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Business Law (Corporations (Issuance of stock: every corporation must…

- - - - 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 and no more than 60 days prior to meeting. Notice can be waived
      - Written
    - - Dissenting shareholder must file a written objection to the proposed action before the shareholder's vote
      - 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
      - File notice with the state
  - - - Directors are fiduciaries to the corp with resulting duties
      - 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 bases
        
        Duty of loyalty: must not promote own interests in a manner injurious to the corporation
        
        Conflict of interest: is inherent when director has a personal or financial interest in a transaction
        
        Usurping corporate opportunity
        
        Competing with the corporation
        
        Business dealings with the corporation
        
        Transaction is voidable by the corporation unless
        
        Material facts of conflict were fully disclosed or
        
        Transaction is fair
        
        Rebuttable presumption of conflict of interest is present
      - Business judgment rule: rebuttable presumption that directors are honest, well-meaning, and acting through informed decisions
      - Ultra vires: board of directors not permitted to undertake action beyond the corp's authority. Corps cannot be obliged to undertake a contract or activity that is beyond the scope of its powers
    - - agents of corp
      - Appointed and dismissed by directors
      - Same duties as directors
    - - Piercing the corporate veil exception:
        
        Court disregards corporate entity and holds shareholders liable
        
        Challenger goes against the corporation and corporate assets first, then against the shareholders and their assets
      - Grounds:
        
        Inadequate capitalization: not sufficient alone if corporate formalities observed
        
        Failure to comply with corporate formalities
        
        Only those active in corporate management are held liable
        
        Corporate veil more likely pierced for a tort action
        
        Shareholders are personally liable for any tort they commit, such as fraud
        
        Alter ego
        
        Corporate form used fraudulently for improper purpose
        
        corporation has no existence on its own
        
        Injury or unjust lost resulted
        
        Meetings must be held annually
        
        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
      - Voting agreements: contracts to ensure shareholders will vote in concert with regard to issues designated by the agreement. Often used to ensure selection of directors
      - 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 own right
        
        Must make a demand upon the corporation unless futile
        
        Majority shareholders owe fiduciary duty to refrain from exercising control to obtain a benefit not shared proportionately with minority shareholders
        
        Must be a shareholder at the time of the transaction
  - - - 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 the contract
      - promoters are personally liable as the corporation's agent on pre-incorporation contracts entered on the corporation's behalf
      - usually become a shareholder, officer, or director of the new corp
      - 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
    - - De fact corp: 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 corp: organized in compliance with the statute by failed to comply with a statutory provision
    - - 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 tax purposes
      - Formed through filing articles of organization with the secretary of state with at least one member
      - Members can be added with the consent of all other members, unless the operating agreement provides otherwise
      - Control lies with the members in proportion to their equity in the LLC at the time a vote is taken - member managed. They have
        
        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 the consent of all members
        
        Equal rights in the management and conduct of the company's activities
      - Manager managed: Members may agree to appoint one or more managers to operate a business
        
        If not stated in operating agreement, LLC presumed to be member-managed
        
        A member's withdrawal results in dissociation.
        
        Managers owe the duties of care and loyalty similar to those owed by directors to a corporation
      - Withdrawing member loses
        
        the right to distributions only if and when made by the continuing members
        
        Dissociation does not result in dissolution of the LLC. Dissolution requires consent of all members
        
        The right to participate in the LLC
- - - - Every partner is an agent of the partnership for the purpose of its business
      - Authority
        
