Promoters
Def: Act on behalf of an unformed corporation.
- Corp. becomes liable if it adopts promoter’s contract
- Promoter is liable until novation
- Promoter is fiduciary of the corporation
Subscribers
Def: Make written offers to buy stuck from unformed corporation.
- Offers to buy are irrevocable for 6 months
Articles of Incorporation
A PAIN (in-state or foreign corps)
A = Authorized shares (max # authorized to issue)
P = Purpose
- General purpose and perpetual duration are presumed
- If specific purpose, ultra vires rules
A = Agent (and address of registered office)
I = Incorporators (sign and file Articles with State)
N = Name of Corporation (w/indicia of corporate status)
De Facto Corporation
Treated as a corporation if organizers good faith, colorable attempt to comply without knowledge of lack of corporate status
Legal significance of Corporation
1) Separate legal person
2) Generally, shareholders not personally liable for debts of the corp.
Piercing the Corporate Veil
General Rule: Shareholders not liable for debts of corporation
Exception: Pierce the corporate veil to avoid fraud or unfairness
- Alter Ego: Failure to observe corporate formalities
- Undercapitalization
Par Value
- Minimum issuance price
- Can receive any valid consideration deemed par value by board
- If purchased for below par value –> directors and buyer are liable for the loss
No par
- No minimum issuance price
- Any valid consideration can be received if deemed adequate by the board
Treasure stock
Stock previously issued, reacquired by corporation, then re-sold.
No par stock
Preemptive Rights
- Right to maintain ownership percentage by buying stock if there is a new issuance
- Must be expressly granted in the Articles
Director/Officer Liability
1) Duty to Manage
2) Business Judgment Rule
3) Directors are fiduciaries, owe Duty of Care/Loyalty
4) Duty of Care: Prudence, unless Articles limit
5) Duty of Loyalty: No unfair benefits, unless disclosure and independent ratification
Indemnification of Directors/Officers
May never: if loses to corporation
Must always: if wins
May, sometimes: if loses to 3rd party, or if settles with corporation
Shareholder Rights
1) Derivative Suits
- Contemporaneous ownership
- Adequacy
- Demand
2) Voting
- Only the record date owner votes
3) Proxies
- Revocable unless labeled plus coupled with an interest
4) Quorum
- Majority of all shares
5) Vote
- Votes case in favor exceed votes cast against
- One annual meeting + specially noticed meetings
- Voting Trusts and Shareholder Voting Agreements
6) Cumulative Voting
- Shares x Slots (presumed in IL)
7) Dividends: discretionary unless insolvency
- Common (last)
- Preferred (first)
- Participating (twice)
- Cumulative (add up)
Eliminating Corporate Formalities
Unanimous election + share transfer restriction (closely held) = no piercing plus possible S-Corp. status
Professional Corporation
One profession + limited liability
Limited Liability Company
Limited (liability, liquidity, life, and tax)
Fundamental Changes
1) Board resolves
2) Special notice
3) Majority of all shares (2/3 in IL)
- And of each voting group adversely affected
4) Dissenters rights – right of appraisal
5) Notice to State
Federal Securities Law - 10(b)
Scienter + Deception + Actual purchase or sale of securities
If private action: reliance and loss causation
Federal Securities Laws - 16(b)
No buying/selling (or selling/buying) within 6 months
Federal Securities Laws - SOX
No knowingly false filings, and no benefits during your falsehoods or blacked out periods
