Corporations and LLCs Essay Rules

Corporation Formation

• Person - incorporators who undertake formation

• Paper - articles of incorporation

• Act - notarized articles delivered to secretary of state

Defective Incorporation

• De Facto Corporation

  • must be relevant incorporation statute

  • parties make good faith colorable attempt to comply with the statute

  • exercise of corporate privilege

• Corporation by Estoppel

  • persons who deal with entity as if it were a corporation will be estopped from denying the corporation’s existence

  • applies only in contract

Pre-Incorporation Contracts

• promoter fiduciary duty to corporation of fair disclosure and good faith

• corporation only liable on promoter contracts if expressly or impliedly adopt

• promoter personally liable, released only if express or implied novation

Special Director Meetings

need at least 2 days written notice of date, time, and place or voidable unless directors not notified waive in writing or by attending meeting

Director Meeting Quorum

quorum is majority of all directors; passing resolution requires only majority vote of those present

Business Judgment Rule

• acted in good faith

• with care that person would exercise in a like position and

• in a manner the director rxbly believed to be in best interest of company

Directors’ Conflict of Interest

not liable if

• disclose all material facts to disinterested directors and majority approve

• disclose all material facts to disinterested shareholders and majority approve

• transaction is fair to corporation at time it was entered into

Director Liability

cannot be eliminated to extent that director

• received a benefit to which he was not entitled

• intentionally inflicted harm on corporation or its shareholders

• approved unlawful distribution

• intentionally committed crime

Piercing Corporate Veil

shareholders not liable for corporate debts, personally liable only if abused privileges of incorporation

• alter ego: shareholders ignore corporate formalities, corporation considered alter ego of shareholder

• undercapitalization: at time of formation there is not enough unencumbered capital to rxbly cover prospective liabilities

Shareholder Voting Proxy

• writing signed by record shareholder directed to secretary of corporation authorizing another to vote the shares

• may be revoked by subsequent instrument or shareholder of record showing up to vote in person

Fundamental Change Procedure

• board adopts resolution of fundamental change

• board submits proposal to shareholders with written notice

• shareholder approval (by majority of shares entitled to vote)

• deliver intent to state

Fundamental Change Shareholder Meeting

• each shareholder must be given at least 10 days written notice of meeting

• notice must state date, time, place, and purpose of meeting

• defects in notice may be waived if shareholder attends and votes unless solely for purpose of objecting improper notice

Shareholder Meeting Quorum

majority of outstanding shares entitled to vote

Dissenting Shareholder Right of Appraisal

• before vote, shareholders must file with corporation written notice of objection and intent to demand payment

• at vote, abstain or vote against

• within time set by corporation, shareholder must make written demand to be bought out and deposit her stock with corporation

• corporation must pay estimate of fair value of shares plus accrued interest

LLC Business Judgment Rule

liable only for decisions tainted by gross negligence or worse, not for merely negligent decisions