Corp Final Outline PDF

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Summary

Entire classes outline, very proud of this...

Description

Corp. Outline Basic -

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Law Information: Matter of state law Can incorporate in one state, yet operate in another (DGCL 101 & 131(a)) Delaware is King o Annually updated to fit market needs o 100 years of history and rich body of CL lead to offering guidance and predictability o More friendly law Each state does require “foreign” corps to register to do business in the state, and collects a fee accordingly o Applies to those incorporated in any other state but theirs Corporations as an entity have a perpetual existence OK has adopted Delaware corporate code as their own, which is why we focus on the DGCL So which law applies if there’s two state applicable? o The law of the jurisdiction of incorporation will govern matters “internal” to the corp (including shareholders), but the law of another jurisdiction may govern other disputes such as those relate to the operation of the corporation §101: Incorporators; how corporation formed; purpose In comparison with other business entities: Formaliti Perpetual LTD es to org. existence liability of investors

Free transfera bility

Centralize Taxes d manageme nt

Y

Y

Y

Y

Y

Doubl e

General N Partnersh ip

N

N

N

N

Single

Y Ltd. Partnersh ip

Y

GP: N LP: Y

GP: N LP: N*

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Single

Y

Y

Y

**

DE: N OK: Y

Single

Publicly traded corp.

Ltd. Liab. Corp.

*= Can deviate from the rule via contract **= Solely determined by contract DE= Delaware, Members manage the LLC (Member manage) OK= Oklahoma, manager is appointed and manages the business (Manager Manage)

Governing & Formational Documents/Classes of People/Types of Corporations: - Corporate Constitution (Charter, certificate of incorporation, articles of incorporation) o Can address other matter o §101: Incorporators; how corporation formed; purpose  Any person may organize a corporation by filing with the Division of Corporations in the Department of State a certificate of incorporation which shall be executed, acknowledged and files in accordance with § 103 of this title.

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§ 102 Contents of the COI  Name, address of registered office in the state and registered agent at that address, nature of business or purposes to be conducted, if allowed stock then # of shares and all relevant details about this, name and mailing address of the incorporator(s)/backups if their power terminates (directors)  which (i) shall contain 1 of the word’s association, company, corporation, club, foundation, fund, incorporated, institute, society, union, syndicate, or limited (or abbreviations thereof, with or without punctuation) o No trust or bank  May also contain provisions for the management of the company, agreements between creditors and creators, right of stockholders to subscribe to further issues of stock or conversions of stock, provisions limiting it’s duration of existence, provisions requiring votes for certain actions and changes, debt liability provisions, elimination of personal liability provisions o §103: Execution, acknowledgement, filing, recording and effective date of original certificate of incorporation and other instruments; exceptions o §104: Certificate of incorporation; definition o §106: Commencement of corporate existence Bylaws o May contain any provision not inconsistent with the law or the charter relating to the business of the corp, the conduct of its affairs, its rights & powers of it or its shareholders/directors/employees/officers o Easier to amend and contain other information that was not fundamental to the creation o §109: Bylaws BOD §§ 141, 242, 251, 271, 275 o State law provides that the business and affairs of the corp shall be managed by, or under the direction of, the board. Typically meaning the power to hire and fire officers. Usually required to approve fundamental changes to the business. But need not be involved in every decision of the business’s operation. More focused on overall strategy and its implementation as well as monitoring performance of officers. o Board can include officers, employees, and shareholders in smaller corps, but if on NY stock exchange requires majority of independent board. o Can hire/fire officers o Charged with initiating fundamental changes subject to shareholder approval o

