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Business Law Topics (Corporations (Fundamental corporate change (analysis…

- - - - Not automatic
      - Must be in articles of incorporation
    - - Shareholder has no inherent right to be paid a dividend
      - Board of directors has discretion to decide whether and when to declare a dividend
  - - - States place, date, hour, and purpose of meeting
      - No less than 10 days and no more than 60 days prior to the meeting
      - Written
      - Notice can be waived
    - - Dissenter must not vote his shares in favor of the proposed action
      - If corporation and dissenter fail to agree as to the value of the stock, the court makes a determination of value
      - Dissenting shareholder must file a written objection to the proposed action before the shareholders' vote
  - - - Fiduciaries to the corporation
      - Duties
        
        Duty of Care - to act in good faith in the honest belief that one is acting in the best interests of the corporation on an informed basis
        
        Duty of loyalty
        
        Transaction is voidable by corporation unless:
        
        Material conflicts of interest were fully disclosed, or
        
        Transaction is fair
        
        Rebuttable presumption of conflict of interest
        
        Conflict of interest - inherent when director has a personal or financial interest in the transaction:
        
        Usurping corporate opportunity
        
        Business dealings with the corporation
        
        Competing with the corporation
      - Directors are protected from liability by the Business Judgment Rule: rebuttable presumption that directors are honest. well-meaning, and acting through informed decisions
      - Indemnification: Corporation must indemnify a director who successful in the defense or any proceeding to which he was a party because he was a director
      - Directors manage the corporation
      - Ultra vires: Board of directors is not permitted to undertake action that is beyond the corporation's authority. Corporation cannot be obliged to undertake a contract or activity that is beyond the scope of its powers
    - - Agents of the corporation
      - Hired by the directors and can be removed by the directors
      - Sane duties as directors
    - - Shareholders are personally liable for any tort they commit, such as fraud
      - Meetings
        
        Special: requires written notice stating the place, date, hour, and purpose of the meeting no less than 10 and no more than 60 days prior to the meeting
        
        Notice may be waived in writing before or after the meeting
        
        Quorum - majority of the shares entitled to vote
        
        Annual
      - Exception: Challenger can pierce the corporate veil
        
        Court disregards corporate entity and holds shareholders liable
        
        Challenger goes against the corporation and the corporate assets first and the goes against shareholders and their assets
        
        Grounds
        
        Alter ego
        
        Corporation has no existence of its own
        
        Corporate form used fraudulently for improper purpose
        
        Injury or unjust loss resulted
        
        Inadequate capitalization
        
        Not sufficient alone if corporate formalities observed
        
        Failure to comply with corporate formalities
        
        Only those active in corporate management are held liable
      - Voting agreements: Contracts to ensure shareholders will vote in concert with regard to issues designated by the agreement - Often used to ensure election of certain directors
      - No personal liability for the corporation's debts
      - Voting trusts: involves the transfer of legal title to a trustee who votes the shares according to the trust terms
      - Shareholder derivative suit: Shareholder sues on behalf of the corporation to redress a wrong when the corporation fails to enforce its right.
        
        Must be a shareholder at the time of the transaction
        
        Must make a demand upon the corporation unless futile
      - Majority shareholders owe the fiduciary duty to refrain from exercising control to obtain a benefit not shared proportionally with minority shareholders
  - - - Against those who made misrepresentations in connection with the purchase of securities
      - Against those who traded stock while under a duty to either disclose or to abstain from trading until the inside information is closed
    - - Knowledge by the defendant of the misrepresentation or reckless disregard of the truth
      - Scienter (intent to deceive, manipulate, or defraud
      - A misrepresentation of material fact
      - Reliance of the plaintiff
      - Damages
    - - Requires two transactions in stock
      - Strict liability offense
      - Profit recoverable
      - Damages
      - Prevent unfair use of information and internal manipulation of price
  - - - Promoter liability
        
        Promoters are personally liable as the corporation's agent on pre-incorporation contracts entered on the corporation's behalf
        
        Contract can specifically disclaim a promoter's personal liability
        
        Personal liability continues until a novation - the corporation adopts the contract and all parties agree that the promoter will be discharged from contract
        
        Corporation is not liable on any pre-incorporation agreements unless it assumes liability by its own act after the Articles of Incorporation are filed
        
        Can be express or implied
        
        Promoter - a person who causes a corporation to be formed, organized, and financed
        
        Usually become shareholders, officers, and directors of the new corporation
    - - De facto Corporation - Statutory compliance is insufficient for de jure status. Formed if
        
        Good faith, colorable attempt to comply; and
        
        Corporate principals, in good faith, acted as if they were a corporation
      - Corporation by estoppel
        
        Creditor who has always dealt with the principals as if they were a corporation is estopped from later alleging that the corporation is defective
        
        Defendant who has held himself out as a corporation cannot avoid liability by claiming there is no corporation
      - De jure corporation
        
        organized in compliance with the statute but failed to comply with a statutory provision
    - - Control lies with the members in proportion to their equity in the LLC at the time a vote is taken - member-managed Each member in a member managed LLC has:
        
        Equal rights in the management and conduct of the company's activities
        
        Authority to bind the LLC in contracts for carrying on the ordinary business of the company unless the member lacks authority to do so and the other party to the contract has notice that the member lacks such authority
        
