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Business Associations/Corporations
South Texas College of Law Houston
Ricks, Val D.

Corporations Spring 2018: Ricks
Formation of corporation
Types of for profit corps-
Public- owned by public shareholders, anyone can buy
Controlled- majority of voting shares held by group, or person.
Close- owned by only a few, restrictions on alienation of shares, voting rights.
Governing authority – board of directors, manage and direct the affairs of the corp
Owner- shareholder
Ownership interest- share of profits or losses, receive distributions, NOT manage
Scope of purpose- any lawful purpose, unless restricted in certificate 2.001
Limit scope of purpose- in certificate of formation 2.005
General powers of  Corp 2.101- same powers as a person, cannot be limited, powers provision trumps purpose 20.002b
Ultra Vires acts 20.002- act of corp. not invalid because its outside scope of purpose or officer didn’t have authority. AG may also terminate.
When does corp. form- corp is formed de jure when the form is filed by secretary of state, not when it is submitted. 3.001
Non De jure formation-
De-facto formation- when a colorable good faith attempt has been made to incorporate. May enter into contracts, shareholders not liable to creditors.
Standard for colorable good faith attempt- Hausman, mere execution not enough, must try to comply with statues, not ex post facto de-facto formation if no attempt to comply before filing.
Formation by estoppel-
Makes statement to another that corp. has formed
The other relies on that statement
To the other’s detriment
Note- This is not de facto formation, only has the effect that the statement may not be denied in court. Example, if hire someone and tell them that the corp. has formed, person signs K on behalf of corp. Corp is not formed. Then person who signed is not liable on K, as law will act as if corp. had formed, but it does not cause de facto formation. Corp. only exists within confines of case. Contrast with de facto- that the corp. is deemed to have formed, as entity with full rights.
Duration of corp. – indefinite unless otherwise stated in certificate of formation. 3.003
What the certificate must include- name, type, purpose, period of duration if not indefinite, street address of corp, name and address of each organizer, unless merger, may contain provisions inconsistent with code. 3.005
Other info required on certificate- aggregate number of shares, par value, or statement shares have no par value, number of directors if managed by board, and name and address of initial directors, types of classes of shares, type of voting right, social purposes. 3.007
Who must sign certificate- authorized person, must be delivered by mail, fax, courier, email, or on line. 4.001
Filing fee- 300 bucks  4.152
Name of Corp- must include corp, company, incorp, limited, or any abbreviation of those words. 5.054
Names cant be identical- standard deceptively similar 5.053
Dividends- may not be paid to corps members, directors, or officers. However, may pay reasonable salary, benefits, stock, or distributions upon winding up. 22.053-54
Which law governs- state law for internal affairs if formed in Texas 1.101
Who can form corp.- any mentally competent person with ability to contrac 3.004
Governing Documents of  Corp.
Can you amend certificate of formation- yes, 3.051
What must you do to amend- must sign and file with secretary of state. 3.052
How much does it cost to amend- 150 bucks. 4.152(2)
What must be included on amendment certificate- 3.053
Type of corp
The amendments
Proof amendment was approved properly
Who must sign amendment- officer, or if no shares have been issued, majority of directors. 3.054
When does amendment take effect- when it is filed by secretary of state, not when submitted. 3.056a
Who must approve amendment-
If no shares have been issued- the board of directors unanimously. 21.053
If shares have been issued- shareholders  by 2/3 majority. 21.054/364
How to approve amendment if shares have been issued-
Must give written notice of meeting time, proposed amendment. Usually done at and in notice for annual meeting.
Must be approved by 2/3 of shareholders entitled to vote.
Bylaws- rules governing internal affairs of corp. are subservient to certificate of formation. Ex. Responsibility of corp.  officers, how corp. operates day to day. 
Who makes and approves initial bylaws- the initial board of directors. 21.057
Who may amend, or repeal, or adopt new bylaws after initial bylaws are made-
Board of directors- unless certificate reserves the power to shareholders, or the shareholders adopt a bylaw saying only they have the power to amend or repeal that bylaw. 21.057
Shareholders- always have the power to adopt bylaws, but their power to amend or repeal the bylaw may be limited in certificate of formation, or by adoption of bylaw before shares have been issued by board. 21.057/58
Dual authority- unless stated otherwise in certificate or bylaw adopted by shareholders- both the board and shareholders have right to amend, repeal, and adopt new bylaws. 21.058
Does a corp. have duty to keep books- yes 3.151
What has to be kept as part of books- 3.151
Records of accounts
Minutes of proceedings.
Current record of the name and mailing address of each shareholder
The original issuance of s

r the agreement-  yes if the following circumstances are met 6.252
If the agreement is noted conspicuously on the certificate
Or the corp. notifies the purchaser of stock about it
Note, only enforceable after notification
Do shareholders have duty to vote certain way or to vote at all- no, share holder may vote or not vote for whatever reason they wish, as long as it doesn’t violate duty to other shareholders, Ringling bros case.
Shareholder agreements- agreement among share holders to restrict power of board, eliminate it and put one person in charge, or otherwise limit rights and powers under code. Mostly for close and controlled corps.
Can share holders enter into shareholder agreement- yes 21.101
Must be included in one of the following documents.
Certificate of formation.
Bylaws- if approved by all shareholders at time of agreement
In writing that is signed by- all shareholders at time of agreement, made know to the corp, and may only be amended by all shareholders.
Term of share holder agreement- 10 years unless otherwise specified in agreement. 21.102
Do the agreements have to be disclosed- yes must be noted conspicuously noted on stock certificate, and must include certain language. 21.103
If it is not disclosed, does it effect validity of agreement- no 21.103
Can agreement be inconsistent with code- yes 21.104
Does someone who is not aware of agreement have any recourse –21.105  yes they may rescind purchase if
It was not noted on front
It was not notified by corp. of agreement until after purchase
And it is brought within 90 days of finding out about agreement, or within 2 years of date of purchase.
If the agreement disregards the separate existence of corp. does that make shareholders liable- no 21.107
Can public corps have an enforceable shareholder agreement- no 21.109
Doctrine of independent legal significance- just because something isn’t allowed under the code, doesn’t mean you can’t accomplish it in other forms of law.
However not that in Triggs- if the contract is unfair and would cause damage, it might not be enforceable if its outside of the code.