Lecture 18 Blaw 3312 -001
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This 3 page Class Notes was uploaded by loveena Cherukunnathu on Friday November 6, 2015. The Class Notes belongs to Blaw 3312 -001 at University of Texas at Arlington taught by John D Dowdy in Summer 2015. Since its upload, it has received 41 views. For similar materials see Law II in Business at University of Texas at Arlington.
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Date Created: 11/06/15
Lecture 18: 11.05.15 Chapter 37 – Partnerships and limited liability partnerships C/C. Classification of corporations Corporate has to get ratified before forming A promotor is not an agent, they are a fiduciary o Promotor got a real estate in his own name, after the corporate was born then board of directors will vote to purchase the land. o Corp. ended up in bankruptcy and bankruptcy trustee files suit to revoke the contract made by promotor and corporation (to set aside and present the contract later). New issue of stock have to be issued of per value or stated value. o Shareholder get $10,000 stocks issued and shareholder only gets 20cents per stock. Shareholder gets 10,000 shares but only gets $5000. That is called watered stock. o Example: Husband and wife formed a mom and pop corporation. They issued stocked $15000 to each but didn’t fill out a dime to the corporation. They just filled out the certificate saying they owe this much amount. Corporation was in trouble, with mom and pop because they didn’t pay anything. Example: a man paying everything include personal expenses out of the business account. If he was sole proprietor no problem, but his was a business corp. and he was not treating as a separate entity. Get it as a corporate formality. Example: Corp A came without minute book up-to-date. A minute book is a formality of corporate and there are certain things that need to be in it. It needs to have annual meetings and by law meetings. New financing things need to be recorded in this because that needs to go to board meeting. Plaintiff’s attorney who has filed a civil case against corporation, their corporate asset will be in trouble. Example: Joslyn manufacturing company VS TL James. o Lincoln presorting Company owned 60% by TL James company. Lincoln’s company resulted in environment pollution of surrounding land with chemicals that dripped. o Joslyn sold the land and that land passed through 6 separate owners and the last one subdivided the property. o The current owners of the property, along with adjacent land is the plaintiff. They sued under federal statue called cercla - Comprehensive environmental Response compensation liablity acts. That statue provides a cause of act for land owners to recover damages from prior owners for environment cleanup cost. Super fund o They sued Lincoln. One of the defendants was TL James. That corporation owned 60% of Lincoln’s stock. TL James sued in this case. o TL James was just a shareholder and they are not liable for corporate debts. o Court pointed out that Lincoln maintained separate books, held regular meetings, owned its own property, maintained its own employees and payrole, etc – Lincoln is a separate corporate entity. o TL James and co. did the same way with separate books and being a separate entity. o Both Lincoln and TL James was doing everything it can from a formal standpoint the way it should be done. o Court pointed that there was nothing to justify the plaintiff’s claim. C/G. Corporate financing 1. Bonds Both bonds and stocks fall under securities, if you’re a bond holder you’re a creditor. Chapter 40 – corporations: corporate directors, officers and shareholders C/H. Directors 1. Election Shareholders vote on the board of directors. If you are a majority stock holder, that will give you greater voting power. How many stocks you own, that’s how many votes you have. 2. Meetings They have to have annual meetings, special meetings 3. Rights They have access to all the records 4. Management responsibilities They have to document everything they have done. Directors can’t rubber stamp what officers do, they have to supervise the officers. Directors are not agent to the corporation. C/I. officers and executives They run the business on day to day basis. Officers are agents of corporations. C/J. Fiduciary duties of officers and directors 1. Care 2. Loyalty Loyalty to corporation and shareholders. 3. Conflicts of interest Director can’t have a conflict of interest, includes they can’t serve for a competing corporation. C/K. Lability of directors and officers 1. Business judgment rule Have to have a business judgment in making decisions for the corporation. Shareholders derivative suits – if there is a claim that the corporation has that is not being addressed, something wrong is being committed by somebody against the corporation and shareholder sees that happening, the shareholder notifies the board of directors that you need to address this issue and if necessary, re address it in court. 1 director gets to fix the issue, if not, shareholder sues on behalf of the corporation. o What if the shareholder sees wrong is what the board of directors did? Shareholder gets a shareholders derivative suit against the board of directors because board of directors did something dumb. o Board of directors have the duty to exercise good business judgment. And have to be exercise ordinary care You have a deal and it’s a bad deal of the corporation. The shareholder files a suit. Different results can come upon different corporation involved. o Shareholders of corporation A are close to the vest investments. o The shareholders of corporation C was formed to take chances. o They have a plan to have a contract but one director is against it, the director needs to record his vote. When corporation gets sued, director will be safe if plan fails. Example: There was a shareholders derivative suit. Brought against the board of directors of a bank because they were not properly supervising one or more of the officers. Officers just wrote stuff and directors were just letting them do whatever they wanted. One of the directors came in with his attorney, “I didn’t come to all the board meetings, I wasn’t able to keep them on task”. If you couldn’t keep up with your employees, you should have resigned.
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