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Corporations - Coggle Diagram

- - - - Paper: Articles of Incorporation
      - Act: filing with Secretary of State
      - Person: promoter
  - - - usually become shareholders, officers, and directors of the new corporation
    - - A promoter owes a fiduciary duty to the corporation
      - Contract can specifically disclaim a promoter's personal liability
        
        must be express in K
      - Personal liability continues until a novation
        
        corporation adopts the contract and all parties agree that the promoter will be discharged from the contract. If corp is never formed, the promoter remains solely liable
    - - can be express or implied
        
        express: express official action to adopt the contract with knowledge of the material facts, such as a resolution by the board of directors.
        
        implied: Implied adoption requires someone in authority to accept the benefits of the contract with knowledge of the material facts.
  - - - insufficient statutory compliance. Corporation still formed if:
        
        (1) good faith, colorable attempt to comply; and
        
        (2) corporate principals, in good faith, acted as if they were a corporation
        
        exercise of corporate privileges
        
        must be relevant incorporation statute
    - - organized in compliance with law
    - - Creditor 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
  - - - Each member in a member managed LLC has
        
        Equal rights in the mgmt 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
    - - managers owe the duties of care and loyalty similar to those owed by directors to a corporation
    - - The right to participate in the LLC, and
      - The right to distributions only if and when made by the continuing members
- - - - Director does not have power to bind corp. to contract unless there is actual authority to act.
        
        (1) proper notice was given for a directors' meeting, a quorum was present, and a majority of the directors approved the action, or
        
        (2) there was unanimous written consent of the directors
    - - held on a regular basis as set forth in the articles of incorporation or corporate by-laws.
      - special meeting requires reasonable notice
    - - Duty of Care
        
        director must use the care that a person in like position would reasonably believe appropriate under the circumstances
      - Duty of Loyalty
        
        duty to act in good faith with the honest belief that one is acting in the best interests of the corporation on an informed basis
        
        must not promote own interests in a manner injurious to the corporation
        
        conflict of interest: inherent when director has personal or financial interest in the transaction
        
        Usurping corporate opportunity
        
        Competing with corporation
        
        Business dealings with the corporation
        
        Transaction is voidable by the corporation unless
        
        approved by majority of disinterested directors and all material facts of conflict were fully disclosed, or
        
        transaction is fair
        
        approved by majority of votes entitled to be cast by disinterested shareholders, or
        
        Rebuttable presumption of conflict of interest
    - - Corporation must indemnify a director who was successful in the defense of any proceeding to which the director was a party as a result of being a director
        
        Category 2: Mandatory Indemnification -- a crop. must indemnify a director or officer who was successful in defending a proceeding on the merits
        
        Category 3: Permissive Indemnification -- A corp. may indemnify a director for reas litigation expenses incurred in unsuccessfully defending a suit brought against the director on account of the director's position if the director:
        
        (1) acted in good faith
        
        (2) believed that her conduct was in the best interests of the corp.
        
        Category 1: No indemnification -- a corporation cannot indemnify a director who is (1) held liable to the corp. or (2) held to have received an improper benefit
    - - 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
  - - - EXCEPTION: piercing the corporate veil
        
        Challenger goes against the corporation and corporate assets first and then goes against the shareholder and their assets
        
        Grounds (totality of the circumstances)
        
        Alter ego
        
        Corporate form used fraudulently for improper purpose
        
        Injury or unjust loss resulted
        
        corporation has no existence of its own
        
        Inadequate Capitalization
        
        not sufficient alone if corporate formalities observed
        
        failure to comply with corporate formalities
        
        only those active in corporation management are held liable
        
        Court disregards corporate entity and holds shareholders liable
        
        Corporate veil more likely to be pierced for a tort action
    - - Annual -- typically specified in the bylaws
      - Special -- requires written notice stating that place, date, hour, and purpose of the meeting
        
        Notice -- typically no less than 10 and no more than 60 days prior to the meeting and may be waived in writing or by attending the meeting
      - Quorum -- majority of the shares entitled to vote
    - - often used to ensure election of certain directors
    - - involves the transfer of legal title to a trustee who votes that shares according to the trust terms
    - - 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
        
        or received by operation of law from someone who held at the time
        
        Must make demand upon the board unless futile
    - - distribution is not permitted if corporation is insolvent
        
        corporation would not be able to pay its debts as they become due (bankruptcy insolvency)
        
        corporation's total assets would be less than sum of its total liabilities (balance sheet insolvency)
      - declaration within board's discretion
        
        sh seeking to compel must show bad faith or abuse of discretion
  - - - transactions governed by agency law (authority)
        
        bind with actual or apparent authority
        
        unauthorized actions may become binding on corp. because of ratification, adoption, or estoppel
- - - - States place, date, hour, and purpose of meeting
      - No less than 10 and no more than 60 days prior to the meeting
      - Written
      - Notice can be waived
    - - Dissenter must not vote their 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
- - - - Against those who made misrepresentations in connection with the purchase of securities
      - Against those who traded in the stock while under a duty either to disclose or to abstain from trading until the inside information is disclosed
    - - A misrepresentation of a material fact
      - Knowledge by the defendant of the misrepresentation or reckless disregard of the truth
      - Scienter (intent to deceive, manipulate, or defraud)
      - Reliance of the plaintiff
      - Damages
- - - - right of existing shareholders to acquire unissued shares in the corp. in proportion to their holdings of the original shares when the corp. seeks to issue additional stock
        
        not automatic
        
        must be in articles of incorporation
    - - Distribution by a corporation to its shareholders of cash or property of the corporation
        
        shareholder has no inherent right to be paid a dividend
        
        Board of directors has discretion to decide whether and when to declare a dividend
    - - Unless the articles of incorporation state otherwise, each share is entitled to one vote