BUS 215 - Corporations

Corporations

Shareholders elect/remove Board/Directors

Board/Directors hire/fire Officers

Officers report to shareholders

Torts and Criminal Acts

Vicarious Liability/Respondeat Superior: corporation is vicariously liable for torts and contracts

Classification of Corps

Domestic: incorporated/formed and conducts business in the same state

Foreign: incorporated/formed in one state and does business in another

Alien: formed in another country but does business in the US
Closed: shared held by very few people (often family)

Powers (how to alleviate liability)

Expressed/Implied: said or written vs. patterns or past

Promoters Liability: ratification, novation, indemnification

Corporate Personality

due process, equal protection, attorney-client privilege, 5th amendment

Corporate Formation

promoters, incorporated procedures—state of incorporation—file with the SEC of state (name of corp., purpose, initial number of directors, articles and bylaws)

Defect in Corporate Status

Dejure: majority of JDX, substantial compliance with corp formalities (scriveners error)

Defacto: minority of JDX, colorable compliance with corp formalities (bigger error)

Corporation by Estoppel: no attempt to incorporate (think Quasi-contract)

Ultra Vires

acts that are beyond the corporation’s expressed/implied powers, acts involving contract for unauthorized purchases

Piercing the Corporate Veil

owner uses corporate entity to perpetuate fraud or in someway accomplish an illegitimate objective, for shareholders, officers, or directors own personal benefit (getting investors to invest without taking action afterward but to take their money)

Alter-Ego Theory

Alter-Ego Theory

courts pierce veil to avoid injustice/fraud that would result from the wrongdoers so that they cannot hide behind limited liability

Duties of Shareholders

majority shareholders must not sell to looters or people trying to dissolve the corporation

Rights of Shareholders

Right to attend annual/special meetings

Right to vote (quorum/majority of shareholders must be present)

Right to proxies (people that take shoes of shareholders to vote)

Election/Removal of Directors (must have cause in modern law)

Adoption/Modification of by laws

Approval of fundamental changes in corp structure (insolvent, expansion, collection of dividends, etc.)

Preemptive rights (maintain shareholder status, when new shares released the majority shareholder gets first dibs)

Inspection of books/records (legitimate business reason)

Right to collect dividends (the thank you money)

Right to dissolve the corp

Right to Shareholder suits

Proxies

Revocable: take back proxy’s right

Irrevocable: consideration has been given, cannot be taken back

how they vote is conditional and must be laid out between proxy and OG shareholder

Shareholder Suits

Direct: stake in the claim, lawsuits between 2 parties

Derivative: shareholder steps into the Corp’s shoes and brings issue against another (ex. if Corp doesn’t have means to do so)

BOTH must be met:

1. Shareholder had ownership @ time of injury/issue

2. Demand on the Board (give notice)

Duties of Directors and Officers

fiduciary duty of care: act as reasonable, prudent _ _ _ _ _ _

fiduciary duty of loyalty: must not be conflict of interest, commingling of funds, usurpation of corp opportunity

Rights of Directors

to hold office until next election (unless removed with cause - ML; or without cause - CL)

right to inspection of books and records

right to compensation and indemnification

Rights of Officers

carry out business affairs without interruption

election and removal by board

compensation and indemnification

SEC Violations (publicly held entities)

10B5: insider trading - info not disclosed to public, people with information take action using insider information, fraud on the public
16B: short swing profits - shareholders, officers, or directors buys + sells (or vice versa) within 6 months and gets a profit, intent is irrelevant, profit goes back to corp, appearance of fraud
14A: proxy - solicitation of proxies, revocable/irrevocable, conditions must be clear

Loft v. Guth

Facts: officer of candy and syrup corp, made competing corp, took money and recipes, sued for breach of contract and duty as officer

I: breach of fiduciary duty of loyalty

R: having conflict of interest, commingled funds, usurpation of corp position

A: took recipes and funds from OG corporation/company

C: found liable, did breach duty via conflict of interest, commingled funds, and usurpation of corp opportunity