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Officers § 142 o One individual can simultaneously hold more than one office position, positions can change, there is no one size fits all for this either o Show up at the office everyday, empowered to make decisions, but not every decisions – big stuff needs the BOD o DGCL § 142(a) Every corporation organized under this chapter shall have such officers with such titles and duties as shall be stated in the bylaws or in a resolution of the board of directors which is not inconsistent with the bylaws o DGCL § 142(b): Officers shall be chosen/replaced in such manner and shall hold their offices for such terms as are prescribed by the bylaws or determined by the BOD or other governing body SHH’s §§ 216, 141(k), 242, 251, 271, 275 o Includes voting rights electing board of directors and can vote them out, also approve fundamental changes and amendments to Charter

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Fundamental changes that require BOD and Shareholder approval: majority of all entitled to vote  Sale of all or substantially all assets  Mergers  Changes to the COI  Dissolution o Can be one single shareholder or millions of them o Buy & sell stock to make $$ o Can hire/fire the BOD o § 202: restrictions on transfer and ownership of securities o Enjoy limited liability:  Limited to the purchase price for their shares  Their assets are safe behind the “corporate veil”  MBCA § 6.22  Unless in special circumstances o If their actions warrant it o By contract via charter or individual guarantee o Serves corporation in another capacity (director) Alternative forms of corps: o Not-for-profit corporations  501(c) corps contribute to the community’s welfare and are generally tax exempt  May not have shareholders; operates to benefit the identified public constituency’s, not shareholders  Can still try to maximize profits, or not o Public benefit corporations  Hybrid of for profit and not for profit corp  For profit corp that is intended to produce public benefit and to operate in a responsible and sustainable manner DGCL § 362(a)  Positive effect or reduction of a negative effect  Categories listed in § 362(b)  Also tries to maximize profits to shareholders  Do two goals reduce accountability of managers?  Yes, no longer liable to any particular group Regular For-profit Basic Concepts: o Dodge v. Ford Motor Corp: A company cannot take actions that harm its SHH’s and are motivated solely by humanitarian concerns, not by business concerns.  While charitable contributions are okay, it cannot be their sole purpose and thus leaving the SHH’s hanging; you are supposed to be maximizing their value.  DGCL § 122 deals with charitable contributions o Burwell v. Hobby Lobby Stores, Inc: A regulation that requires a closely held corporation to provide health-insurance coverage for contraception violates the Religious Freedom Restoration Act of 1993 if the regulation impinges on the sincerely held religious beliefs of the corporation’s owners. *Which I think is fucking stupid, but go off I guess* o Formal to organize o Perpetual existence o Limited Liability for Investors o Transferability of ownership interests  Stonks are freely transferable  DGCL § 202(a): A written restriction(s) on the transfer of a security of a corp, or on the amount of the corp’s, securities that may be owned by any

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person(s), if permitted by this section and noted conspicuously on the certificate(s) representing the security(s)so restricted, may be enforced against the holder of the restricted security(s) or any successor or transferee of the holder Centralized Management:  Most of the management is in the hands of the few directors and officers Double taxation:  Federal government imposes taxes at the corporate level through income tax and on the shareholder level on receipts from their status

Odd Instances of Various Corporate Liabilities - Successor Liability o If you built it from scratch, this isn’t really a problem o But, if one purchases a pre-existing business, then the purchaser should be concerned about the possibility of successor liability, because the purchaser (successor) may be liable for the obligation of the seller (predecessor). o Resolutions lies in understanding how the purchaser acquired the seller’s business:  Statutory merger  Purchaser is subject to the liabilities of the seller  Stock acquisition  Purchaser is then a shareholder, so only liable if the court pierces the corporate veil or if there is a k agreement  Asset acquisition  Matter of common law, but generally the purchaser is not liable unless: o The purchaser expressly or impliedly assumes such liabilities of the seller o The transaction amounts to fraudulent attempt to avoid such liability o Transaction constitutes a de facto merger  I.E. one co buys another assets then the other dissolves  If both survive, then this is not a de facto merger o Transaction amounts to the buyer as merely a continuation of the seller  Crutchfield v. Marine Power Engine Co: 1)MP Holding used a copyright that had been originally obtained by MP Engine; and 2) MP Holding used a website which had been developed by MP Engine. There was no common directors or officers.  The test for continuation is not business operations but continuation of the caproate entity (common directors, officers, and stockholders)  Is It essentially the same corporation but in different clothes? - Defective Incorporation: o If one fails to comply with all of the requisite formalities, then there is no entity to provide limited liability o DGCL § 105: Certification of Incorporation: evidence  A copy of a certificate of incorporation which has been filed in the office of the Secretary of State as required by any provisions of this title shall, when duly certified by the Secretary of State, be received in all courts, public offices, and official body as prima facie evidence of:  Due execution, acknowledgement and filing of the instrument;

