Gould's Workbook

GOULD'S WORKBOOK

for

CORPORATIONS

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TABLE OF CONTENTS

Chapter 1. Introduction to Gould’s Legal Learning Method. Page 4.

Chapter 2. Introduction to Corporations. Page 6.

Chapter 3. Gould’s Shopping List for Corporations. Page 11.

Chapter 4. Types of Corporate Organization. Page 13.

Chapter 5. Starting-Up a Corporation. Page 32.

Chapter 6. The Board of Directors and Officers. Page 40.

Chapter 7. The Shareholders. Page 48.

Chapter 8. Stock. Page 55.

Chapter 9. The Duties of Care and Loyalty, and Lawsuits. Page 62.

Chapter 10. Major Corporate Changes. Page 82.

Chapter 11. Gould’s Learning System. Page 89.

CHAPTER 1

INTRODUCTION TO GOULD’S LEGAL LEARNING METHOD

Gould's Legal Learning Techniques have been honed over many years, and have helped thousands of law students to succeed in their legal studies.

Gould's unique and innovative learning strategies focus on long-term storage of important and cognizable concepts. Students learn the larger concepts until they are second-nature. Then, they learn the sub-issues, until they have a solid grasp of Gould’s Law Templates.

Finally, students learn the rule statements that relate to each concept, to fill out their understanding of each area of legal doctrine.

Before exams begin, students write out a cognizable list of possible issues, aiding to spot more issues. Gould’s Shopping Lists reliably help students to spot more issues on each essay they write. Shopping Lists allow students to cue in on the important concepts in each essay, and to remember to write their essay responses from an holistic and comprehensive perspective.

Many legal exams are based on strict timing, and Gould’s Techniques comport nicely with speed testing. Gould’s Issue Templates, and Gould’s Shopping Lists, focus the students on the ISSUES AND SUB-ISSUES, quickly, and precisely, thereby enhancing the ability of law students to write dynamic essays.

CHAPTER 2

INTRODUCTION TO CORPORATIONS

INTRODUCTION TO CORPORATIONS.

CORPORATE TIMELINE.

One way to quickly identify problems and issues within a corporate law essay question, is to ascertain the context of the question via a corporate “Timeline.”

While philosophically a corporation may exist into perpetuity, there are many factors that impinge upon corporations and that shorten their lifespan.

Thus, a corporation has three major time periods within its lifespan:

1. PRE-INCORPORATION TRANSACTIONS.

2. CORPORATE GROWTH.

3. MAJOR CHANGES OR DISSOLUTION.

PRE-INCORPORATION TRANSACTIONS. During this timeframe, the Corporation may not have been fully formed, and the questions to ask yourself revolve around whether the Promoter should be liable for contracts, how far the Corporation has gone to establish a viable Corporation under the de jure, de facto and estoppel doctrines, whether Ultra Vires is an appropriate issue, and whether a plaintiff could pierce the corporate veil.

CORPORATE GROWTH. During the normal corporate growth phase, the major questions revolve around the actions of the Board of Directors and Officers, and the Shareholders. Ask yourself:

1. CORRECT PROCEDURES. Ask yourself whether or not the Board member, or Board of Directors or Officers, or Shareholder, enacted the correct procedures when they took an action.

AND

2. DUTIES OF CARE AND LOYALTY. Ask yourself whether or not the relevant parties took their actions within the framework of their duties, especially as relates to the Board of Directors.

MAJOR CHANGES OR DISSOLUTION. Major changes or dissolution relate often to mergers, or to the ending of a Corporation. As with the corporate growth phase, ask:

1. CORRECT PROCEDURES. Ask yourself whether or not a Board member, or Board of Directors or Officers, enacted the correct procedures when they took an action.

AND

2. DUTIES OF CARE AND LOYALTY. Ask yourself whether or not the relevant parties took their actions within the framework of their duties, especially as relates to the Board of Directors.

THE “PLAYERS”

PRE-INCORPORATION TRANSACTIONS. In the start-up phase of a Corporation, the major players include the Promoters, the Board, and the Board of Directors. The issues tend to be whether or not there was a proper Corporation formed, whether the Promoter or Board are responsible for pre-incorporation transactions, and whether a Shareholder may pierce the corporate veil in a lawsuit.

