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CORP: CHECKLIST 6
CF
CP
O&D
SR
SF
FCC

Corporate Formation
Capitilization
Officer & Directors Duties
Shareholders
Securities Fraud
Fundamental Corporate Changes
CORP: PROMOTERS
Corp is liable on promoters K's when corp adopts them by:
1. Express BOD resolution
2. Implied adoption through knowledge of the K & acceptance of its benefits

Promoter remains liable until there is Novation.
Promoter remains liable if corp is never formed.
Promoter & Corp are liable if Corp adopts K but no novation

Fiduciary Duty
1. Duty of Loyalty
   
i. Self Dealing
    ii. Usurp Opportunities
    iii. Secret Profit

Sale to corp of prop acquired before becoming promoter: Profit recoverable by corp only if sold for more than FMV

Sale to corp of prop acquired after becoming promoter: Any profit recoverable by the corp
CORP: SUBSCRIBERS
Persons or entities who make written offers to buy stock from a corp not yet formed

Irrevocable for 6 months
CORP: INCORPORATORS
Merely sign & file the Articles of Incorporation with the state
CORP: DE JURE
"A PAIN"

1. Authorized shares: Max number of shares corp is authorized to issue

2. Purpose:
    i. General purpose & duration-Presumed
    ii. Specific Stmt of pupose & Ultra Vires
    iii. Ultra Vires: Can't say purpose is to sell books then sell cars instead

3. Agent: Official legal representative

4. Incorporators

5. Name of Corp: Must contain, Corp, Inc, Co, etc.
CORP: DE FACTO
A business failing to achieve de jure corp status is treated as a corp, if good faith attempt to comply & no knowledge of its failure
CORP: LEGAL SIGNIFICANCE
1. Corp is seperate legal person
2. Generally, Shareholders aren't personally liable for debts of corp
CORP: PIERCING THE CORPORATE VEIL
General Rule: A Shareholder is not liable for the debts of a corporation.

Exception: Piercing the corporate veil to avoid fraud or unfairness

1. Alter Ego: Failure to observe sufficent Corporate Formalities; OR

2. Undercapitalization: Failure to Maintain Sufficient Funds to cover Foreseeable Liabilities
CORP: FOREIGN CORPS
A corp incorporated outside CA that wishes to engage in regular intrastate business must file Certificate of Authority w/Secretary of State which includes: "A PAIN"
CORP: STOCK
1. Par Value: Minimum Issuance Price

2. No Par: No Minimum Issuance Price. Any consideration recieved deemed adequate by BOD

3. Treasury Stock: Previously issued & had been reaquired by the Corp. Can then be resold.

I. If corp issues Par stock for less than Par Value:
    i. Directors liable personally
    ii. Stock purchaser also liable to pay full consideration
    iii. Elect to sue either directors or new shareholder
CORP: PREEMPTIVE RIGHTS
Right of existing shareholder to maintain % of ownership by buying stock when there is new issuance of stock for cash.

I. No Preemptive rights if Articles or exam is silent
CORP: DIRECTORS/OFFICERS
1. Corp must have a board of at least 1 member

2. Shareholders elect directors

3. Shareholders may remove directors with or w/out cause

4. Valid Meeting
    a. Unless all directors consent in writing or meeting is required
    b. Notice of directors can be set in bylaws
    c. Proxies & Voting Agmt's NOT ALLOWED
    d. Quorum: Majority of all directors to take action
    e. Vote: To pass resolution-Majority vote of those present
    f. Director presumed to concur in boards action unless dissent is in writing 
CORP: DIRECTORS LIABILITIES TO CORP & SHAREHOLDERS
1. Duty to Manage

2. BJR: Not liable for innocent mistakes

3. Duty of Care: Reasonable Prudent Person, unless Articles limite liability

4. Duty of Loyalty:
    i. Self Dealing
    ii. Usurp Opportunities
    iii. Secret Profits

Exception: Ratification
   
i. Majority Vote by Independent Directors
    ii. Majority Vote of at least 2 Independent Directors; OR
    iii. Majority Vote of shares held by Independent Shareholders
CORP: OFFICERS
1. Duty of Care & Loyalty

2. Agents of corp & bind the corp by Authorized activities

3. Corp must have President, Secretary & Treasurer

4. Directors may elect or fire officers with or w/out cause-but corp may be liable for breach of K damages
CORP: INDEMNIFICATION OF DIRECTORS/OFFICERS
1. NEVER Indemnify a director who: lost a lawsuit to their own corp