        Matters outside the ordinary course of the company's activities require consent of all members
      - Members may agree to appoint one or more managers to operate the business - manager-managed
        
        Managers owe the duties of care and loyalty similar to those owed by directors of corporations
      - Members can be added with the consent of all other members. unless the operating agreement provides otherwise
      - If not stated in the operating agreement, LLC presumed to be member-managed
      - Formed through filing articles of organization with the secretary of state with at least one member
      - A member's withdrawal results in dissociation. Withdrawing member loses
        
        The right to participate in the LLC, and
        
        The right to distributions only if and when made by the contributing members
      - Treated like a corporation for limited liability purposes in protecting its members, managers, and agents from liability for the obligations of the company, but if properly organized, it has the attributes of a partnership for federal income tax purposes
      - Disassociation does not result in dissolution of the LLC. Dissolution requires the consent of all the members
- - - - Agents are liable for breach of their duties to the principal (COLA)
        
        Duty of Care
        
        Duty of Obedience
        
        Duty of Loyalty
        
        No self-dealing
        
        May not usurp business opportunity belonging to principal
        
        Duty not to compete
        
        No dual agency
        
        Duty to Account
    - - Contract liability based on the terms of their contract
  - - - Individuals liable for their own torts
    - - Contractual duties owed to agents
        
        Compensate - per agency contract
        
        Indemnify - for reasonably incurred legal liabilities
        
        Reimburse - for reasonably incurred expenses
        
        Cooperate
        
        Principal may not interfere with the agent's performance
        
        Principal must affirmatively aid where reasonably required to do so
  - - - Individuals are always liable for their own torts
    - - Disclosed v. undisclosed principal
        
        Fully disclosed principal - agent not liable in contract
        
        Undisclosed principal - agent is personally liable in contract
        
        Partially disclosed principal - agent is personally liable unless third party identifies principal, at which time third party must elect to go after wither agent or principal
      - Breach of warranty of authority - agent acts beyond her authority on behalf of principal; agent is personally liable
  - - - Agent is employee
        
        Respondeat superior - imposes vicarious liability upon a principal for the torts his agent commits in the scope of employment
        
        Agent performs task assigned by employer or engages in a course of conduct subject to employer's control
        
        Serves employer's purposes
        
        Employer is not liable if the employee substantially deviates from the authorized route (frolic)
        
        Employee can return from folic
        
        Employer is still liable for slight deviations (detour)
        
        Employer's liability is in addition to the agent's liability
        
        Employer and employee are jointly and severally liable
        
        Strict liability doctrine - no defenses
      - Agent is independent contractor
        
        General rule - no liability
        
        Exceptions
        
        Inherently dangerous activities
        
        Non-delegable duty
        
        Loaned agent
        
        Negligent selection of contractor
    - - An agent acting within scope of his authority may bind his principal in contract
        
        Types of Authority
        
        Actual - manifestation of the principal to the agent that the agent acts for the benefit of the principal in a particular way and that the principal to be bound by agent's actions
        
        Express - principal directly requests agent to act
        
        Implied
        
        Authority to accomplish principal's express request; or
        
        Things agent believes the principal wishes him to do based on his reasonable understanding of principal's express request
        
        Apparent - agent is cloaked with authority
        
        Third party reasonably believes the agent has authority to act on behalf of principal; and
        
        Belief is based on the principal's representations made to the third party
        
        Ratification - principal grants retroactive authority for his agent's earlier unauthorized actions
        
        Ratified act must be one that the principal could have authorized at the time of the act
        
        Once ratified, an act has the same effect as if it were originally done with authority
- - - - No writing required
      - No statutory formalities required
      - Types
        
        For specific undertaking
        
        For a term
        
        At will
      - Intent of parties
      - Sharing of profits is prima facie evidence of a partnership
    - - Types of partners
        
        General partners - manage business and are personally liable without limitation for partnership obligations
        
        Limited partners - contribute capital and share in profits, but take no part in the control or management of the business, and whose liability is limited to their contributions
      - Formation
        
        Filing a certificate of limited partnership with the Secretary of State
        
        Must have at least one general partner and at least one limited partner
  - - - Every partner is an agent of the partnership for the purpose of its business
      - Authority
        
        Express
        
        Apparent - based on the nature and course of business
        
        Restrictions - third party must know about restrictions on authority or the partnership will be bound
        
        Partner who acted without authority may be liable for breach of the partnership agreement
    - - All partners are jointly and severally liable for all obligations of the partnership
      - Each partner is individually liable for the entire amount of partnership's obligation
      - Partner is entitled to indemnification by the partnership for any payments he makes on partnership's behalf
      - Partner may seek contribution from other partners if he pays more than his share of the liability
      - Retiring partner remains liable on all obligations incurred before retirement
      - Incoming partner is not personally liable for any partnership obligation incurred prior to her admission as a partner
  - - - Partnership Property
        
        Originally brought in - part of capital of partnership
        
        May contrarily contend in agreement
        
        Subsequently acquired
        
        Purchased with partnership funds
      - Partner's individual property
        
        Intent evidenced that any property originally brought in was not to be partnership property
        
        Partners have a contrary intention from the applicable law
      - Sale of assets (profit/loss)
        
        Inside creditors
        
        Loans from partners
        
        Capital
        
        Outside creditors
        
        Profit
        
        Cost of sale
    - - Business legally dissolved