CORPORATE GROWTH. There are three major “Players” in a corporate growth situation: the Board of Directors, the Shareholders, and the Corporation itself. Normally all three Players work in the direction of corporate viability, stability and growth. However, legal essays are meant to cull out problem areas, and you will be presented with situations that have gone awry on your essay examinations.

Identify the nature of the problem. For instance, is there a possible breach of loyalty?

Then, identify the “Players” and the procedures that should have been used to resolve the problem within the Corporation. For instance, should there have been a vote by the Board of Directors, and was the vote properly carried out? Make sure that all actions taken are consistent with the Articles of Incorporation, the Bylaws, and applicable state statutes.

Then, apply the applicable legal claim or solution to properly bring the situation to resolution. For instance, if a corporation was operating outside of its corporate charter, a derivative suit may be applicable.

Finally, state a conclusion as to the proper resolution for each problem.

MAJOR CHANGES OR DISSOLUTION. At the major changes or dissolution stage there are the “Players” previously mentioned, along with the addition of a possible takeover “Player” that could be hostile.

As with the corporate growth stage, identify the nature of the problem, identify the “Players” and the procedures that should have been used to resolve the problem within the Corporate structure.

Finally, apply any legal claims or solutions that are pertinent to the situation.

CHAPTER 3

GOULD’S SHOPPING LIST FOR CORPORATIONS

Gould's Shopping List for Corporations is as follows:

1. CORPORATE ORGANIZATION and STARTING-UP.

2. THE BOARD, OFFICERS and SHAREHOLDERS.

3. DUTIES and LAWSUITS.

4. CORPORATE CHANGES and DISSOLUTION.

There it is, an entire Shopping List for Corporations, with only four items!

The shopping list focuses you on the entire spectrum of Corporations, and assists you in spotting more issues during a timed legal essay. Write the Shopping List for Corporations before you begin to write your essay, so that you can consider your Shopping List in light of the facts, and thereby use Gould’s Shopping List to spot more issues.

CHAPTER 4

TYPES OF CORPORATE ORGANIZATION

BASIC TEMPLATES.

CORPORATIONS.

Benefits and Drawbacks.

CLOSE CORPORATIONS.

AGENCY.

Assent.

Benefit.

Control.

Liabiilty.

The Agent.

The Principal.

Disclosure.

AGENCY AUTHORITY.

Actual Express Authority.

Actual Implied Authority.

Apparent Authority.

Agency by estoppel.

Ratification.

TERMINATION OF AN AGENT’S AUTHORITY.

Notice of Termination.

RESPONDEAT SUPERIOR and TORT LIABILITY.

Independent Contractors.

Within the Scope of Job Duties and In Furtherance of the Business Interests of the Employer.

Criminal Acts.

PARTNERSHIPS.

PARTNERSHIP FORMATION.

Intent of Parties.

POWERS OF THE PARTNERSHIP.

PARTNERSHIP AGREEMENTS and RIGHTS.

DUTIES OF CARE AND LOYALTY for PARTNERSHIPS.

Accounting.

Taxation.

LIABILITY.

PARTNERSHIP and AGENCY.

LIMITED PARTNERSHIPS.

Rights of a Limited Partner.

DISSOLUTION OF A PARTNERSHIP.

WINDING-UP.

SOLE PROPRIETORSHIP.

ESSAY HINTS.

· A Corporation has many benefits, and some drawbacks, and you should be prepared to discuss the benefits and drawbacks.

· There are certain benefits and drawbacks to a corporate structure, therefore, be on the lookout for a possible partnership situation, which is an alternative form of business structure. Know all of the elements of Partnerships, such as proper formation, rights, dissolution, and etc.

· Agency is the concept whereby a principal, or a Corporation, may be held liable for the acts of an agent, or Officer. Know the requirements of classification as an agent, and the different types of situations in which an principal may be liable for the actions of an agent.

· Close Corporations are those Corporations that are typically family held with few members. In such an organization, the normal distinctions between the Board and Shareholders are blurred, and tight restrictions against share transfers exist.

GOULD’S DOCTRINE.

CORPORATIONS. A corporation is a legal entity that is formed through filing articles of incorporation with a state, and exists only by statute. A corporation is an entity that is separate and distinct from the shareholders. A corporation may acquire, own and dispose of assets, has a continuous existence, enjoys limited liability for shareholders, has a centralized management, and has the power to sue and to be sued.

