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Created by legislation to administer some types of legislation ex: CTA, Board of Education |
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Closely Held Corporations |
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Owned by low number of shareholders; sale of stock restricted |
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Publicly Held Corporations |
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Federal tax issue, not state issue. Allows taxation as flow through entity |
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In charge of finding investors and building for corporation. Has fiduciary duties (just no secret profits) |
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promises to buy stock in corporation, irrevocable for 6 months |
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What must be included in Articles of Incorporation? |
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1) Name of corporation 2) Duration 3) Company Purpose 4) Registered Agent (signs and files articles) 5) Name and Address of Corporation 6) Number of shares authorized to issue and value of shares (usually no par value) 7) Signature of Incorporators |
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Must be filed after articles of incorporation |
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What should go in the corporate record book? |
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Articles, Bylaws, minutes (who said and did what during meeting), stock ledger |
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What happens at the organizational meeting? |
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1) Stockholders elect BOD 2) Director appoints officers 3) Directors write company bylaws (in the future, directors do not need approval to change) |
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Corporation formed by following the law |
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If company has made good faith attempt abiding the law informing and conduct business as if it is a corporation then |
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Under the right circumstances a creditor can pierce the corporate veil and go after shareholders as if they were personally liable |
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Ways to pierce corporation |
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Definition
1) Under capitalization, a corporation is to retain sufficient capital as to cover reasonable expenses 2) Failure to follow corporate formalities 3) Commingling of funds and assets 4) Fraud |
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Corporate Powers and Duties |
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Definition
1) Can sue and be sued in its own name 2) take out mortgage 3) Doctrine of Ultra Vires ( acts attempted by a corporation that are beyond the scope of powers granted by the corporation) 4) Tort liability - respondeat superior |
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Definition
1) Indenture: agreement that typically has promissory note and description of collateral 2) Secured Bonds: secured by specific corporate property 3) Income bond: a formula that ties in payment with corporate income 4) Convertible debt: debt instrument issue with convertibility option, debt to equity |
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1) Common stock: greatest risk 2) Preferred Stock: has liquidating preference, received div payments before common 3) Cumulative Preferred: if dividends aren't received, accumulate 4) Cumulative if earned: dividends accumulate only if there are earnings 5) Cumulative Participating Preferred: gets cumulative dividend and part of common dividends |
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Bank, cheapest money. Lower interest rate but most impatient |
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Non-traditional banks, more expensive than banks but also more patient |
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Much more expensive that tradition and non-traditional lenders, high interest, might ask for bond with convertibility. Want to be represented on BOD, but very patient |
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Most patient lender, most expensive and might have to give up control of company |
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Types of dividends that can be declared by BOD |
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Definition
1) Cash dividends 2) Property dividends (although hard to figure out value) 3) Stock dividends 4) Stock split (shareholders still own same value of stock) 5) Liquidating dividends (distribution of capital assets of company) |
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State Restrictions on Dividends |
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Definition
1) If company is insolvent, or declaring dividends would make them insolvent 2) Once dividend is declared it cannot be rescinded (unless it is a stock dividend) |
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Date you should be a shareholder by in order to receive a dividend |
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Definition
The day the dividend is to be paid |
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Liability for Declaring Improper dividend |
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1) Directors who declare dividend knowing insolvency are held personally liable to corporation 2) Directors in good faith are not liable |
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Shareholder's voting rights |
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Definition
1) Can vote for directors (in or out) and do not need a cause 2) Can vote on extraordinary matters 3) Vote at annual meetings, or special meetings called by BOD |
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Definition
Statement from stockholder giving his vote to somebody else, freely revocable. Expires after 11 months |
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Definition
A group of shareholders get together and put together their stock. The trustee has title to the trust but shareholders have say. If majority of members of trust agreement vote one way, trustee must vote ALL shares that way. |
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Termination of voting trust |
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Definition
1) by agreement of all members of trust 2) after 10 years 3) when trust agreement says so |
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Term
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If shareholders accept agreement to restrict transfer of shares, you must write on the back of the stock certificate that they are subject to restrictions, or else stock is transferable. |
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Term
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Should be made for cases such as a death or incapacity of a shareholder, and written by a lawyer. If you don't understand agreement tell them to rewrite it until you do. |
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Shareholder's right to info |
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Has right to see records if showing proof of proper purpose and make written demand. SELF AGGRANDIZING IS NOT PROPER PURPOSE |
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1) manage day to day operation 2) determine capital and financial structure 3) value and consideration of new shares 4) authorize bonds and notes 5) buy/sell/lease assets in ordinary course of business 6) Declare dividends 7) Executive compensation 8) Pass resolutions |
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Definition
When there is a vacancy, the board can leave vacancy empty until annual meeting or surviving board fills vacancy all on their own until annual meeting |
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Definition
You elect them, they can be dumb just not recklessly or willfully make mistakes |
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Fiduciary duty to subordinate personal interest to interest of company. Full disclosure fixes conflict of interest problems, so does abstaining from voting. |
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If on 2 conflicting boards, abstain from voting |
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Corporations can make loans to directors only if the are 1) small or 2) a SOX company |
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Corporate Opportunity Doctrine |
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You are not allowed to usurp (wrongfully take for yourself) a corporate opportunity |
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Examples of extraordinary acts |
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Amending articles of incorporation, increase authorized shares, sell/buy/lease assets out of ordinary course of business, effectuate merger needs both BOD and shareholders approval, liquidation of company |
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Serve at pleasure of board, can have as many officers as you'd like, act as agents of corporation |
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1) Give notice of dissent 2) get approval of shares |
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1) Attorney general asks to dissolve company 2) Have 60 days to be resurrected |
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Shareholder derivation action: if you win, money goes to company Direct Action: individual sues company and individual wins and gets money |
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