Glossary of NC Corporations
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- 3 requirements for the formation of a corporation
- 1. People
- People = Incorporators
- Need one person, does not have to be natural person.
If individual --> 18 years but need not be NC resident
- Paper = Articles of Incorporation
- 1. Corporate name and address
2. Capital Structure
3. Registered agent/office and street address
4. Name(s) of incorporator(s)
- 2 requirements for corporate name
- 1. Must use corporate indicator: Corporation, Corp, Incorporated, Inc, Company, Co, Limited, Ltd
2. Cannot be deceptively similar to some other corporation as decided by the Sec. of State
- Name(s) of incorporator(s)
- Only the incorporators names are needed not the names of directors or officers
- Registered Agent/office
- The person officially designated to accept service of process
- Capital Structure
- Must state the # of shares the corporation is authorized to issue (i.e. the ceiling).
If more than one class of shares is issued --> Articles must describe the rights and preferences that each class will have (i.e. liquidation or dividend preferences)
- Optional Features of the Articles of Incorporation
- 1. Corporate Purpose
3. Initial Directors
4. Special Arrangements for corporate governance
5. Preemptive rights
6. Limited liability of directors
- Corporate Purpose - Statutory Presumption
- The corporation's purpose is to engage in any lawful business.
- Ultra Vires
- Activity beyond what is covered in the corporate purpose feature in the Articles of the Corporation - arises when there is a restrictive purpose clause
- 3 situations in which ultra vires activity may be raised
- 1. Shareholder action
2. Derivative lawsuit
3. Action by Atty General
Ultra Vires activity cannot be raised as a contract defense
- Default is that corporation lives forever unless Articles state otherwise.
- Limited Liability for Directors
- If personal liability of directors is to be limited or eliminated then it must be in the Articles
- Filing of Articles
- At least one incorporator must sign the Articles - need NOT be notorized and are filed in the office of the Sec of State.
Corporate existence begins when Sec. of State files the Articles.
- Ch. 55 of NC statutes requires corporation to adopt bylaws; however there is no penalty for not doing so.
- Contents of Bylaws
- Information about internal governance
- how many directors
- what officers
- time for annual meeting
- Share Transfer requirements
- special quorum or voting reqs
Bylaws can be thought of as a contract between the corporation and the shareholders and among the shareholders
- Application of by-laws to third parties
- Generally not bound - must have actual knowledge.
- Adoption of Bylaws
- Initial Bylaws are adopted by the Directors.
The Shareholders or the Directors may adopt, modify or replace subsequent bylaws.
Bylaws adopted by Directors can be modified by either directors or shareholders; but bylaws adopted by shareholders can only be modified by shareholders unless the Articles or the shareholder adopted bylaw gives directors the power to amend.
- Voting requirements for bylaws with higher to majority requirements.
- May only be amended by that same higher than majority vote.
- 3 Types of Corporations
- 1. De jure
2. De facto
3. By estoppel
- De jure corporation
- Type of corporation you have when you comply with all statutory requirements.
- De facto corporation
- When something goes wrong in the incorporation process can be de facto if:
1. Enabling statute (Ch. 55)
2. Good faith attempt to comply
3. Some exercise of corporate privilege
- Corporation by estoppel
- Only applies if neither de jure or de facto.
Applicable only to contract actions b/c of reliance.
- Limited Liability
- Shareholders are not liable for the debts of the corporation, their liability is limited to their investment.
- Piercing the corporate veil.
- A shareholder can be held personally liable for the debts of the corporation based on the equities of the situation.
Only applicable to de jure corporation.
- Situations in which corporate veil can be pierced.
- 1. Fraud
2. Gross undercapitalization
3. Alter ego theory
4. Excessive fragmentation
Failure to follow formalities is not enough to pierce there must be inequitable conduct.
- Mere instrumentality rule
- Where corporation is operated as mere instrumentality or tool of another.
- Who may pierce?
- 1. Creditors
2. Shareholders - this is rare
- Person who undertakes to form a corporation and obtain for it the people and capital necessary to carry out its business purposes.
- Rights and Responsibilities of promoters
- 1. Fiduciary relationship to each other - no secret dealing - full and fair disclosure to each other
2. Fiduciary relationship to the corporation and investors - fair disclosure and good faith - no secret profits.
- Liability of Promoter on preincorporation contracts.
- If there is contract but no corporation then promoter liable.
If there is a corporation then promoter MAY be liable.
- Liability of Corporation on preincorporation contract
- Key question - Has the corporation adopted the contract?
2 ways to adopt:
1. Formal action - resolution adopted by the board.
2. Acquiesence and acceptance of benefits.
- Liability of promoter after adoption of agreement by corporation.
- Still liable - need a novation to relieve of liability.
This would be a new contract and both sides must agree - tip for exam - only absolve promoter of liability only if you can see no other choice.
- Subscription agreements
- A written offer by subscriber to buy stock.
1. Irrevocable for 6 months.
2. Must be in writing to be enforceable.
- Foreign Corporation
- Corporation organized under the laws of another state.
- Rule for foreign corporations "transacting business" in the state.
- Must qualify if you are carrying on regular course of business in the state by letting the Sec. of State know you are here and where you can be found so can be taxed and must have a local agent.
- Consequences of not qualifying
- Can't sue in the courts of the state.
Can defend once you qualify
Once you qualify you can sue even if the cause of action arose before qualification.
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