| Term | Definition |
|---|
| CORPORATIONS | A legally separate and distinct entity from the persons who own it. Shareholders are not personally liable for corporate obligations. Corporations are also not personally liable for obligations of shareholders , or management. |
| Piercing the corporate veil | – this happens when shareholders can be held personally liable because of illegal acts committed. Must have domination of a shareholder of group of shareholders and improper use of the corporation. |
| De jure | Corporation that has generally complied with all the statutory requirements for incorporation except for an insignificant deviation from the statute that causes no harm to the public interest. |
| De facto | Corp. that has failed to comply with some provision of the incorporation law. There must be a valid statute under which the corp. could be formed, a good faith attempt to organize, and actual use of corp. power. Prevents harsh rules against individual owners. |
| Corporation by estoppel | An org. representing itself to be a corp. or a person contracting with an org. as if it were a corp. is estoppel from later denying the corporate existence. |
| Private | - organized for private purposes by private parties |
| Public (governmental) | – created by the state to fulfill governmental purposes. |
| Quasi-public | A private corp. furnishing service upon which the public is dependent, such as a public service corp. or utility. |
| Profit | Organized for profit |
| Nonprofit | formed for religious, charitable, social, educational, or mutual benefit purposes. May not have stock. |
| Domestic | A corp. in the state in which it is incorporated |
| Foreign | Operates overseas |
| Alien | Incorporated in another country |
| Closely held | A Corp. with one or only a few shareholders whose share are not generally available to the public. |
| Publicly held | A corp. whose shares are publicly traded and there are usually a lot of shareholders. |
| Stock | Ownership by stock |
| Nonstock | stock is not issued |
| Constitutional rights of a corporation | To be secure from unreasonable searches and seizures, not be deprived of life, liberty or property without due process, not be tried twice for the same crime, not be denied equal protection of laws, first amendment right of freedom of speech. Does not have a right against self-incrimination. |
| Model Business Corporation Act (MBCA) | Model that most states use as the basis for their incorporation laws, first drafted in 1946, completely revised in 1984, individual state laws may differ. |
| Foreign corps | – All states allow foreign corps to do business in their state, must obtain a certificate of authority from the state, a foreign corp. can always defend itself as a defendant. |
| A corp. is formed by | applying to the state, and they get permission to operate as a corp. from the sec. of state. The issuance of a certificate of incorporation by the sec. of state is considered the start of corporate existence. |
| Statutory power | Having a corporate name, purchasing and holding property, making bylaws, borrowing money, and making contracts |
| Express | From the articles of incorporation and the corporate bylaws, cannot conflict with statutory powers. |
| Implied | Activities needed to carry out the statutory and express powers, these activities fill in the gaps that exist. |
| CORPORATE LIABILITIES | -Corps are liable under the doctrine of respondeat superior for the torts of its employees committed within the course of employment. Can be punished by fines. |
| Ultra vires defense | cannot be used by the corp. to avoid a contract unless it is totally executory, can be used by shareholders against corp., corp. or shareholders against former or present officers to recover damages, the state attorney general against the corp. |
| Incorporators | apply to the state for incorporation, need not have any interest, but do owe a fiduciary duty. |
| Promoters | motivation force in creating the corp., owe fiduciary duty, liable on preincorporation contracts unless they are adopted by corporation. |
| Preincorporation share subscriptions | offer to buy shares of the corporation not yet formed, irrevocable for six months unless some other provision exists, solicited by promoters |
| Payment for shares | Payment may be in money, property, or services already performed, cannot be a promise to pay money in the future. |
| Shares issued but not fully paid | Corp. or corp. creditors can collect the unpaid portion from the original purchaser even if the org. purchaser has sold the shares, buyer of shares not fully paid for in good faith are not liable. |
| Corporation citizenship | – Must be determined to see if a federal court has jurisdiction of a case involving the corp. based on diversity of citizenship. Federal courts have jurisdiction only if parties are citizens of different states and the amount in controversy exceeds $50,000. |
