This is an extract of our Corporations Bar Exam document, which we sell as part of our Oklahoma Bar Bundle Outlines collection written by the top tier of Oklahoma City University School Of Law students.
The following is a more accessble plain text extract of the PDF sample above, taken from our Oklahoma Bar Bundle Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Corporations - Bar Outline Organization: I.
Formation: a. Incorporators - i. By Who: Any entity or natural person 18 or older may be an incorporator. ii. How: submit a certificate of incorporation to the Secretary of State. iii. Can also be submitted electronically. b. Certificate of Incorporation: i. Name of the Corporation: Must include some form of "Corporation" "Company" "Incorporated" "Limited" & can be abbreviated!
ii. Name/Address of each Incorporator iii. Name/Address of Initial Directors (unless incorporators are to serve as such) iv. Name/Address of Registered Agent/Office v. Purpose - can be stated as "any lawful purpose"
1. Ultra Vires Act: a. Means beyond the purpose for which the corporation was formed. b. Ultra Vires acts/contracts are valid but: i. Either a shareholder (s/h) or the state can seek an injuction; AND ii. Officers and Directors are personally liable for any ultra vires losses that they cause. c. EX: Certificate of Incorporation says the purpose is to sell snacks, but the business also sells guns. The gun selling is the Ultra Vires Act. vi. Capital Structure:
1. Authorized Shares: Maximum number of shares the corp. is allowed to sell . a. Unless more than one class of shares, then you must include the number and attributes of each class. 1
2. Par Value: Must state the par value of the shares or state that they are "no par value" shares. c. Default Rule: i. Every corporation has perpetual duration and the same powers as an individual. ii. If you want a different rule you must put it in the certificate. d. "Dejure" Corporation: i. The Secretary of State's filing the certificate is conclusive proof a corp. was formed in accordance with the law or "de jure"
II. De Facto Corporation/Corporation By Estoppel: a. De Facto Corp. (DFC): i. Requires a good faith attempt to comply with the statute and an act on the firm's behalf. ii. If DFC applies, a business is treated as a corporation for all purposes except in an action by the state!
iii. DFC only protects innocent S/Hs so any that knew of the reason for not complying with the statute could be personally liable. b. Corporation by Estoppel (CBE): i. A person who deals with a business as a corporation may be stopped from later arguing that it's not a corporation. c. Limitation: i. Protects S/Hs only against contract claims, not tort claims, on the theory that contract creditors could have protected themselves in advance (by getting a personal guarantee from the S/Hs)
III. By Laws: a. Initial By Laws: i. Adopted by the initial directors b. Amendment: 2
i. Directors may amend the by-laws, although the certificate may confer the right to amend on the S/Hs too!
c. Conflict: i. If by laws and certificate conflict, the certificate will control b/c it is a public doc. On file with the Sec. of State.
IV. Liability on Pre-Incorporation Contract: a. Corporation: i. The corp. is not liable unless it adopts the contract as its own, either expressly (the board passes a resolution) or impliedly (the corporation knowingly accepts the benefit of the contract) b. Promoter: i. Remains liable unless there is a novation (an agreement to sub the corp. for the promoter as the party liable on the K) ii. Promoter can still be liable even if the Corp adopts the K for its own. All adoption means is that the Corp is liable too! You need novation to remove Promoter and sub in Corp.
V. Secret Profit Rule: a. A promoter is a fiduciary, who can't make a secret profit on dealings with the corp.
VI. Foreign Corporations: a. Defn: A corp. organized anywhere but Oklahoma ( Ex: Texas) b. Rule: A foreign corporation doing business in OK must qualify to do business here. i. "Doing Business" - engaging in intrastate transactions in OK (transactions completely in OK) on a regular basis.
1. One time selling and driving delivery trucks through OK are not "doing bizz" ii. "Qualify" - Get a Certificate of Authority from Sec. of State. 3
c. Penalties: fines; cannot sue in OK (but can be sued and defend here) Issuance of Stock: I.
Definitions: a. Issuance: When a Corp. sells its own shares (not the S/H) b. Issued Shares: number of shares a corp. actually sells. i. # of issued shares will be less than the authorized shares. c. Outstanding Shares: Issued shares the corp. has not reacquired. i. In other words - shares in the hands of S/Hs
II. Subscription: signed written offers to buy stock from the corp. a. Pre-Incorporation: Irrevocable for 6 mths. Unless the subscription provides otherwise or all the subscribers consent. b. Post-Incorporation: Revocable up until the board accepts the offer. c. Enforceability: A subscription is enforceable like any K once the board accepts. i. Corp. may sue the subscriber or sell shares to someone else.
