Wa Bar Corporations

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Corporations in general

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- Basic Principles - has separate personality, perpetual life, powers granted by WBCA (C may exist for any lawful purp.)

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Centralized Management and Control

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o Under direction and control of the board of directors
o Board appoints officers who manage the C’s day-to-day affairs
o C is owned by the shareholders

Front 3

Transferability of Interest

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A C first issues stock to SH, SH can then sell or transfer that interest to another. Two key rules
o BoD must authorize the issuance of shares – unauthorized shares are void
o Shares must be issued for sufficient consideration, BoD determines, must be in GF. Shares sold at same time must be for the same price
o Dividend payment – within BoD’s discretion. SH may not compel unless BoD withheld in bad faith. SH cant limit payment if after payment C can show that it can pay its debts when due and its assets exceed its liability
o C may buy back shares from SH provided it can meet the same test above

Front 4

Limited Liability for SH - Piercing Veil

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o Third party injured by C, AND
o C formalities not followed or C not adequately capitalized when formed, AND
o Injustice would otherwise result

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Formation: Pre-incorporation

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1. Promoters form the corporation and owe fiduciary duties (full disclosure, promote C’s interest, Good faith) to each other, investors, and C
2. Promoters are personally liable for debts unless and until the corporation assumes them.

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Formation: Filing Requirements

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a. Deliver Articles of Incorporation, a copy of same, and Agent’s Consent for service to secretary of state
i. Required Contents for Articles - includes name and addresses of incorporators, C name, classes of shares, registered agent and office, number of directors
b. Pay filing fee

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Formation: Corporate Existence

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Begins only upon Proper Filing. If not filed properly and sec. of state notices and returns, no corp. and thus no limited liability achieved

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Formation: Maintenance of Corp

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a. Hold timely organizational meeting – within 120 days of filing articles. By end of meeting must name Ds, Os, and adopt bylaws. May do other business provided the Corp first issued at least one share of stock
b. Maintain records – SH may inspect as a matter of right
c. Prepare annual income statement/balance sheet
d. File Annual report and pay license fees
e. Hold annual Meeting –requirements. Req. notice to SH not less than 10 days before (20 for fund. Matter) but not more than 60 days before. Must list the date, time, and place.
Action without a meeting – valid if shareholders unanimous, or nearly so (enough to control vote)
f. Special meetings – may be called by the board, by SH of at least 10% of votes to be cast at meeting, or by court if Bd ignores proper demand. Along with time, date, and place it must also include the purpose. If it is a fundamental matter, notice increased to 20 days
g. Effect of Notice Errors – action at a meeting with improper notice is invalid unless notice waived. May waive by attendance or writing

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Formation: Ultra Vires

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limited unless corporation acts illegally or defines purpose narrowly

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Shareholder Duties

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Generally SH have no duties. Except where a controlling shareholder – gets treated like a D

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Shareholder Rights: Voting

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a. Rights – on director elections (req. plurality unless articles say otherwise), article amendments (2/3 votes unless articles say otherwise) and other fundamental matters (2/3 vote unless articles say otherwise), ratifying conflict-of-interest transactions.
b. Eligibility – shareholders of “record”
c. Quorum – required to start shareholder meeting (majority unless stated otherwise)
d. Presence – May be physically, virtually (phone), or by Proxy – written or electronic allowed to count as “present”
e. Cumulative – default rule for director elections
f. Voting Agreements Among Shareholders allowed
g. Decisions may be made without a meeting if there is unanimous written consent, or almost unanimous consent (enough consent to have controlled the vote if there was a proper meeting)
h. Special Shareholders Meetings May Be Called - by BoD, by SH with at least 10% of votes, or by court . A notice must include the purpose in addition to the date, time, and place. Fundamental matters require 20 days notice
i. May have vote without meeting if unanimous written consent

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Shareholder Rights: Inspection of books and records

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(cant be taken away by articles) – matter of right for basic records; proper purpose requirement for others

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Shareholder Rights: Preemptive Rights

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right to acquire additional shares of the C as issued to maintain same share ownership percentage.

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Shareholder Rights: Dissenter's Rights

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right to vote no and get paid fair value of shares on fundamental matters (e.g., mergers)

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Shareholder Rights: Litigation Rights

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a. Direct Actions – SH may sue the corp or any O,D, or controlling SH to enforce a personal claim. Recovery is for the benefit of the SH
b. Derivative Actions - common for breach of fiduciary duties (care, loyalty) by directors/officers. Suit on behalf of the corp. for harm to the corp. Must first bring any demand to BoD before going to court. Any Recovery is for the Corp.

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Shareholder Rights: Removal of Directors

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With or without cause

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Shareholder Rights: Limited Liability

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Piercing the Corporate Veil Exception – corporate formalities not followed, undercapitalization, and third-party harm
B. Duties – generally none unless “controlling shareholder” (then treat akin to officer/director duties)

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BoD Rights and Duties: Elections

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cumulative voting default rule to assure Board representation for minority shareholders

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BoD Duties:

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B. Duties and liabilities– all power vested in Board as a whole. BoD may delegate matters to committees
1. Duties
a. Duty of Care- don’t be negligent
b. Duty of Loyalty – don’t be selfish (don’t have a COI)
2. Conflict of interest – must disclose and must be ratified by maj. Disinterested SH or directors may ratify, if failure to disclose it may be rescinded unless Director proves it is “fair”
3. Corporate opportunity doctrine – must give corporation first option if in same “line of business”

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BoD Rights and Duties: Liability

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4. Liability – personal liability for losses suffered by the corporation as a direct and proximate result of breach
5. Defenses
a. Dissent from BoD actions
b. Absence from BoD meeting
c. Unanimous shareholder ratification of BoD action
d. Good faith reliance on expert advice

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BoD Rights and Duties: Directors Meetings

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2 day written or oral notice. Quorum required throughout; yes votes presumed unless dissent done on record followed by written notice of dissent, majority rules. Action w/o meeting only valid if unanimous written consent

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BoD Rights and Duties: Breach of Fiduciary Duty

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shareholder sue derivatively for breach and may recover for harm to corp

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BoD Rights and Duties: Business Judgment Rule

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judicial presumption directors acted in conformance with their duties. C may eliminate director personal liability for duty of care breaches

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Officers

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A. Powers – delegated by Board. Corp is principle, officer is the agent
B. Election & Removal – in Board’s discretion
C. Duties and Liabilities – akin to Directors

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Fundamental Changes: Merger

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Boards and Shareholders of Both Disappearing and Surviving Company Vote. Dissenter’s rights for any voting SH

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Fundamental Changes: Share Exchange

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Boards of both companies vote; but only shareholders of disappearing company vote. Dissenters rights for any voting SH

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Fundamental Changes: Dissolution

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1. Voluntary – by Board if no shareholders; If shares issued, bd recommends dissolution to SH for approval by shareholder vote (2/3). If approved, articles of dissolution delivered to the secretary of State and corp begins winding up under governing docs and law.
2. Involuntary
a. Secretary of State – for improper maintenance of corp (failure to pay fees, deliver reports, no registered agent, expiration of stated period of duration)
b. Requires notice and 60 days to cure. Even after corp is administratively dissolved, it still has 5 years to seek reinstatement
c. Court Order – for fraud, abuse, oppression of minority shareholders, deadlock of directors or shareholders, insolvency
3. Ct must first decide that grounds for dissolution exist and that it is an appropriate remedy. If so it enters a decree of dissolution, specifying the effective date and delivers it to the secretary of state
4. Winding up process required under governing documents (articles/bylaws)