Corporations & LLCs—Mini Outline

Ordered the way essays hit it: formation and liability first, then the heavily tested governance and fiduciary-duty material, then shareholders, structural changes, and LLCs. Most Corporations essays ask: did the right people, with the right authority, follow the right process—and did they honor their duties?

1. Formation, promoters & liability

• Formation: file articles of incorporation with the secretary of state (name, agent, shares). A de jure corporation is properly formed; de facto and corporation by estoppel doctrines can shield good-faith actors who mistakenly believed they'd incorporated.
• Promoters procure capital for a corporation to be formed. They are personally liable on pre-incorporation contracts, and stay liable even after formation and even if the corporation adopts the contract—unless the agreement expressly releases them (then it's an offer to the future corporation). A corporation isn't liable until it adopts (express board resolution or implied by accepting the benefits with knowledge).
• Limited liability & piercing the veil: shareholders aren't liable for corporate debts—but courts pierce the corporate veil to reach shareholders where the corporation is an alter ego (commingling, ignoring formalities, undercapitalization) or used to perpetrate fraud/injustice. Piercing is most common in close corporations and for tort (vs. contract) creditors.
• Ultra vires: acts beyond the corporate purpose are generally enforceable; the state, shareholders, or the corporation may challenge them.

2. Directors & the business judgment rule

• Directors manage the business and act by majority vote at a meeting with a quorum (no proxy voting for directors). The board may create committees and rely on officers/experts reasonably believed reliable.
• Duty of care: act in good faith, with the care of an ordinarily prudent person, in a manner reasonably believed to be in the corporation's best interests.
• Business judgment rule: courts presume director decisions were informed, in good faith, and in the corporation's best interests. The challenger must rebut it—so honest, informed business mistakes aren't second-guessed.
• Officers are agents governed by agency law; a president has authority over ordinary business, and extraordinary acts only if the board authorizes.

3. Duty of loyalty & conflicts

• Duty of loyalty: no profiting at the corporation's expense. A conflicting-interest transaction is not voidable if, after full disclosure, it's approved by disinterested directors or shareholders, or it was fair to the corporation.
• Corporate opportunity: a director/officer can't take an opportunity the corporation has an interest or expectancy in without first offering it to the corporation.
• Competition, executive compensation, and insider trading are loyalty issues too.
• The articles may exculpate directors from money damages—except for improper benefits, intentional misconduct, unlawful distributions, or intentional crimes. Corporations may also indemnify directors.

4. Shareholders

• Voting: only record holders on the record date vote (by proxy is fine; proxies are revocable unless coupled with an interest). Quorum is a majority of outstanding shares; directors are elected by plurality (watch cumulative voting). Voting trusts and agreements are enforceable.
• Inspection rights: shareholders may inspect books and records for a proper purpose on written notice.
• Distributions/dividends: declared at the board's discretion; a good-faith refusal isn't disturbed. Unlawful distributions (insolvency) expose directors.
• Appraisal (dissenters') rights: a shareholder who dissents from a fundamental change can force a fair-value buyout by objecting, not voting for it, and demanding payment.
• Controlling shareholders owe duties not to use control to harm the minority (especially in close corporations).

5. Direct vs. derivative suits

• A direct action enforces a duty owed to the shareholder; a derivative action vindicates a wrong done to the corporation (recovery goes to the corporation).
• Derivative requirements: stock ownership at the time of the wrong (and throughout), adequate representation, and a written demand on the board (excused only if futile in some states)—the board may move to dismiss if a disinterested committee finds the suit not in the corporation's interest.

6. Fundamental changes

• Mergers, share exchanges, sale of substantially all assets outside the ordinary course, and dissolution require: board action, notice to shareholders, approval by a majority of shares, and filing with the state. Dissenters get appraisal rights.

7. Close corporations & LLCs

• Close corporations—few shareholders, no ready market, active shareholder management. Shareholders owe each other duties of good faith; watch freeze-outs (oppression) and reasonable-expectations analysis. Management agreements among shareholders are allowed.
• LLCs—limited liability plus pass-through taxation; formed by filing articles of organization; governed by an operating agreement; member- or manager-managed; members owe duties of care and loyalty; interests are generally freely assignable only as to economic rights.