Corporations Outline

PENNSYLVANIA CORPORATIONS

ORGANIZATION OF CORPORATION

1) Formation Requirements

a) Incorporators: executes and file articles (can be a person or entity)

b) Articles of Incorporation: contact information and general statement of purpose

c) Filing with PA Department of State

2) Ultra Vires: corporation cannot exceed its stated purpose

a) Ultra vires contracts are valid

b) SH can seek injunctions

c) Responsible officers/directors are liable to the corporation for ultra vires losses

3) Legal Significance

a) PA law governs

b) Corporation is separate legal entity; generally no personal liability of directors

c) SH not personally liable for debts

4) De Facto Corporation

a) Relevant incorporation statute

b) Parties made a good faith attempt to comply with the statute

c) Entity is acting like a corporation

5) Corporation by Estoppel

a) One dealing with a business as a corporation and treating it as a corporation may be estopped from denying the business' corporate status

b) Contract cases only

*NOTE: De facto corporation and corporation by estoppel may be abolished

6) Bylaws

a) Adopted by incorporators or board initially

b) SH can amend/repeal unless bylaws permit the board to do so

c) Articles control in case of a conflict between bylaws and articles

d) Adoption of bylaws not a condition precedent to formation

7) Pre-Incorporation Contracts

a) Promoter Defined

i) Person acting on behalf of the corporation

ii) Corporation not yet formed

b) Liability of Corporation

i) Corporation not liable on preincorporation contracts until it adopts the contract

ii) Corporation adopts impliedly if it accepts the benefits of the contract

c) Liability of Promoter

i) General Rule: promoter remains liable on the preincorporation contract until there is a novation

ii) Adoption binds the corporation but does not relieve the promoter of liability until novation

8) Secret Profit Rule

a) Promoter cannot make secret profit on her dealings with the corporation

b) Sale to corporation of property acquired before becoming promoter: price paid by corporation Ð'- FMV

c) Sale to corporation of property acquired after becoming promoter: price paid by corporation Ð'- price paid by promoter

9) Foreign Corporations

a) Foreign corporations transacting business in PA must qualify and pay prescribed fees

b) Foreign: Incorporated outside PA

c) Transacting: regular course of intrastate business

d) Get a certificate of Department of State

e) Civil fine if conducting business without authorization; contracts are still valid; can't sue (but can be sued)

ISSUANCE OF STOCK

1) Defined

a) Corporation sells or trades its own stock

b) Raising capital for the corporation

2) Subscriptions

a) Written offers to buy stock from corporation

b) Revocable anytime before acceptance by the corporation

3) Consideration

a) Any tangible or intangible property or benefit to the corporation

b) Board determines adequacy of consideration

c) Treasury Stock

i) Previously issued and reacquired by the corporation.

ii) Corporation can resell it at whatever price the board sets

d) Directors liable for consideration if they knowingly authorize the issuance for no consideration (i.e., watered stock)

4) Preemptive Rights

a) Rights of existing SH to maintain her percentage of ownership by buying stock when there is a new issuance

b) Exist only if the articles of incorporation provide for preemptive rights

DIRECTORS AND OFFICERS

1) Statutory Requirements

a) Number

i) One or more adult natural persons (human)

ii) Three is default if articles are silent

b) Election

i) Initial directors can be named or selected by incorporators

ii) After that, SH elect directors at the annual meeting

(1) Classified: divided by halves or thirds

(2) Half elected each year

iii) No term can exceed four years

c) Removal

i) General Rule: SH can remove directors for their terms with or without cause

ii) Exception: classified