Forming A Corporation Outline

Forming a Corporation (See MBCA §§ 2.01-2.07)

1. Steps to Follow

   1. Step 1: Draft Articles/Certificate of Incorporation (MBCA § 2.02; see also DGCL § 102)

      1. MUST INCLUDE:

         • Name of Corporation (MCBA § 2.02(a)(1))

         • Number of shares authorized to issue (MBCA § 2.02(a)(2))

         • Address of Corporations initial registered office and name of initial registered agent (MBCA § 2.02(a)(3))

         • Name and address of each incorporator (MBCA § 2.02(a)(4))

           • Anyone can sign it (purely administrative)

      2. MAY INCLUDE:

         • Names of people who will be directors (MBCA § 2.02(b)(1))

         • Purposes of Corporation (MBCA § 2.02(b)(2)(i))

           • BUT default rule is that corporation can engage in "any lawful business" (MBCA 3.01(a))

         • A Provision limiting liability of directors (MBCA §2.02(b)(4)) BUT NOT

           • (A) the amount of a financial benefit received by a director to which he is not entitled;

           • (B) an intentional infliction of harm on the corporation or the shareholders;

           • (C) a violation of section 8.33 [Unlawful Distribution];

           • (D) an intentional violation of criminal law.

         • A Provision permitting or making obligatory indemnification of a director for liability (MCBA 2.02(b)(5)) BUT NOT

           • (A) receipt of a financial benefit to which he is not entitled;

           • (B) an intentional infliction of harm on the corporation or its shareholders;

         • (C) a violation of section 8.33 [Unlawful Distribution];

         • (D) an intentional violation of criminal law.

   2. Step 2: Execute Articles of Incorporation and File with the Secretary of State

   3. Step 3: Have an organizational meeting

      1. Adopt bylaws (MBCA § 2.06)

      2. Elect Board of Directors

      3. Elect Officers

      4. Resolution adopting all acts

      5. Banking resolution

         • Adopt such form as required by bank

2. Choice of State of Incorporation

   1. Generally between the company's state of location and Delaware

   2. FACTORS

      1. Tax rates and franchise tax rates

      2. Ease of operation

      3. Regulation of the sale of stock

      4. Payment of dividends

      5. Existence of special provisions for close corporations

      6. Possible liability of shareholders for wages (rare)

3. Professional Responsibility: Who is the Client?

   1. ABA Model Rules of Professional Conduct

      1. An attorney-client relationship is either formed [1] explicitly by a formal contractual agreement or [2] implicitly by the client requesting, and the attorney performing, legal services for the client. Restatement (Third) of the Law Governing Lawyers § 14.

      2. Once a lawyer-client relationship is established, the lawyer must "comply with obligations concerning the client's confidences and property, avoid impermissible conflicting interests, deal honestly with the client, and not employ advantages arising from the client-lawyer relationship in a manner adverse to the client." Restatement (Third) of the Law Governing Lawyers § 16

      3. Model Rule 1.2 - Scope of Representation and Allocation of Authority Between Client and Lawyer (Quoted)

         • (a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. A lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client's decision whether to settle a matter. In a criminal case, the lawyer shall abide by the client's decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.

         • (b) A lawyer's representation of a client, including representation by appointment, does not constitute an endorsement of the client's political, economic, social or moral views or activities.

         • (c) A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.

         • (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.

      4. Model Rule 1.4 - Communication (Paraphrased)

         • (a) A lawyer has the duty (1) to promptly inform the client of any situation requiring informed consent, (2) to consult with the client about objectives and how they will be accomplished, (3) to keep the client reasonably informed, (4) promptly comply with the client's information requests, and (5) to "consult with the client about any relevant limitation on the lawyer's conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law."

         • (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

      5. Model Rule 1.6 - Confidentiality of Information (Quoted)

         • (a) A lawyer shall not reveal information relating to the representation of a client UNLESS [1] the client gives informed consent, [2] the disclosure is impliedly authorized in order to carry out the representation OR [3] the disclosure is permitted by paragraph (b).

         • (b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:

           • (1) to prevent reasonably certain death or substantial bodily harm;

           • (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services;

           • (3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services;

           • (4) to secure the legal advice about the lawyer's compliance with...

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