Complete Home & Office Legal Guide/Complete Home and Office Legal Guide (Chestnut) (1993).ISO/stat/mbiz/busi1t.asc

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/* We follow with the Model Business Corporation Act. This is
split into 8 sections. This act represents the best of thinking
of modern corporations law. */
REVISED MODEL BUSINESS CORPORATION ACT 1.20

Chapter 1

GENERAL PROVISIONS
Subchapter A

Short Title and Reservation of Power

1.01 Short Title

This Act shall be known and may be cited as the "[name of state]
Business Corporation Act."

1.02 Reservation of Power to Amend or Repeal

The [name of state legislature] has power to amend or repeal all
or part of this Act at any time and all domestic and foreign
corporations subject to this Act are governed by the amendment or
repeal.

Subchapter B

Filing Documents

 1.20 Filing Requirements

(a) A document must satisfy the requirements of this section, and
of any other section that adds to or varies these requirements,
to be entitled to filing by the secretary of state.

(b) This Act must require or permit filing the document in the
office of the secretary of state.

(c) The document must contain the information required by this
Act.  It may contain other information as well.

(d) The document must be typewritten or printed.

(e) The document must be in the English language. A corporate
name need not be in English if written in English letters or
Arabic or Roman numerals, and the certificate of existence
required of foreign corporations need not be in English if
accompanied by a reasonably authenticated English translation.

(f) The document must be executed:

(1) by the chairman of the board of directors of a domestic or
foreign corporation, by its president, or by another of its
officers;

(2) if directors have not been selected or the corporation has

not been formed, by an incorporator; or

(3) if the corporation is in the hands of a receiver, trustee, or
other court-appointed fiduciary, by that fiduciary.

(g) The person executing the document shall sign it and state
beneath or opposite his signature his name and the capacity in
which he signs.  The document may but need not contain: (1) the
corporate seal, (2) an attestation by the secretary or an
assistant secretary, (3) an acknowledgement verification, or
proof.

(h) If the secretary of state has prescribed a mandatory form for
the document under section 1.21, the document must be in or on
the prescribed form.

(i) The document must be delivered to the office of the secretary
of state for filing and must be accompanied by one exact or
conformed copy (except as provided in sections 5.03 and 15.09),
the correct filing fee, and any franchise tax, license fee, or
penalty required by this Act or other law.

1.21 Forms

(a) The secretary of state may prescribe and furnish on request
forms for: (1) an application for a certificate of existence, (2)
a foreign corporation's application for a certificate of
authority to transact business in this state, (3) a foreign
corporation's application for a certificate of withdrawal, and
(4) the annual report.  If the secretary of state so requires,
use of these forms is mandatory.

(b) The secretary of state may prescribe and furnish on request
forms for other documents required or permitted to be filed by
this Act but their use is not mandatory.

1.23 Effective Time and Date of Document

(a) Except as provided in subsection (b) and section 1.24(c), a
document accepted for filing is effective:

(1) at the time of filing on the date it is filed, as evidenced
by the secretary of state's date and time endorsement on the
original document; or

(2) at the time specified in the document as its effective time
on the date it is filed.

(b) A document may specify a delayed effective time and date, and
if it does so the document becomes effective at the time and date
specified.  If a delayed effective date but no time is specified,
the document is effective at the close of business on that date.
A delayed effective date for a document may not be later than the
90th day after the date it is filed.

/* From time to time tax considerations may result in persons
wanting a delayed date. */

1.24 Correcting Filed Document

(a) A domestic or foreign corporation may correct a document
filed by the secretary of state if the document (1) contains an
incorrect statement or (2) was defectively executed, attested,
sealed, verified, or acknowledged.

(b) A document is corrected:

(1) by preparing articles of correction that (i) describe the
document (including its filing date) or attach a copy of it to
the articles, (ii) specify the incorrect statement and the reason
it is incorrect or the manner in which the execution was
defective, and (iii) correct the incorrect statement or defective
execution and

(2) by delivering the articles to the secretary of state for
filing.

(c) Articles of correction are effective on the effective date of
the document they correct except as to persons relying on the
uncorrected document and adversely affected by the correction.
As to those persons, articles of correction are effective when
filed.

