Transcript Corporations - Villanova University

Corporations
Organization
(Formation)
And
Financial Structure
Promoters
Promoters: Person or persons who organize and start
the corporation, negotiate and enter into contracts in
advance of its formation, find the initial investors to
finance the corporations, etc.
PROMOTERS ARE NOT AGENTS OF THE CORPORATION BUT DO
OWE A FIDUCIARY DUTY TO THE CORPORATION AND TO ITS
PROSPECTIVE INVESTORS.
CORPORATION IS NOT OBLIGATED TO COMPENSATE A
PROMOTER FOR PROMOTIONAL SERVICES BUT MAY CHOSE TO
DO SO.
MBCA PERMITS ISSUANCE OF SHARES FRO PROMOTER’S WORK
Promoters
1. Discover a business or idea to be developed
2. Finds investors
3. Negotiates contracts necessary for initial
operation.
4. Incorporates the business
5. Helps management start operations
Promoters
Promoters: Person or persons who organize and start
the corporation, negotiate and enter into contracts in
advance of its formation, find the initial investors to
finance the corporations, etc.
PROMOTERS ARE NOT AGENTS OF THE CORPORATION BUT DO
OWE A FIDUCIARY DUTY TO THE CORPORATION AND TO ITS
PROSPECTIVE INVESTORS.
CORPORATION IS NOT OBLIGATED TO COMPENSATE A
PROMOTER FOR PROMOTIONAL SERVICES BUT MAY CHOSE TO
DO SO.
MBCA PERMITS ISSUANCE OF SHARES FRO PROMOTER’S WORK
Promoter Liability
Pre -incorporation contracts:
a. Leases
b. Sales contracts
c. Purchase of property
d. Employment
PROMOTERS ARE PERSONALLY LIABLE ON
PRE-INCORPORATION CONTRACTS.
Promoter Liability
Corporation never formed
All promoter(s) have joint personal liability
Corporation formed
Promoter(s) remains liable on contracts even after incorporation
even thought corporation adopts contracts.
Novation: A three-party agreement whereby the
corporation agrees to assume the contract liability of
the promoter(s) with the consent of the third party who
agrees to release the promoter(s) from the contract.
Incorporators
One or more persons, partnerships,
corporations or other associations which
file the documents (articles of incorporation)
necessary to create the corporation.
Formation
Corporations are created by compliance with
state corporation statutes which usually require,
a. filing Articles of Incorporation with the secretary of
state,
and
b. paying a fee
Corporate existence begins when the articles of
incorporation are filed, unless a delayed effective
date is specified in the articles. (2.03 (a))
Articles of Incorporation
Articles must include the following: (2.02)
1. Name of corporation
2. Number of shares authorized to issue
3. Address of corporate office and name of
initial registered agent
4. Name and address of each incorporator
Articles of Incorporation
6. Provisions defining, limiting and regulating
powers of directors / shareholders
7. Par value of authorized shares
8. Imposition of personal liability on
shareholders for the debts of corporation to a
specified extent and upon specified
conditions.
Articles of Incorporation
9. Release of Directors from liability to
corporation or shareholders except for:
a. financial benefit received to which
director is not entitled.
b. Intentional infliction of harm
c. Liability for unlawful distributions
d. Intentional violation of criminal law.
Formation
De Jure Corporation
All requirements for incorporation are met
De Facto Corporation
Good faith effort to incorporate, however all
requirements not met and operate as a corporation
 Business will be treated as a corporation in all
respects, except state may bring an action challenging
the corporate status

Formation
Corporation by Estoppel
Occurs when
a. purported corporation holds it self out as
being a corporation, and it is not.
b. Third party relies on representation.
Purported corporation and third party will be
estopped (prevented) from denying corporate
existence. Applies only to specific situation.
Formation
Model Business Corporation Act eliminates the
concepts of de facto corporation and
corporation by estoppel.
Revised Model Business Corporation Act section 2.03 (b)
“The secretary of state’s filing of the articles of incorporation is
conclusive proof that the incorporators satisfied all conditions
precedent to incorporation except a proceeding by the state to
cancel or revoke the incorporation or inv9luntarily dissolve the
corporation”
Formation
Defective Incorporation
Attempts to incorporate fail to meet minimum
requirements
No corporation is formed
Incorporators are treated as general partners
Financing the Corporation
Equity Securities: Stock
Create an ownership relationship.
Holders of stock (shares) are the owners of
the corporation.
Debt Securities: Bonds (debentures)
Represent the borrowing of funds by the
corporation.
Corporate Bonds
Debenture Bonds: .(unsecured)
Bonds for which not specific assets of the
corporation are pledged. Backed by general
credit rating of thecorporation
Bonds: (Secured)
Bonds pledge specific property.
(real or personal
Mortgage Bond: Pledges real property.
Corporate Bonds
Convertable Bonds:
Bonds that can be exchanged for a specified
number of share of stock under certain
conditions.
Callable Bonds:
bonds that may be called in and the principal
repaid at specific times or under conditions
stipulated in the bond when it is issued.
Corporate Stock
Common:
Voting shares that represent ownership
interest in the corporation.
Preferred: (May or may not have right to vote)
Shares of stock that have priority over commonstock as to payment of dividends and distribution of
assets on dissolution.
Dividend payments usually fixed percentage of face
value.
Corporate Stock
Cumulative Preferred:
Required dividends not paid in a given year
must be paid in a subsequent year before
any common stock dividends are paid.
Participating Preferred:
Share entitling the owner to receive (1) the
preferred dividend and (2) additional
dividends after dividends are paid on
common stock
Corporate Stock
Convertible Preferred:
Shares entitling the owner to convert share
into a specified number of common shares.
Redeemable, or Callable Preferred:
Shares issued with the express condition that
the issuing corporation has the right to
repurchase shares as specified.