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Observance and performance of all acts and conditions necessary to have been observed in performed precedent to the instrument becoming effective; and  any other facts required or permitted by law to be stated in the instrument o DGCL § 329: Defective organization of corporation as a defense  No Corporation of this state and no person sued by any such Corporation shall be permitted to assert the want of legal organization as a defense to any claim  this section shall not be construed to prevent judicial inquiry into the regularity or validity of the organization of a Corporation, or it's lawful possession of any corporate power it may assert in any other suit or proceeding where its corporate existence or the power to exercise the corporate rights it asserted is challenged, and evidence tending to sustain the challenge shall be admissible any such suit or proceeding o But due to etoppel: one who deals with the corporation as if it is validly organized cannot subsequently attack the validity of its organization (explained in Cranson) o Cranson v. IBM: An officer of a defectively incorporated association cannot be subjected to personal liability under the circumstances of this case. Traditionally, two doctrines have been used by the courts to clothe an officer of a defectively incorporated association with the corporate attribute of limited liability. The first, the doctrine of de facto corporations, has been applied when the following elements are showing: 1) existence of law authorizing incorporation 2) effort in good faith to incorporate under the existing law; and 3) actual use or exercise of corporate powers. The Second, the doctrine of estoppel to deny corporate existence, is generally employed where the person seeking to hold the officer personally accountable has contracted or otherwise dealt with the Association in a manner as to recognize and in effect admit its existence as a corporate body. But since IBM dealt with the Corporation as if it were an actual Corporation and relied on its credit rather than that of Cranson, it is estopped to assert the Bureau was not incorporated at the time the typewriters were purchased. o American Vending Services v. Morse: Corporation by estoppel applies only when the situation is: where both parties reasonably believe they are dealing with a corporation and neither party has actual or constructive knowledge that the corporation does not exist.  Conflicts with Cranson bc Utah law is different Promoter Liability o Situations where the parties know that no Corporation exists, but the non-existent Corporation is made a party to a contract. o MBCA 2.04  All persons purporting to act as or on behalf of a Corporation, knowing there is no incorporation under this act, are jointly and severally liable for all liabilities created while so acting  persons who urged defendants to execute contracts in the corporate name knowing that no steps to incorporate have been taken may be estopped to impose personal liability on individual defendants o GS Petroleum v. R and S Fuel: A promoter of a corporate contract when a corporation is yet to exist is also liable for the k even after the corporation has been formed.  Looked to the language of the k: buyer is singular and only Susan’s name is signed; so we gather that she was a promoter and thus subject to liability. Piercing the Corporate Veil 

