BCOR 320 1nd Edition Lecture 37 Chapter 20 Corporations Promoter s liability before the corporation is formed Promoter Someone who organizes a corporation Personally liable on any contracts he signs before the corporation is formed After it is formed a corporation can adopt the contract Adopt Agree to be bound by the terms of a contract Promoter can get off the hook if the other party agrees to a novation Novation A new contract with different parties Incorporation process Where to incorporate Domestic corporation a company in the state where it incorporates Foreign corporation A corporation formed in another state Companies generally incorporate either in The state where they most of their business Delaware Offers several advantages Laws that favor management An efficient court system The charter Defines the corporation including Name of corporation Address and registered agent Incorporator Person who signs the charter and delivers it to the Secretary of State Purpose Stock These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Stock The charter must provide three items of information about the company s stock Par value Number of shares Authorized and unissued Stock that has been authorized but not yet sold Authorized and issued Stock that has been authorized and sold Treasury stock Stock that a company has sold but later bought back Classes and series Class Categories into which stock can be divided Series Classes that are further divided into subcategories Preferred stock The owners have preference on dividends and in liquidation Cumulative preferred stock Non cumulative preferred stock Participating preferred stock After incorporation Directors and officers A corporation is required to have at least one director unless All shareholders sign an agreement that eliminates the board The corporation has 50 or fewer shareholders Written consent Through which shareholders elect directors Minute book The official record of a corporation Bylaws A document that specifies the organizational rules of a corporation or other organization Quorum The percentage of voters who must be present for a meeting to count Issuing debt Corporations need to borrow funds for start up Bonds Long term secured debt Debentures Long term unsecured debt Notes A short term debt either secured or unsecured payable within five years Death of a corporation Voluntary Shareholders elect to terminate the corporation Forced By court order Pierce the corporate veil A court holds shareholders personally liable for debt of a corporations under four circumstances Failure to observe formalities Commingling of assets Inadequate capitalization Fraud Termination Terminating a corporation is a three step process Vote Filing Winding up The role of the corporate management Stakeholders Anyone who is affected by the activities of a corporation such as Shareholders Employees Customers Creditors Suppliers Neighbors Managers have a fiduciary duty to act in the best interests of the shareholders The business judgment rule If managers comply with the business judgment rule a court will not Hold them personally liable for any harm their decisions cause the company Rescind their decisions Accomplishes three goals Permits directors to do their job Keeps judges out of corporate management Encourages directors to serve Duty of loyalty The obligation of a manager to act without conflict of interest Prohibits managers from making a decision that benefits them at the expense of the corporation Self dealing A manager makes a decision benefiting either himself or another company with which he has a relationship Valid when Disinterested members of the board of directors approve the transaction Disinterested shareholders approve it The transaction was entirely fair to the corporation Corporate opportunity Managers are in violation of the corporate opportunity doctrine if they compete against the corporation without its consent Duty of care Requires officers and directors to Act in the best interests of the corporation Use the same care that an ordinarily prudent person would in the management of her own needs Rational business purpose Legality Informed decisions Rights of shareholders Shareholders don t have the right or the obligation to manage the day to day business of the enterprise Right to information Under the Model Act shareholders with proper purpose have the right to inspect and copy corporation s minute book accounting records and shareholder lists