Law Outlines Corporations Outlines
I hand wrote all my notes for this class and then used those notes to create this outline in order to prepare for the Final Exam. ...
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Corporate Formation & Cert/Bylaw Amendments
Cert of Incorporation
The overriding and controlling document of corporation’s governance
Must be filed with the secretary of state
Mandatory Inclusions: DE §102(a)
Name w/ special word or abrev. (corp or inc. etc)
Address of the offices, name of registered agent & address
Nature of business to be conducted
# of shares authorized to issue & if they are common or preferred
Name & address of incorporator
Optional Provisions DE §102(b)
Management of company
Can give SH preemptive right to buy stock (get 1st chance to buy new stock, determined on your ownership %)
Something that requires a larger majority on certain votes
Something limiting time corporation exists (perpetual if don’t list)
If you are going to have cumulative voting
Provision that imposes personal liability on SHs
Provision that limits personal liability of directors (102(b)(7))
Bylaws DE §109
Not generally made public
Usually more detailed than cert of incorporation
Doesn’t have to be filed anywhere
Its basically the internal rules that govern the corporation
CERTIFICATE ALWAYS TRUMPS THE BYLAWS WHERE THEY CONFLICT, AND DECISIONS OF DIRECTORS ARE TRUMPED BY THE BYLAWS
Amending the Documents
Articles of Incorporation Amendments
Must be initiated by the directors, and then sent to SHs for approval per §242(b)
Bylaw Amendments
SHs may propose amendments to the bylaws & by vote may amend the bylaws
In the certificate this power may also be given to the Directors but doing so doesn’t divest the SHs of the power also.
Voting
Straight Voting
Each SH gets to vote the # of his shares for each director.
Here, if a person owns 51% of the outstanding shares he can get the entire board.
Cumulative Voting
SX/(D + 1)
S = the total # of shares actually voting (of all SHs)
X= the # of directors you want to elect
D= the # of directors to be elected
So for example if there are 9 directors to be elected and there are 1000 shares voting, then to be able to get 3 directors:
(1000)(3)/9+1=
3000/10=300 and so you would need 301 shares to elect 3 of the 9 directors.
You can cast a total # of votes equal to the # of your shares multiplied by the # of positions to be filled and can spread these votes among as many candidates as there are seats to be filled or concentrated in as few as 1 candidate
Example: if you own 2,000 shares and there are 9 directors to be elected then you get (2,000 x 9)= 18,000 votes
Registration & Exemption
Transactions Covered
If you sell a security then you have to register it with the securities commission
Security= any instrument that might be sold as an investment, look for investing in something and relying on the efforts of others for profit
You must disclose the financial condition of the corporation, information about management & registrant, financial statements and basically
“Material events & uncertainties which would cause reported financial info not to be necessarily indicative of future operating results or financial condition”
Exemptions
There are basically 2 general exceptions to registration
§4(2): Non-public offering
Buyer has to have knowledge & experience in finance & business to be able to evaluate risks
Must have access to info that would have had if required register
Can’t resell or redistribute
Can’t solicit or advertise
Use Reg D to see if 4(2) Applies:
504: Less than $1M
If sell less than $1M securities in a 12 month period then exempt so long as buyers sign something saying not reselling or distributing
Cannot use general solicitation/advertising
Buyer’s don’t have to be “accredited” (§501)
506: Limited Offer (Most Common)
Can only sell to 35 non-accredited investors (§501)
Can sell to unlimited # of accredited investors
All must sign no distribute or resell
**IF do sell to even 1 non-accredited buyer then the whole group has to get all kinds of disclosure info
§3(a)(11): INTRAstate offering
If selling only in one state then don’t have to register
Business Judgment Rule/ Intrinsic Fairness
Fiduciary Duty of Loyalty
Corporate Opportunity (GUTH)
A director may take the opportunity if:
Presented to him in an individual & not corporate capacity
The opportunity isn’t essential to the corp
The corp holds no interest or expectancy in the opportunity
He has not wrongfully used corp resources in pursuing the opportunity
Duty of loyalty is acting in good faith and with a reasonable belief that what you do is in the best interests of the corporation.
Just because the corp can’t afford to undertake it is not good cause not to present it to them first
Can’t take if corp able to financially exploit it and it is in their line of business which they have fundamental knowledge and experience with, and it would be logically adaptable to the corp’s current business.
Look for same types of business or relatedness, same field of experience, look at if competing with company or not.
Conflict of Interest Transaction (GLOBE)
Conflicted Party:
On both sides, electricity one where negotiate both sides of a transaction and go to meeting
Don’t vote, don’t go to meeting, if negotiate speak up, process give time
Self Dealing: (Sinclair/Livien)
Sinclair cause sinven to declare dividends
When 1 person or group controls both sides of a transaction and takes a benefit to the Exclusion & detriment of the SHs
If have self-dealing transaction then don’t have business judgment rule but instead intrinsic fairness
Fair Dealing: this is process, look for timing issues, negotiations, did they rely on experts,
Fair Price: market price, independent valuation, prospects, etc.
Basically look for director on both sides of the equation/transaction
Sitting silent & not speaking up is not gonna protect you
Not voting alone is not enough to make you not-interested but will shift the burden to the other party to prove COI & unfair contract
Don’t attend and participate...
Buy the full version of these notes or essay plans and more in our Corporations Outlines.
I hand wrote all my notes for this class and then used those notes to create this outline in order to prepare for the Final Exam. ...
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