Corporations Outline

Corporations Outline

Paliotta – Fall 2011

• Ways to form business

  • Partnerships (Limited Liability Partnerships, General Partnerships (must have 2), Sole Proprietorships (one person), Limited Partnerships (must have 2))

  • Limited Liability Companies (vast majority now)

  • Corporations

  • Each of these is like people (can own property, etc)

• How can a shareholder of a corporation be sued?

  • Limited liability (shareholders have no liability for debts of company) – Okla 1006(b)(6)

    • Can have provision in articles that makes shareholders personally liable. Otherwise, shareholders are not personally liable, except that they may be liable for their own tortuous acts.

  • Shareholders are not protected from their own personal torts (personally hitting someone in a corporate truck)

The Corporate Form – Corporation management

• Directors

  • Elected by shareholders

  • Make general business decisions (what they are going to produce, expansion, etc)

  • Directors are in control

• Officers

  • Elected by Directors

  • Carry out day to day duties of the corporation, implement decisions of board of directors

• Shareholders

  • Provide the capital (in the form of equity)

  • Vote

  • Sue

Formation of the Corporation and Governance Expectations of the Initial Participants

• Two types of documents that govern how a corporation will be run

  • Certificate of Incorporation

    • File with the secretary of state

    • It is a contract, can be signed by anyone

      • Contract between corp and state

      • Between corp and shareholders

      • Between the shareholders

    • Title 18, Section 1006 (Oklahoma)

    • Document becomes public

  • Bylaws

    • More detailed

    • The internal rules that govern the corporation

    • Does not have to be filed anywhere

    • Not public (unless publicly traded), but is discoverable

  • Certificate always trumps the bylaws if they conflict, decisions of directors are trumped by the bylaws

• Filing the certificate

  • This is the way that corporations are formed. Have to physically sign and turn in the certificate. (Okla 1006, Del 102 – what has to be in the certificate)

    • Mandatory provisions

      • Have to have name with a special word or abbreviation

        • The name has to be unique – don’t want to sue the wrong company

      • The address of the offices, and name of the registered agent at that address

      • Nature of business to be conducted

      • Number of shares authorized to issue, and whether there will be common and preferred

      • Name of incorporator

    • Optional provisions

      • Management of company

      • Can give shareholder preemptive right to buy stock (get first chance to buy new stock, determined on your percentage) (frequent in small companies)

      • Something that requires a larger majority on certain votes

      • Something that limits the length of time the corporation will last (if not mentioned, will continue in perpetuity)

      • Provision that imposes personal liability

      • Provision that limits liability of directors

• Internal affairs doctrine – the law of the state you incorporate in determines the duties of the corporations and their managers

• Amending the Articles of Incorporation

  • Under Oklahoma § 1077, must be initiated by the directors, and then sent to the shareholders for their approval.

• Amending the Bylaws

  • Under Delaware § 109, the bylaws can be amended by the shareholders.

  • Under Oklahoma §1013, only the directors have the power to amend the bylaws, but this power can be given to the shareholders in the Articles

• Interpreting statutes

  • Woolf v. Universal

    • Where a state gets a statute from another state, can use the jurisprudence of the other state when interpreting the statute

• What is Adequate Consideration?

  • From Eastern Okla. Television

    • In order to have adequate consideration, constitution requires (art 9, sec 39) money, labor done, or property actually received. And the legislature shall proscribe the necessary regulations to prevent the issuance of fictious stock. (Statute is 18 OS 1033)

    • Inadquate consideration would be a promissory note, promise of future services, or intangible property

    • 18 OS 1033 – valuable consideration is any tangible or intangible property, or any benefit to the corporation, or any combination thereof, except services to be performed

      • Labor to be performed is clearly prohibited by both the statute and the constitution

Voting Rights

• Cumulative voting equation

  • SX/(D + 1)

    • S is the total number of shares voting (of all shareholders)

    • X is the number of directors you want to elect

    • D is the number of electors to be elected

• A minority shareholder in a closely held company does not have much power

• Straight voting

  • Each shareholder gets to vote the number of his shares for each director. Therefore, a person who owns 51% of the company can get the entire board.

• Cumulative voting

  • Get the number of shares you own multiplied by the number of directors to be elected (so if own 2 million share, and 9 directors are being elected, then you would have 18 million votes)

    • The whole point of cumulative voting is to give the minority shareholder some votes

    • In order to have cumulative voting, put it in the articles of incorporation

• Class voting

  • Can have multiple classes of stock with each class having a different amount of votes

Electing and Removing Directors

• Three ways to elect directors

  • Annual shareholders meeting

  • Special meeting (Del 211(d), Okla 1056(d)) (Delaware – only the directors can call a special meeting, unless authorized by the certificate or bylaws to allow others to call the meeting)

  • Written consent – Del 228 – circulate a piece of paper that allows stockholders to consent to the action, need a majority of the stock to be effective and have to deliver it to the corporation; don’t need a meeting or a vote; has to be a date line next to each signature; have to give notice to the shareholders who did not sign it

• Hoschett v. TSI

  • Court says that these annual meetings are important to preserve democratic values of the corporation. However, the court also recognizes that the meeting may be a waste of time, especially when one...

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