1.25 Filing Duty of Secretary of State

(a) If a document delivered to the office of the secretary of
state for filing satisfies the requirements of section 1.20, the
secretary of state shall file it.

(b) The secretary of state files a document by stamping or
otherwise endorsing "Filed," together with his name and official
title and the date and time of receipt, on both the original and
the document copy and on the receipt for the filing fee. After
filing a document, except as provided in sections 5.03 and 15.10,
the secretary of state shall deliver the document copy, with the
filing fee receipt (or acknowledgement of receipt if no fee is
required) attached, to the domestic or foreign corporation or its
representative.

(c) If the secretary of state refuses to file a document, he
shall return it to the domestic or foreign corporation or its
representative within five days after the document was delivered,
together with a brief, written explanation of the reason for his
refusal.

(d) The secretary of state's duty to file documents under this
section is ministerial.  His filing or refusing to file a
document does not:

(1) affect the validity or invalidity of the document in whole or
part;

(2) relate to the correctness or incorrectness of information
contained in the document;

(3) create a presumption that the document is valid or invalid or
that information contained in the document is correct or
incorrect.

1.27 Evidentiary Effect of Copy of Filed Document

   A certificate attached to a copy of a document filed by the
secretary of state, bearing his signature (which may be in
facsimile) and the seal of this state, is conclusive evidence
that the original document is on file with the secretary of
state.

Subchapter D

Definitions

1.40 Act Definitions

/* As "modern" law are prone to do, this act contains a lot of
definitions. Therefore the dictionary definition of words does
not control in the rest of the code. This can result in
mis-interpreting the law if the definitions are not considered
when the statute is read. */

   In this Act:

   (1) "Articles of incorporation" include amended and restated
articles of incorporation and articles of merger.

   (2) "Authorized shares" means the shares of all classes a
domestic or foreign corporation is authorized to issue.

   (3) "Conspicuous" means so written that a reasonable person
against whom the writing is to operate should have noticed it.
For example, printing in italics or boldface or contrasting
color, or typing in capitals or underlined, is conspicuous.

/* The same definition is in the Uniform Commercial Code. */

   (4) "Corporation" or "domestic corporation" means a
corporation for profit, which is not a foreign corporation,
incorporated under or subject to the provisions of this Act.

   (5) "Deliver" includes mail.

   (6) "Distribution" means a direct or indirect transfer of
money or other property (except its own shares) or incurrence of
indebtedness by a corporation to or for the benefit of its
shareholders in respect of any of its shares.  A distribution may
be in the form of a declaration or payment of a dividend; a
purchase, redemption, or other acquisition of shares; a
distribution of indebtedness; or otherwise.

/* Note that if a corporation incurs indebtedness for the
"benefit" of shareholders that this is considered a distribution.
*/
   (7) "Effective date of notice" is defined in section 1.41.

   (8) "Employee" includes an officer but not a director. A
director may accept duties that make him also an employee.

   (9) "Entity" includes corporation and foreign corporation;
not-for- profit corporation; profit and not-for-profit
unincorporated association; business trust, estate, partnership,
trust, and two or more persons having a joint or common economic
interest; and state, United States, and foreign government.

   (10) "Foreign corporation" means a corporation for profit
incorporated under a law other than the law of this state.

   (11) "Governmental subdivision" includes authority, county,
district, and municipality.

   (12) "Includes" denotes a partial definition.

/* Well- definitions within the definitions. */

   (13) "Individual" includes the estate of an incompetent or
deceased individual.

   (14) "Means" denotes an exhaustive definition.

   (15) "Notice" is defined in section 1.41.

   (16) "Person" includes individual and entity.

   (17) "Principal office" means the office (in or out of this
state) so designated in the annual report where the principal
executive offices of a domestic or foreign corporation are
located.

   (18) "Proceeding" includes civil suit and criminal,
administrative, and investigatory action.

   (19) "Record date" means the date established under chapter 6
or 7 on which a corporation determines the identity of its
shareholders and their shareholdings for purposes of this Act.
The determinations shall be made as of the close of business on
the record date unless another time for doing so is specified
when the record date is fixed.

   (20) "Secretary" means the corporate officer to whom the board
of directors has delegated responsibility under section 8.40(c)
for custody of the minutes of the meetings of the board of
directors and of the shareholders and for authenticating records
of the corporation.