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Means that SHH’s have to satisfy creditor’s claims (very rare) When?? Court considers these 19 factors:  Comingling of funds and other assets of the corporation with those of the individual shareholders;  Diversion of the corporation’s funds or assets to noncorporate uses (to the personal uses of the corporation’s shareholders);  Failure to maintain the corporate formalities necessary for the insurance of or subscription to the corporation’s stock, such as formal approval of the stock issue by the board of directors;  An individual shareholder representing to persons outside the corporation that he or she is personally liable for the debts or other obligations of the corporation;  Failure to maintain corporate minutes or adequate corporate records  Identical equitable ownership in two entities;  Identity of the directors and officers of two entities who are responsible for supervision and management (a partnership or sole proprietorship and Corporation owned and managed by the same parties);  Failure to adequately capitalize the Corporation for the reasonable risks of the corporate undertaking;  Absence of separately held corporate assets;  Use of a Corporation as a mere shell or conduit to operate a single venture or some particular aspect of the business of an individual or another Corporation;  Sole ownership of all the stock by one individual or members of a single family;  Use of the same office or business location by the Corporation and its individual shareholder(s);  Employment of the same employees or attorney by the Corporation and its shareholder(s);  Concealment or misrepresentation of the identity of the ownership, management or financial interests in the Corporation, and concealment of personal business activities of the shareholders (sole shareholders do not reveal the Association with a Corporation, which makes loans to them without adequate security);  Disregard of legal formalities and failure to maintain proper arm’s length relationships among related entities;  Use of a corporate entity as a conduit to procure labor, services, or merchandise for another person or entity;  Diversion of corporate assets from the Corporation by or to a stockholder or other person or entity to the detriment of creditors, or the manipulation of assets and liabilities between entities to concentrate the assets in one and the liabilities in another;  Contracting by the Corporation with another person with the intent to avoid the risk of nonperformance by use of a corporate entity; Or the use of a Corporation as a subterfuge for illegal transactions;  The formation and use of the Corporation to assume the existing liabilities of another person or entity Overarching considerations of these factors:  Reason’s for the corporation’s inability to make good on its obligations  Which explains the scrutiny on undercapitalization and siphoning of assets  Links shareholders benefit to creditor’s detriment  Whether the corporation is being operated as a separate entity

If not, then why recognize the veil that protects the shareholders from the liabilities of the corporation?  Leads courts to focus on domination, commingling, and compliance with corporate formalities Ohio Rev. CODE ANN. § 1701.12: If an initial state capital is set forth in its articles and an incorporation commences business before there has been paid in the amount of that initial stated capital, no corporate transaction shall be invalidated thereby, but incorporators participating in such transaction before the election of directors, and directors participating therein, shall be jointly and severally liable for the debts of the Corporation up to the amount not exceeding in the aggregate the amount by which the state capital paid in at the time the Corporation commenced business fails to equal the initial state capital set forth in the articles, until the amount set forth in the articles has been paid in. Walkovsky v. Carlton: Piercing is appropriate in instances when someone uses control of the corporation to further his own rather than the corporation’s business, and liability is established through Respondeat Superior even when the agent is a natural person acting negligently. It is one thing to assert that a corporation is a fragment of a larger corporate combine which actually conducts the business, but another to claim that a corporation is a “dummy” for its individual stockholders who are in reality carrying on the business on their personal capacities for purely personal rather than corporate ends. While both justify piercing the corporate veil, different outcomes would result. One would result in the larger corporate entity would be held financially responsible. In the other, the stockholder would be personally liable. If the plaintiff wants to hold the defendant personally liable he would have to allege that he is using the corporation as a dummy, and the plaintiff has failed to do so. Vires (Acting/doing beyond one’s legal power) Historically, an act was Ultra Vires when a corporation was without authority to perform if under any circumstances or for any purpose  But recently, this has been narrowed. Now, if it falls outside the powers that are specifically listed in the COI/law, or if an action is specifically prohibited by the COI. Then it is an Ultra Vires Act. Void/voidable  An act is void if it’s beyond the manager’s power completely to do (court determines if it is)  An act is voidable if it is susceptible to cure by shareholder approval via ratification As per SE PA. Transp. Auth. V. Volgenau, the ultra vires act is held valid, and in most instances the corporation’s authority will not be challenged. It can be challenged as per DCGL § 124 in three ways: 1) the SHH sues the corporation may seek to enjoin a proposed ultra vires act; 2) the corporation may sue an officer or director for damages arising from the commission of an ultra vires act authorized by the officer or director; and 3) the state may bring an action against the corporation to have it dissolved for committing an ultra vires act . § 204 creates a safe harbor for ratifi...