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Unformatted text preview: CORPORATION BASICS Basic Characteristics • (1) Corp is a separate entity • (2) Divisible Ownership – equity ownership reflected in shares of stock • (3) Stockholders do not own assets; only corp does • (4) Limited Liability for owners for debts and liabilities of corp (absent personal wrongdoing) • (5) Exists for an indefinite duration: may be terminated by insolvency, merger, voluntary liquidation • (6) Freely transferable ownership of equity and debt – shares may be traded; bonds, debentures • (7) Centralized Control and Separation of Ownership and Control INCORPORATION Articles of Incorporation - §2.02 • One or more persons acts as “incorporator” by filing Articles of Incorporation with secretary of state – MBCA §2.01 ; Corporate existence begins when AOI filed, unless AOI says otherwise - §2.03 o Contents of AOI - Mandatory Items – §2.02(a) includes # of shares corp is authorized to issue; o Voluntary Items – (b), including: (1) limitations/grants of authority on corp, shareholders, BOD; (2) provisions regarding management; (3) waiver of personal liability for director except for receipt of benefit to which not entitled; intentional infliction of harm/violation of law (4) director’s right to indemnity for personal liability to any individual, except “” o Filing by Sec = conclusive proof that all conditions precedent to incorporation have been fulfilled, except in proceeding by state to cancel/revoke/dissolve corp o The AOI may also specify classes of stock that can be issue: e.g., Class A = 10 votes per share; Class B = 1 vote per share, but has, for example 10% greater dividend per share. AOI will also usually maximum amount per class the BOD is authorized to issue. Shareholders may also vote to amend AOI to issue more stock. AMENDMENT OF THE AOI The AOI may typically be amended by a majority of shareholders, which presents a problem for minority holders. • Modern courts typically deal with this by requiring amendments that would adversely a class of stockholders to be adopted by a majority of that class, as well as a majority of all stockholders. - §10.04 • In addition, some states allow adversely affected shareholders, under certain circumstances, to cash in shares at a judicially determined price – Chptr 13 • The AOI determines whether power to amend by-laws is vested in shareholders, BOD, or both concurrently – While amendment of AOI must typically be initiated by BOD, shareholders can initiate amend by-laws Liability for Pre-incorporation actions – all persons purporting to act as or on behalf of a corporation knowing there was no corp are jointly and severally liable for all liabilities created while so acting - §2.04 • This rule continues the CLAW rule of de facto corporations: where there is a defect in formation courts invoke this equitable doctrine to extend limited liability to shareholder. If there is a serious defect (such as failing to file AOI with the appropriate official) courts will protect the shareholder where:...
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- Spring '06
- Corporation, CORP, The corp