III. Consideration: (what the corp. must receiver when it issues stock) a. Form: Money, services rendered, real property and personal property i. Even promissory notes are okay but not a promise for future services!
b. Amount: i. Par Value: Minimum issue price, not FMV.
1. The corp. can receive more than the par value but cannot receive less!
ii. Paying for Par Value Stock with Property:
1. As long as the FMV of the property is worth at least as much as the par value of the stock this is okay!
2. BAR TIP - the board must assign a specific dollar value to the property but in the absence of fraud, the board's determination of value is conclusive!
iii. "Watered Stock" - paying less than par value for shares.
4 1. The Corp. can recover the different between what was received and what should have been paid from either the directors or the purchaser only if there is fraud!
2. If purchaser transfers to a BFP, then the original purchaser remains liable b/c you can't contract away watered stock liability. iv. Treasury Shares: Shares repurchased by the corp.
1. They may be canceled or resold FOR ANY PRICE since par value provisions do not apply to treasury shares.
2. Rational - they have already been issued. IV.
Preemptive Rights: Let an existing S/H maintain his percentage ownership interest by buying the same percentage of new stock when new stock is issued for money. a. This rule applies only if the Articles of Incorp. provides for it. b. If c. If new shares are being issues to acquire something other than money, then no preemptive rights available. i. EX: Corp issues new shares to acquire Clint Black's ranch, then no preemptive rights.
Directors and Officers I.
Statutory Requirements - Directors: a. Number: i. 1 or more adult human beings (entities cannot be directors) b. Election: i. S/H elect directors at the annual S/H meeting. c. Removal: i. S/H may remove directors w/ or w/o cause. 2 Exceptions:
1. Class - a director elected by a class of shares can be removed only by that class of shares. a. EX: director elected by preferred S/H can only be removed by preferred S/Hs
5 2. Staggered Terms - where directors are divided into 2 or 3 classes having multi-year terms, removal is permitted only for cause.
3. BAR TIP: In OK - a public corp MUST have a staggered board!
d. **Vacancy: i. A majority of the remaining directors fill a vacancy, unless certificate or bylaws provide otherwise; but if a director whose seat is vacant was elected by a class of shares, a majority of the remaining directors elected by that class fills it. e. Meetings: i. Required unless there is unanimous written consent.
1. A conference call counts as a meeting as long as all the directors can hear one another. ii. Notice: Not required for a regular meeting, only for a special meeting. iii. Quorum: need a majority of all directors on the board, unless a different number is required in the certificate or by-laws (minimum is 1/3) iv. Watch out for where the by-laws or certificate required a % less than 1/3. This will always be invalid because it must be a minimum of 1/3. f.
Voting: i. Need the affirmative vote of a majority of directors present to pass a resolution, unless the certificate or by-laws require a greater number. ii. *You can't lower the voting requirement!
g. Voting by Proxy or Agreement Prohibited!
i. Directors cannot agree in advance how they are going to vote!
II. Role of Directors: a. Management: i. Set policy, supervise officers, declare dividends, and recommend fundamental changes. b. Delegation to Committee: i. Permitted, but a committee can't: 6
1. Adopt or amend by laws;
2. Approve, adopt, or recommend to S/H any action required by statute to be submitted to S/H. III.
Duty of Care: a. Judicial, not statutory, in OK b. A director must do what an ordinarily prudent person would do in a like position, under similar circumstances. i. NonFeasance: director does nothing ii. MisFeasance: a director does something that causes the corp. a loss.
1. Directors are protected by the: a.
Business Judgment Rule -Directors who act in good faith, have no personal interest involved, and act on an informed basis are generally insulated from liability. Most courts will not second guess their business judgment.
b. They don't have to be right just have to be careful. They must do their homework and become informed. c. Directors are not guarantors have the Corp's success. IV.
Duty of Loyalty: a. A director must act in good faith and with a reasonable belief that what she does is in the corps best interest. (No Business Judgment rule to shield directors here) i. Duty can be violated by:
1. Competing with the Corp;
2. Usurping a Corp. Opportunity;
3. Having conflicting interests to those of the corp; and
4. Taking advantage of the position of trust and confidence (includes insider trading) b. Interested Director Transaction: (IDT) i. Where a director is on both sides of the transaction. ii. An IDT can be set aside unless the Director can show it was either: 7
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