2. MUST ALWAYS Indemnify if:
Director wins a lawsuit against any party

3. MAY Indemnify if:
    a. Liability to 3rd Party or Settlement w/corp
    b. Director/officer shows good faith & believes conduct was in corp's best interest
    c. Who determines?
1. Majority of Independent Directors
2. Comittee of Independent Directors
3. Majority of Shares held by Independent Shareholder Votes for it
4. Special Lawyers Opinion Recommends
CORP: SHAREHOLDER RIGHTS
1. Derivative Suits:
    i. Shareholder suing to enforce corp's cause of action
    ii. Requirements:
a. Contemporaneous Stock ownership (must own min 1 share when claim arose & throughout litigation)
b. Demand on Directors (Demand made & rejected OR 90 days passed since demand)

2. Voting
    i. Record Date Owner Votes
    ii. Proxies: Revocable, Unless Labeled "Irrevocable" & Coupled w/Interest
1. Writing
2. Signed by Record Shareholder
3. Directed to Secretary of Corp
4. Authorizing Another to vote the Shares
5. Valid for 11 months
    iii. Shareholders Vote at Properly Noticed Annual Meetings
      a. At least 1 director slot must be open for election
      b. Special Notice Meeting: Called by Board, President or holders of 10% of voting shares
         i. Only specifc proposal or change may be discussed

3. Quorum: A majority of shares represented when meeting begins

4. Vote: Action is approved if votes cast in favor of proposal exceed the votes casts against proposal
    i. Only care about votes actually cast
    ii. Pooled or Block Voting:
1. Voting Trust: 10 Years
a. Written Trust Agmt
b. Filed w/Corp
c. Transfer shares to voting trustee
d. Shareholder gets trust certificate
e. Shareholders retain all other rights
2. Shareholder Voting Agreement

5. Cumulative Voting Directors
    i. Does not exist unless granted in articles
    ii. Multiply the number of shares times the number of directors to be elected

6. Right to Examine Books & Records
CORP: DIVIDENDS
Declared in Board's discretion unless corp is insolvent

1. Priority of Distribution

I. Preferred: First & remainder paid equally to Common
II. Participating: Paid Twice
III. Cumulative:
IV. Common: Last & Equally
CORP: CLOSELY HELD CORP
1. Unanimous shareholder agmt
2. Reasonable Share Transfer Restriction (NO PUBLIC TRADING)

Upsides:
1. No Piercing
2. Possible Sub chapter S-corporation status
    i. S-Corp: Deemed to be partnership & gets partnership tax status
    ii. No more than 100 shareholders & no more than 1 class of stock
CORP: PROFESSIONAL CORP
1. Licensed Professionals: (PC)
2. Requirements:
a. Articles filed with name of PC
b. Shareholders must be licensed professionals
c. Only 1 designated profession
d. Professionals liable personally for their own malpractice
e. Not liable for eachothers malpractice or the corp obligations
CORP: SHAREHOLDER LIABILITIES
General Rule: Shareholders are not liable for corporate obligations

Exception:
1. Piercing
2. Controlling shareholders owe a fiduciary duty to minority shareholders; &
3. Controlling shareholders are liable for selling corp to a party who loots the corp
CORP: FUNDAMENTAL CORP CHANGES
1. Merger
2. Fundamental Amendment of Articles; Sale of substantially all corp assets
CORP: PROCEDURAL STEPS
1. Resolution by Board at Valid Meeting
2. NOtice of Special Meeting
3. Approval by a majority of all shares to vote & by a majority of each voting group that is adversly effected by change

Exception:
No shareholder approval for "short term" merger where a parent corp that owns 90% or more of the stock in its subsidiary merges w/the subsidiary.

I. A shareholder who does not vote in favor of a fundamental change has the right to force the corp to buy her shares.
    i. File written notice of objection & intent to demand payment before vote
    ii. Dont vote in favor of change
    iii. Make prompt written demand to be bought out
    iv. Court appoints expert to value shares
CORP: 10(b) 5 SECURITIES EXCHANGE ACT
1. Scienter: Intent to Recieve
2. Deception: Lie, Insider Trading
3. In connection w/actual purchase or sale of securities

Private Action: Investors must prove:
1. Reliance
2. Loss Causation

Tipper: Liable if the tip was made for an improper purpose
Tippee: Liable if the Tipper breached a duty & the Tippee knew
CORP: 16(b) SHORT SWING TRADING PROFITS
Strict Liability

Applies to:
1. Big Corporations: Reporting Corp = 1. Listed on national exchange; OR 2. at least 500 shareholders & $10 million in assets

2. Big Shot Defendants: Officer, Director or 10% shareholder

3. Type of Transaction: Buy & Sell stock w/in 6 month period

Consequences:
All Profits from short swing trading are revocable by the Corp.
If w/in 6 months before or after any sale, there was a purchase at a lower price than the sale price, there is a profit
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