UNTIL there is a novation

Adoption binds the corporation but DOES NOT RELIEVE the promoter of liability until novation

Front 5

Officers

Back 5

agents of the corporation - can bind corp if they have the authority

have same duty of care and duty of loyalty to the corporation that director's have

selected and removed by directors

Front 6

Indemnification of Directors and Officers

Back 6

Rule: Corporation indemnifies directors/officers UNLESS director/officer is liable to the corporation itself

Director/officer entitled to reimbursement from the corporation for expenditures for corporate purposes

Front 7

Indemnification of Directors and Officers:
Mandatory Indemnification

Back 7

to the extent the director/officer wins on the merits or otherwise

Front 8

Indemnification of Directors and Officers:
Permissive Indemnification

Back 8

(1) settlements, and

(2) good faith and reasonable belief that director/officer's actions were in the corp's best interests

eligibility for permissive indemnification determined by:

disinterested directors,

independent legal counsel in written opinion or

the shareholder

Front 9

Indemnification of Directors and Officers:
Expenses and Limiting Liability

Back 9

Court can order indemnification costs for attorney's fees and expenses,

Corporation can advance litigation expenses,

Articles can limit liability of directors for damages - except breach of duty of loyalty, reckess/intentional misconduct or wrongful personal benefit

Corporation can purchase liability insurance

Front 10

Shareholder Liability:
Piercing the Corporate Veil

Back 10

General Rule: Shareholder is not liable for the acts or debts of a corporation

EXCEPT: PA courts MAY pierce the corporate veil to avoid fraud (i.e. abusing privileges of Corp.) or unfairness, although there is a STRONG presumption against PCV

Front 11

Shareholder Liability:
Piercing the Corporate Veil - Alter ego Rule

Back 11

Alter ego Rule:

SH might be personally liable if he treats the corporation as his alter ego (i.e., commingling funds, etc.; SLOPPY ADMINISTRATION is NOT enough)

Front 12

Shareholder Liability:
Piercing the Corporate Veil -
Undercapitalization

Back 12

Undercapitalization:

SH might be personally liable if the corporation was undercapitalized when formed, i.e., SH failed to invest enough to cover prospective liabilities

Front 13

Shareholder Liability:
Piercing the Corporate Veil -
Tort Liability

Back 13

Tort Liability: Courts are more willing to pierce veil for torts (i.e. fraud, evasion of statute, avoidance of existing obligations) but not contracts

Front 14

Dissolution of the Corporation:
Voluntary

Back 14

Requirements

(1) board of director action,

(2) notice to SH, and

(3) approval of majority shares actually voting on the issue

Front 15

Dissolution of the Corporation:
Involuntary

Back 15

SH or director petitions the court to order dissolution because of

(1) Fraud, illegality, or oppressive acts by directors,

(2) Waste of assets, or

(3) Director deadlock that harms the company

Court can appoint one or more custodians to run the corporation

Front 16

Dissolution of the Corporation:
Liquidation or Winding Up

Back 16

i) Gather all assets

ii) Convert to cash

iii) Pay creditors

iv) Distribute remainder to SH pro rate by share UNLESS there is a liquidation preference

v) Liability
(1) Corporate existence -still sue or be sued within 2 years of dissolution
(a) SH can bring corp. claim more than 2 years after dissolution

(2) Directors - personally liable for any claims:
(a) brought w/in 2 years for which they failed to make adequate provisions, or
(b) those not brought w/in 2 years bc of their fault to notify creditor

Front 17

Federal Securities Law:
Rule 10b-5

Back 17

Defined:

Prohibits fraud and misrepresentation in connection with the purchase or sale of any security

Front 18

Federal Securities Law:
Rule 10b-5 - WHO?

Back 18

i) Company issuing misleading press release,

ii) Buyer or seller of securities who misrepresents material inside information,

iii) Buyer or seller of securities who fails to disclose material inside information (where there is a duty to abstain or disclose, which comes form a relationship of trust and confidence with the shareholders of the corporation).

Tipper (someone who passes along material inside information in breach of duty and benefited, or

Tippee (someone who traded on a tip and knew or should have known that the information was improperly passed)

Front 19

Federal Securities Law:
Rule 10b-5 Elements

Back 19

Think 'IM MaD Scienter Reliance'

(1) Instrumentality of interstate commerce (phone, mail, etc.)

(2) Fraudulent Conduct:
(a) Misrepresentation of material, inside information,
(b) Nondisclosure of material inside information (when duty to disclose),

(3) Materiality:
(a) Misrepresentation must concern a material fact in connection with purchase sale of security
(b) Material Fact: one a reasonable investor would consider important in making an investment decision

(4) Duty – by statute or relationship with SH

(5) Scienter: intent to deceive, manipulate, or defraud

(6) Reliance on the information

Front 20

Federal Securities Law:
Section 16B Strict Liability Defined

Back 20

a) Defined: Recovery by the corporation of profits gained by insiders from buying and selling the company’s stock

Front 21

Federal Securities Law:
Section 16B Strict Liability Requirements

Back 21

Requirements

i) Reporting corporation: listed on a national exchange or at least 500 SH and $10,000,000 in assets

ii) Director, officer, or SH owning more than 10% both at the time he bought and sold

iii) Short-Swing Trade: Stock bought and sold within a single six month period

iv) Profits are recoverable by the corporation

v) Intent is irrelevant  public policy theory is that bad for market confidence to have these insiders buying and selling their own corporation’s stock