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Business Associations/Corporations
South Texas College of Law Houston
Yamamoto, Kevin M.

Corporations Outline

Need to know:

How to Form a Corp
Doctrines, Principles, Statutory requirements for maintaining a corp
How to dissolve a corp
How to take legal transactional corp action
How to change corp from i.e. number of shares, directors, etc.
How to assist corp in crisis
Principals of indemnification, risk taking, people who run corps, leverage of dollars

******Example: *****

Duty of Loyalty – Corporate Opportunity Doctrine; NE Harbor Golf Club, Inc. (Maine 1995) – page 484; Holloway, 368 sw2d 567(Texas 1960), Canyon, 537 sw2d 510 (Texas).
Issue: Usurpation of corp opportunity
There was a pre-existing fiduciary duty of the director
International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567; usurpation and appropriation of corporate opportunities

Plaintiff insurance company brought sought against defendants, its officers and directors, for conspiracy, breach of fiduciary duties as officers and directors of plaintiff, mismanagement and misappropriation of corporate funds belonging to plaintiff, and the usurpation and appropriation of corporate opportunities.
The trial court entered judgment for plaintiff and allowed plaintiff to recover exemplary damages.
Defendants appealed and the appellate court reversed the judgment as to exemplary damages.
Plaintiff sought review and the court remanded the case, finding that

the burden was on defendants to establish the fairness of a personal sales transaction when called to equitable accounting by plaintiff.
it was consistent with equitable principles to exact of a defaulting corporate fiduciary not only the profits rightfully belonging to the corporation, but
an additional exaction for unconscionable conduct.

In this case, however, the court found that

the exemplary damages awarded to plaintiff were excessive and the jury findings supporting the awards were against the great weight and preponderance of the evidence.

Canion v. Texas Cycle Supply, Inc., 537 S.W.2d 510; usurpation of corporate opportunity

Appellee corporation was incorporated by appellant corporate officer, his wife, and an associate, with all the capital contributed by appellant. No organizational activities besides incorporation were conducted and no stock was issued. The associate ran the business and was paid a salary as president. The associate learned that the building in which the business was located was for sale. He asked appellant to attend the sale, and it was agreed that the property would be held in appellant’s name temporarily for the benefit of appellee. Appellee made monthly payments on the purchase price. Appellee was placed into receivership by the associate two years later. Appellee then brought suit against appellant.
The trial court entered judgment for appellee cancelling the deed to appellant, and appellant sought review.
The court reversed the judgment. The court concluded, as a matter of law, that

appellant was the sole stockholder, and
held that

Common /preferred stock
Voting/no voting stock

Ultra Vires

operating outside the stated purpose of the corp (stated in the articles of incorporation)

Promotors/incorporators

reimbursed for reasonable expenses

Main Corporate Doctrines

Notice
Fairness
Fair Market Value
Protection of Minority Interests
Enhancement of SH value

corp rules must be followed
majority vote
notice

SH Welfare v. Corporate Welfare
BOD members should be involved in management
Corporate Opportunity Doctrine
Efficient Market Theory
Trust Fund Doctrine

Efficient Market Theory

Capitalism Controlling Mechanisms

Risk

Diversify to spread risk

Control
Profit

Types of securities

Common
Preferred
Bonds
Debt instruments

Bylaws