BENEFITS AND DRAWBACKS OF A CORPORATION. A corporation provides limited liability for shareholders, which does not take place in a partnership, sole proprietorship, or in a limited partnership. A corporation is double-taxed, because it is taxed like a separate entity on earnings, out of which the corporation pays dividends that are then taxed to the shareholders. Corporations centralize management in the Directors and Officers, can continue indefinitely despite the death or withdrawal of a shareholder. The shareholders in a corporation generally can sell or transfer their stock without limitation. Corporations must follow the requirements of the articles of incorporation and file a lot of paperwork.

CLOSE CORPORATIONS. Close Corporations are a type of private Corporation that are closely held by a small group of 13-35 people, or less, often involving family members. There is usually no outside market for the sale of the shares, and the Shareholders tend to manage and run the Corporation. Within a Close Corporation, the sale or transfer of shares is restricted, and the Directors often have a management role. Close Corporations are insulated against hostile takeovers, because a majority Shareholder of a Close Corporation cannot transfer control to a person outside of the corporation without a prior investigation of the potential buyer. Additionally, a controlling Shareholder cannot transfer control of their shares to an outside buyer, where the possibility exists that a buyer will use corporate assets to pay a purchase price, or otherwise wrongfully dissipate corporate assets.

OTHER ORGANIZATIONAL TYPES. Other business forms may be employed, with various degrees of organizational, financial or tax benefits and drawbacks, and the decision to use one form over another depends on the type of business conducted, and the objectives of the business entity. Partnerships and limited partnerships are taxed in a flow-through manner, where the income or losses are allocated to the partners, who are directly taxed. Partnerships divide management among all partners or general partners, partnerships and limited partnerships that terminate with the death or withdrawal of a partner, the holders of interest in a partnership or limited partnership can convey their interest only if the other partners approve, and partnerships and limited partnerships face few formalities and few limitations in operating their business.

AGENCY. An agency relationship includes a principal and an agent. The burden of proving that there is an agency relationship is on the party that asserts that such a relationship exists. A party may use circumstantial evidence to prove that an agency relationship exists, but an agency relationship may not be inferred only from a joint interest in property or from a family relationship. An agency relationship requires assent, benefit and control.

ASSENT. Assent to enter into an agency relationship between a principal and an agent is shown through an informed consensual agreement between the principal and an agent. While assent is necessary, there is no need for a formal writing and an agency relationship may be implied from circumstances.

BENEFIT. The conduct of an agent must serve to benefit the principal.

CONTROL. The principal has a right to control the agent, and to supervise the agent.

LIABLITY. A principal may be held liable for the consequences of acts of an agent, if the agent was directed to perform the acts in question by the principal. However, where an agent takes an action with no authority to act, then the agent will be personally liable for actions or contracts.

THE AGENT. An agent has a good faith fiduciary relationship with the principal, and must act with loyalty towards the principal, and use reasonable care to serve and protect the interests of the principal. An agent that violates their fiduciary duty, will be liable to the principal for losses incurred by the principal due to breach of the fiduciary duty. An agent need have only minimal mental capacity, but an agent will be endowed with the same capacity as the principal. Agents should exhibit reasonable care, and follow reasonable instructions from a principal. An agent will be liable to the principal for a breach of loyalty, such as usurpation of opportunities, or for secret profits, or for exceeding the authority given to the agent by the principal. For a breach of loyalty, a principal may disgorge profits made by the agent.

THE PRINCIPAL. Any person who has a capacity to enact their own transactions, has the capacity to appoint an agent to act on their behalf. A minor may normally only act as a principal when contracting for necessaries, a corporation acts as a principal for matters within its control, and an incompetent cannot act as a principal. The principal has a duty to pay an agent a reasonable amount for the agent’s services.

DISCLOSURE. An agent is not personally liable to a third-party if they entered into a contract as a representative of the principal, and acted within the scope of their authority, and signed as an agent for the principal, in a fully disclosed manner. An agent will be liable for a contract when an agent enters into a contract for an undisclosed, or partially disclosed principal, where the third party either does not know about the principal, or only knows that the principal exists. However, an agent for a disclosed principal, will not be liable in such a situation. A principal will always be liable for contracts or conveyances authorized by their agent.

AGENCY AUTHORITY.

An agent may bind the principal in contract, if the agent acted within the scope of their authority. The agent must have the authority to contract through either actual express authority, actual implied authority, apparent authority, or ratified authority. The knowledge of an agent is imputed to the principal, unless the agent abandons the principal's interests and furthers his own.