        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
        
        Express
        
        Apparent: based on the nature and course of business
      - Remuneration: partners are not entitled unless specified in the partnership agreement
    - - Partner is entitled to indemnification by the partnership for any payments he makes on the partnership's behalf
      - Partner may seek contribution from other partners if he pays more than his share of liability
      - Each partner is individually liable for the entire amount of the partnership's obligation
      - Retiring partner remains liable on all obligations incurred before retirement
      - All partners are jointly and severally liable for all obligations of the partnership
      - Incoming partner is not personally liable for any partnership obligation incurred prior to their admission as a partner
  - - - Is there are right to dissociate? Generally there are, but this does not always remove liability for wrongful dissociation
  - - - no statutory formalities required
      - types
        
        for a specific undertaking
        
        for a term
        
        at will
      - No writing required
    - - Types of partners
        
        General partners: manage the 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
  - - - costs of sale
      - outside creditors
      - inside creditors
      - capital contributions
      - profits
    - - When a partner gives an advance to the partnership to keep it afloat, it is considered an inside creditor loan
      - IF cash comes up short, add up loans and capital contributions, then subtract from available cash. Divide losses equally amongst the partners
    - - Partnership property
        
        may contrarily content in agreement
        
        originally brought in as part of capital of partnership
        
        subsequently acquired after partnership formation
        
        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
- - - - If the agent is an employee, then respondeat superior applies: imposes vicarious liability onto the principal for the torts of his agent committed during the scope of the employment
        
        Employee can return to the scope of the employment after a frolic
        
        Employer is still liable for slight deviations (detour)
        
        Employer is not liable if the employee substantially deviates from the authorized route (frolic)
        
        Employer's liability is in addition to the agent's liability
        
        Serves employer's purposes
        
        Employer and employee are jointly and severally liable
        
        Agent performs tasks assigned by the employer or engages in a course of conduct subject to employer's control
        
        Strict liability doctrine, so no defenses
      - If the agent is an independent contractor, then
        
        General rule: no liability
        
        Exceptions:
        
        Inherently dangerous activities: nature and circumstances of the work to be performed are such that injury to others will probably result unless precautions are taken
        
        nondelegable duty
        
        loaned agent
        
        negligent selection of contractor
    - - Duty of Care
      - Duty of Obedience
      - Duty of Loyalty
      - No Self-dealing
      - May not usurp a business opportunity belonging to the principal
      - Duty not to compete
      - No dual agency
      - Duty to Account
  - - - Fully disclosed principal: agent is not liable in contract
      - undisclosed principal: agent is personally liable in contract
      - Partially disclosed agent: agent is personally liable in contract
        
        When the third party learns the identity of the principal, the third party must elect to go after the principal or the agent, but not both
      - Breach of warranty of authority: agent acts beyond their own authority on behalf of a principal. Agent is personally liable.
    - - Indemnify: for reasonably incurred legal liabilities
      - reimburse: for reasonably incurred expenses
      - Compensate: per the agency contract
      - Cooperate: Principal must not interfere in the agent's performance. Principal must affirmatively aid where reasonably required to do so
    - - Apparent: The agent is "cloaked" with authority.
        
        third party reasonably believes the agent has authority to act on behalf of the 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 action
        
        ratified act must be one that the principal could have authorized at the time fo the act
        
        Once ratified, an act has the same effect as if it were originally done with 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 agrees to be bound by the agent's actions
        
        Express: principal directly requests the agent to act
        
        Implied: authority to accomplish the principal's express request OR things the agent believes the principal wishes him to do based on his reasonable understanding of the principal's expressed request
    - - Would be highly unusual to be a test area as examiners would have to give you the contract terms.
  - - - Agency Relationship exists when 1. A principal assents to another person (the agent) to act on principal's behalf. 2. the agent must assent to the act
      - The difference between an independent contractor and an employee is: the employer has no right to control the details of the performance of the independent contractor. Factors determining this include
        
        who supplies the tools and place of performance
        
        length of time the agent is engaged by the principal
        
        skill required in the agent's occupation
        
        whether agent is paid by the job or by the hour
        
        Work customarily done under a principal's supervision
        
        intent of the parties
        
        whether the principal is in business
        
        the employer has the right to control the details of the conduct of its employee as to the result and the means to the result.
        
        Distinct occupation or business