Articles of Incorporation
- Name
- Number of shares
- Incorporators and agent – name and address
- Limited purpose provision?
De Facto Corporation
i. Colorable compliance with the incorporation statute; and
ii. Exercise of corporate privilege
corporation by estoppel
people treating business as valid corporation are
estopped from denying corporation’s existence
3 reasons to pierce
- alter ego
- fraud
- inadequate capitalization
special shareholder meetings
- Must be on at least 10 (but no more than 60) days’ notice to shareholders
- Must specify time, place, and purpose
Voting trusts
i. Shareholders transfer share ownership to a trustee who votes as agreed
ii. Valid in most states for up to 10 years but renewable
Director Special meetings
2 days’ notice of
date, time, and place (but not purpose)
Duty of Care
Must act:
In good faith;
With the care that an ordinary prudent person in a like position would exercise, and
In a manner reasonably believed to be in the best interest of the corporation
If meet this, directors protected against lawsuits under business judgment rule
reasonable reliance doctrine
director may defend suits if relied on opinions, contract reports, etc. made by experts or reliable employees
Procedure for Fundamental Corporate Changes
a. Board approval
b. Notice to shareholders
c. Shareholder approval
d. Articles of change filed with state
10(b)(5) prima facie case
i. Fraudulent conduct
ii. In connection with purchase or sale of a security
iii. Use of a means of interstate commerce
16(b)
a. Requires surrender to the corporation of any profit realized by any director, officer, or shareholder (with at least 10& of a class)
- Sale or purchase test: type of sale in which abuse of inside info likely to occur’?
- Transactions occurring before one becomes & officer or director excluded
b. Applies to publicly held corporations
c. Profit determined by matching highest sale price against lowest purchase price for any 6 month period
- May be either a gain or an avoided loss
SOX
audit committee
Material for fed securities law
SUBSTANTIAL LIKELIHOOD that a REASONABLE INVESTOR would consider it NECESSARY or IMPORTANT in making an investment decision.
Duty of Loyalty – Forbidden
Partners and Agents may not
1) engage in self-dealing,
2) USURP partnership opportunities, or
3) Make a secret profit at the partnership’s expense.
Partnership Distribution at Termination
FIRST: All creditors must be paid (external AND internal, i.e. a partner that loaned money to partnership)
SECOND: All capital contributions PAID IN by partners must be fully REPAID.
THIRD: Profits and Surplus (or losses), if any.
Tipper/Tippee liability
A TIPPER is liable if the inside tip was made for improper purposes.
A TIPPEE is liable if the tippee knew tipper breached a duty when relaying the inside information.
Creation of Agency Relationship
An agency relationship can be created by an act of the parties or operation of law (can be an agmt, holding out by the principal, ratification, estoppel, or statute).
Need:
- Capacity (contractual capacity for Principal)
- Consent
- no Consideration is needed, and usually no Writing is needed
Scienter
A mental state embracing the INTENT TO DECEIVE, DEFRAUD, or MANIPULATE. Recklessness with respect to truth may also constitute scienter.
Shareholder Voting
- Proxies: written authorization for another SH to vote for them (valid for 11 months normally).
- Voting Trusts: a written trust held as such (valid for max of 10 years).
- Voting Agreements: binding and enforceable, no time limit.
Stock Issuance
- Directors and Officers are liable for ‘watered’ stock (improperly valued).
- Corporation must receive CONSIDERATION in exchange for stock. Can be any tangible or intangible property or benefit.
- Shareholders have preemptive rights (to maintain % of ownership).
Partnership Formation
ANY ASSOCIATION of TWO OR MORE carrying on as co-owners of a business for profit (and sharing the profits) creates presumption of a partnership.
Duty of Loyalty Safe Harbor
Interested director transactions will be upheld if:
1) a majority of DISINTERESTED DIRECTORS approve the transaction,
2) a majority of DISINTERESTED SHAREHOLDERS with voting rights approve the transaction, AND
3) the transaction was REASONABLY FAIR to the corporation.
*except insider trading
Director successfully defends suit
Mandatory indemnification