| Articles of incorporation | Like a constitution, corporate existence starts when the cert. of incorp. Is issued, prepared by incorporators or promoters, must include: 1) Name of corp. 2) Period of time for the corp's existence, usually perpetual 3) Purpose 4) Share structure, including # of authorized shares 5) Address of registered office 6) Structure of BOD and names and addresses 7) Name and address of each incorporator |
| Amendments | allowed, must have BOD adopt resolution and submit to shareholders for vote (also must be given written notice), and a majority of shares entitled to vote is generally necessary for approval. |
| Bylaws | adopted by the BOD for regulation and management of corp., subordinate to articles of incorporation and may not conflict, may be changed by BOD |
| Types of shares | 1) Authorized – max number of shares a corp can issue 2) Issued – number of shares actually distributed, each issue must be approved by BOD 3) Outstanding – number of share owned by shareholders of corp. 4) Treasury – Shares of the corp. owned by the corp. itself |
| Board of Directors | Exercises powers and manages business, need not be residents of state incorporated in, need not be shareholders, have authority to fix their own compensation, one or more person, holds office until replaced, can be divided into classes if more than nine directors, can be removed by shareholder vote with or without cause, has authority as long as a majority of members are present, only a majority of those members is needed to pass a law, can meet anywhere, even conference calls, declares dividends, not allowed to vote by proxy! |
| Loans to directors | Only allowed is authorized by shareholders |
| Liability of directors | Individually liable if the director engages in illegal conduct or conduct that is a breach of fiduciary duty to the corporation. |
| Officers of Corp | appointed by BOD, president, V.P, sec. and treasury, one person can hold multiple offices except president and sec., can be removed by BOD, owe fiduciary duty to corp. |
| Managers | - Are hired by officers, serve at the pleasure of the officers and owe a fiduciary duty. |
| Shareholders | Owners of the corporation, do not owe fiduciary duties, elect BOD, quorum is a meeting of a majority of shareholders, votes can be in person or by proxy. |
| Cumulative voting | applies only for electing BOD, number of votes a shareholder gets is determined by number of share owned x number of directors being elected, can distribute votes in any way desired, increases the chance of minority representation. |
| Shareholders meetings | entitled to notice of place, day, and hour of meeting 10 to 50 days before meeting, purpose of meeting |
| Preemptive right | The right of a shareholder to buy a pro rate share of newly issued stock, purpose is to allow current shareholders to maintain their proportionate interest in corp., must be in articles of incorporation |
| Dissenting shareholders | Right to disagree with certain corporate actions like mergers, consolidations, sale of all assets. Must file a written objection with the corp., vote against the proposal, and make written demand of the FMV of the stock within 10 days of vote, FMV = value on day before proposal was voted on |
| Shareholders' lawsuits | Class action lawsuits, most arise from violations of federal securities laws and must have a large number of people, shareholders can file derivative suit on behalf of the corp. when the corp. is injured usually by officers, usually must demand the BOD file suit first. |
| Inspection of records | Shareholders have rights to inspect books and records, must have a proper purpose and usually must be at least a 5% owner under MBCA, RMBCA lets all shareholders inspect shareholder lists, articles of incorp., bylaws, and minutes of shareholder's meetings held during the last three years. Denial can result in damages recovered. |
| Suing a Corp | Due process is requires that anyone being sued, even a corp., must be given notice, usually given to a designated agent |
| Permitted Actions of a Corp | Owning own shares, indemnification of officers, directors, employees, and agents, loans to officers and directors, employment incentives |
| Prohibited Actions | paying a dividend that would impair capital, taking advantage of a minority shareholder. |
| Changes that need a majority of shareholder's approval | merger, consolidation, sale of substantially all assets, for merger and consolidation, 20 days notice |
| Corporate Law Terminology | Earned surplus for retained earnings, additional paid-in capital - capital surplus, par value of shares - stated capital |
| Termination of the Corporation | Articles of dissolution are filed with Sec. of State, must wind-up business affairs and liquidate assets, resolution adopted by shareholders and approved by shareholder vote, sec. of state can force a corp to dissolve by failing to file reports, pay taxes, appoint agents, fraud |
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