Corporations

Requirements for De Jure corp status

Sign and file articles of incorporation with state, which must have: APAIN

De facto corporation doctrine

If dejure formation fails, the business will be treated like a corporation anyway if there was a good faith colorable attempt to comply with corporate formalities and no knowledge of lack of corp status (i.e. guy fucks up and doesn't file the articles)

Piercing the corporate veil will require

"a shareholder is normally not liable for corporate obligations, execpt teh court will pierce the corp veil to avoid fraud or unfairness, or where the corporation is undercapitalized (fails to maintain sufficient capital to cover foreseeable liabilities)"

foreign corporations (outside the state)

must file certificate of authority with state that has APAIN

What consideration must a corp receive for issuance of its stock

1. Par value (min issuance)
2. No par (any valid consideration)
3. Treasury stock (stock issued but reacquired) = no par value
4. any valid consideration is ok for acquiring property with par value stock, if BOD valies it at least par value

What consequences of issuing par value stock for less than par value?

1. Directors personally liable
2. Buyer Sh liable to pay full consideration for their shares
3. Corporation can recover from either

What is a preemptive right?

Right of an existing Sh to maintain her % ownership by buying stock whenever there is a new issuance of stock for CASH

-MUST be expressly granted

Pre-incorporation contracts

1. subscribers
2. promoters

Corporate formalities

1. de jure
2. de factor
3. by estoppel

Stock issuance

1. par value
2. no par value
3. treasure stock

Director requirements

1. Must have a BOD w/ at least 1 director
2. Sh elect directors
3. Sh can remove directors any time even w/o cause
4. Meetings req'd unless all directors consent in writing
-no proxies, no vote agmts
-must have quorum (majority)
-votes must pass by majority present

Director duties

1. duty to manage (can delegate to director committee)
2. biz judgment rule protects directors from liability
3. Directors, however, are fiduciaries who owe corporation duty of care and loyalty
-duty of care: care that prudent person would use in managing her business unless liability limited by articles
-duty of loyalty: no unfair benefit (self dealing, usurping corp opportunities, secret profits) to the detriment of the corporation or Sh unless there is independent ratification (disclosure and approval)

Biz judgment rule

directors not liable for innocent mistakes of business judgment. they are presumed to manage corp in good faith and best interests of corp and Sh

Officers

1. same duties as directors
2. directors have unlimited power to select and remove
3. must have prez, sec, and treasurer
4. are agents of corp (thus bind corp by their authorized activities (think agency)

Indemnification of directors and officers by the corp.

Directors should be reimbursed for any expenses incurred for any corporate purpose, entitled for legal expenses incurred if:

1. never if lost suit against the corp
2. always if won a suit against anyone (inc corp)
3. MAY indemnify if:
- lost to 3rd party or settlement with corp
-director acted in good faith believing conduct in corp's best interest

Who decides indemnity of directors

1. majority of BOD
2. committee of directors
3. majority of shares
4. special lawyer's opinion

Shareholder rights

1. Sh derivative suits
2. voting
3. examine books
4. dividends
5. eliminate corp formalities

Prof corps

1. licensed professionals
2. requires
-file articles as PC
-be licensed prof
-only 1 desig. profession
-liable for own malpractice
-not liable for other's malpractice or debt of corp

shareholder liability

not liable for corp obligations unless the corp veil is pierced, and controlling Sh owe fiduciary duty to minority Sh and liable for selling corp to a looter

Shareholder derivative suit

1. Must own stock when claim arose and throughout litigation
2. Must make demand on directors

Shareholder voting

1. must be Sh as of record date
2. Can vote by proxy (special rules) or at annual meeting or special meeting
3. must have quorum of shares
4. must have majority of votes cast to pass
-voting trust or voting agreement allowed
-cumulative v. straight voting

Requrement for voting trust

1. written trust agreement
2. filed with corp
3. transfer sh to voting trust
4. Sh get trust certificates
5. Sh retain all other rights except voting
6. generally 10 years or by agmt

Dividends

1. are discretionary by the BOD, but BOD may not if it will make the corp insolvent

2. cumulative stock: paid for prev unpaid years
3. participating preferred: paid first as preferred sh and AGAIN as common
4. preferred stock paid before common
5. common paid last and equally

Corp change types

1. Merger
2. Consolidation
3. Dissolution
4. amendment to articles
5. sale of substantially all corp assets

Procedure for a fundamental corp change

1. BOD resolves
2. call special meeting
3. majority of all Sh entitled to vote (not just those present)
4. and majority of each grp adversely affected by the change
5. file notice with state

dissenting Sh rights

1. right to force corp to buy sh at FMV
2. but must file notice of objection and intent to demand payment, make demand after vote to be bought out

Section 10b (antifraud) requirements

1. scienter: intent to deceive
2. deception
3. in connection with actual buy or sale of securities

Types of deception for 10b fraud

1. liar: misrepresentation of material fact, or failure to disclose a material fact in breach of a fiduciary duty to disclose

2. insider trading
-misappropriator: misappropriates material nonpublic info and uses it to purchase/sell securities
-tipper: tips inside info for personal benefit to another who trades on it
-tippee: receives inside info and trades on it with knowledge that the info was disclosed in a breach of tipper's fiduciary duty
-misa

requirements for private investor fraud

in addition to scienter, deception in connection with buy/sale of securities, must show

i) reliance on the fraud: investors actualy relied on the fraud or invested at market price infected by fraud
ii) loss causation: fraud caused the losses, not just induced trade

Section 16b short swing trades

Profits from shot swing (6 month) trading are recoverable by the corporation

Reqa:
i) Big corps (listed on exchange or > 500 Sh and 10M assets
ii) Big shot def: officer, director, Sh of 10%

Sarbanes oxley

CEO and CFO must certify based on their knowledge, all reports filed to SEC that:

1. don't contain material misrepresentations or omissions, and
2. fairly represent the financial position of the company

tipper

knowingly passing on material info for personal benefit in breach of a fiduciary duty

tippee

liability derives from tipper's obligation ... tippee must trade on the info with knowledge that tipper had a fiduciary duty

10b5 requirements

prohibits use of an instrumentatility of interstate commerce in a scheme to defraud, make material misrepresentations or omissions or in any other way to use fraud in the purchase or sale of securities

1. interstate commerce or trade on stock exchange
2. fraudulent conduct (misrepresentation of matierial fact, tipper, tippee, misappropriator)
3. in purchase/sale of securities

What is an insider's obligations?

disclose the info or not trade in the securities

What is misappropriation in context of 10b5

other theory besides tipper/tippee for finding inside trading liability.

liable for misappropriation of non public (insider) information in the purchase or sale of securities

Dividends

Discretion to declare is in BOD. Strong case required to convince court of equity to order directors to declare a dividend