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California Bar Exam Lecture Notes - Corporations

California Bar Exam Lecture Notes - Corporations

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Published by Lal Legal
Kaplan lecture notes from the July 2013 California Bar Exam on Corporations
Kaplan lecture notes from the July 2013 California Bar Exam on Corporations

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Published by: Lal Legal on Jun 11, 2014
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02/28/2015

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California Corporations
I. INTRODUCTION: THE CORPORATE FORM
A.The Corporation as a Separate Entity (OL I.A.)
1.A corporation is:separate person under the law 2.Shareholders:limited liability 3.Board of Directors:management 4.fficers:run day to day affairs !."ay attention to:functions of different people playing different roles in the corporations #.$he ma%or characteristics of a corporation are: a. free transferability of shares b. continuous e&istence e'en if s(h dies c. limited liability of shareholders d. centrali)ed management * s(h don+t manage corporation, but board of directors run it
B.Foreign Corporations (OL I.B.)
1.
Foreign corporation
 means a corporation with shares, or other business corporation formed under the laws of another  %urisdiction.
C.Types of Business Corporations (OL I.C.)
1.
S Corporation vs. C Corporation
a.S corporations ha'e special ta& status, so owners and not business is ta&ed. b.$he identity of a corporation as an -S orp/ or - orp/ is only rele'ant for federal income ta& purposes. 0t has no bearing on the general status of the corporation under state law.2.
Pu!ic!y Tra"e" Corporations
a."ublicly traded corporations are:traded on the stoc e&change, with hundreds of shareholders 3.
C!ose!y #e!" Corporations
a.A closely held or -pri'ately held/ corporation is a corporation:is pri'ately owned, and can ha'e %ust 1 shareholder
 
II. FORMATION OF THE CORPORATION
A.Artic!es of Incorporation (OL II.A.)
1.A corporation is ordinarily created by the incorporators:iling of articles of incorporation 2.
Provisions
a.$he articles of incorporation must set forth:1 5ame of corporation 2 Agent for ser'ice of process 3 5umber of shares authori)ed b.$he articles of incorporation may also include a:limited liability for directors and officers
B.By!a$s (OL II.C.)
1.
By!a$s
 are:constitution of corporation. details of how corporations are run and general rules 2.6nless specified in the articles, the bylaws must set forth:when meetings are held, special re7uirements, how many directors, how many officers and their %obs responsibilities 3.$he bylaws may specify, among other things: a. the time, place manner of calling, conducting gi'ing notice of shareholder, director meetings the manner of e&ecution, re'ocation and use of pro&ies b. 7ualifications, duties, and compensation of directors, time of their annual election, 7uorum re7uirements for board and committee meetings 4.$he power to alter, amend or repeal the bylaws or adopt new bylaws, sub%ect to repeal or change by the action of the shareholders, is:'ote of s(h is re7uired, but often BD can amend or repeal bylaws.
C.Organi%ationa! &eeting (OL II.B.)
1.$he board of directors named in the articles, or the incorporators if no initial directors were named, must hold an organi)ational meeting:at least once a year 2.$he Board of Directors and shareholders must each: 
'.Incorporator(s) (OL II.A.)
1.An incorporator is:person who forms the corporation 2.$his person:may or may not be a director
E.'efective Incorporation (OL II.'.)
1.
De Jure
 Corporation
 a.A
de jure
 corporation is:substantial compliance with the rules to become a corporation 2.
De Facto
 Corporation
 a.A
de facto
 corporation is:corporation which has not been properly formed.
 
b.$hree features of a
de facto
 corporation are: 1 good faith attempt to comply with incorporation statute 2 business had a legal right to incorporate 3 principals of the corporation acted in good faith as a corporation
EXAMPLE
:
Sarah an" Sa have a trucing copany. They try to for a corporation* ut their !a$yer "ies +ust prior to fi!ing the Artic!es of Incorporation. Sa an" Sarah "on,t rea!i%e the corporation $as never fore". It is !ie!y it $i!! e fore" a
de facto
 corporation. They hit a!! three re-uireents.
c.
De facto
 status:is going to insulate directors and s(h from liability %ust as if they were a corporation d.8owe'er, the
de facto
 doctrine would rarely apply today, because the state must appro'e the articles before they are filed, and a statement by the Secretary of State of the fact of incorporation is conclusi'e e'idence of incorporation.3.
Corporation y Estoppe!
a.Absent
de jure
 or
de facto
 status:9ight still be protected under estoppel doctrine b.$his arises when:if creditor treats a business as a corporation, the creditor is estopped from alleging that corporation was defecti'e and he could get to principals to hold them personally liable c.$he re7uirements for corporation by estoppel are:1 D must ha'e held out as a corporation 2 acted as a corporation 3 honest belief that he or other principals were corporation d.$he estoppel doctrine is not a defense to:tort claim because person with tort claim would not ha'e notice. e.0t generally arises in:contract claims where prior business relationship e&ists
EXAMPLE
:
onsidering the facts of the pre'ious e&ample, if the company ordered computers from Dell and are unable to pay, e'en though they are not an actual corporation, they may be protected by both estoppel and
de facto
 status. 8owe'er, if a truc dri'er hits a pedestrian and breas that person+s legs, the company may be protected by
de facto
status but will not be protected by estoppel, because the 'ictim will not ha'e had notice of the trucing company acting lie a corporation.4.
Ultra Vires
a.$his is when the corporation is:acting beyond the scope of its authority in the A0 and the action can be en%oined b.imited in alifornia by:ultra 'ires cannot be raised as a defense by a corporation or shareholder against third parties in'ol'ing any contract to which corporation is party. $he primary remedy is to hold the responsible persons liable for damages
HYPOTHETICAL
$he articles of incorporation of Bertos orp. prohibit the corporation from incurring any debt greater than ;1<<,<<<. $he corporation+s board of directors appro'es the purchase of property worth ;3!<,<<<. 0n connection with Bertos+ application for a ;1!<,<<< mortgage to finance the property, irst 5ational Ban re7uests a copy of the corporation+s articles of incorporation. 0t then appro'es the loan. 9ay Bertos+ shareholders challenge the loan on the grounds that it was
ultra vires
=

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