   (21) "Shares" means the units into which the proprietary
interests in a corporation are divided.

   (22) "Shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.

   (23) "State," when referring to a part of the United States,
includes a state and commonwealth, and their agencies and
governmental subdivisions) and a territory and insular possession
(and their agencies and governmental subdivisions) of the United
States.

   (24) "Subscriber" means a person who subscribes for shares in a
corporation, whether before or after incorporation.

   (25) "United States" includes district, authority, bureau,
commission, department, and any other agency of the United
States.

   (26) "Voting group" means all shares of one or more classes or
series that under the articles of incorporation or this Act are
entitled to vote and be counted together collectively on a matter
at a meeting of shareholders. All shares entitled by the articles
of incorporation or this Act to vote generally on the matter are
for that purpose a single voting group.

Official Comment- Distribution

   The term "distribution" defined in section 1.40(6) is a
fundamental element of the financial provisions of the Model Act
as amended in 1980.  Section 6.40 sets forth a single, unitary
test for the validity of any "distribution." Section 1.40(6) in
turn defines "distribution" to include all transfers of money or
other property made by a corporation to any shareholder in
respect of the corporation's shares, except mere changes in the
unit of interest such as share dividends and share splits.  Thus.
a "distribution" includes the declaration or payment of a
dividend, a purchase by a corporation of its own shares, a
distribution of evidences of indebtedness or promissory notes of
the corporation, and a distribution in voluntary or involuntary
liquidation.  If a corporation incurs indebtedness in connection
with a distribution (as in the case of a distribution of a debt
instrument or an installment purchase of shares), the creation,
incurrence, or distribution of the indebtedness is the event
which constitutes the distribution rather than the subsequent
payment of the debt by the corporation.

 The term "indirect" in the definition of "distribution"
is intended to include transactions like the repurchase of parent
company shares by a subsidiary whose actions are controlled by
the parent. It also is intended to include any other transaction
in which the substance is clearly the same as a typical dividend
or share repurchase, no matter how structured or labeled. . . .

9. Voting Group

   Section 1.40(26) defines "voting group" for purposes of the
Act as a matter of convenient reference. A "voting group"
consists of all shares of one or more classes or series that
under the articles of incorporation or the revised Model Act are
entitled to vote and be counted together collectively on a
matter.  Shares entitled to vote "generally" on a matter under
the articles of incorporation or this Act are for that purpose a
single voting group.  The word "generally" signifies all shares
entitled to vote on the matter by the articles of incorporation
or this Act that do not expressly have the right to be counted or
tabulated separately.  "Voting groups" are thus the basic units
of collective voting at a shareholders' meeting, and voting by
voting groups may provide essential protection to one or more
classes or series of shares against actions that are detrimental
to the rights or interests of that class or series.

   The determination of which shares form part of a single voting
group must be made from the provisions of the articles of
incorporation and of this Act. In a few instances under the Model
Act, the board of directors may establish the right to vote by
voting groups.  On most matters coming before shareholders'
meetings, only a single voting group~ consisting of a class of
voting or common shares, will be involved, and action on such a
matter is effective when approved by that voting group pursuant
to section 7.25. See section 7.26(a). If a second class of shares
is also entitled to vote on the matter, then a further
determination must be made as to whether that class is to vote as
a separate voting group or whether it is to vote along with the
other voting shares as part of a single voting group.

   Members of the board of directors are usually elected by the
single voting group of shares entitled to vote generally; in some
circumstances, however, some members of the board may be selected
by one voting group and other members by one or more different
voting groups.  See section 8.03.

   The definition of a voting group permits the establishment by
statute of quorum and voting requirements for a variety of
matters considered at shareholders' meetings in corporations with
multiple classes of shares.  See sections 7.25 and 7.26.
Depending on the circumstances, two classes or series of shares
may vote together collectively on a matter as a single voting
group, they may be entitled to vote on the matter separately as
two voting groups, or one or both of them may not be entitled to
vote on the matter at all.


1.41 Notice

   (a) Notice under this Act must be in writing unless oral
notice is reasonable under the circumstances.

   (b) Notice may be communicated in person; by telephone,
telegraph, teletype, or other form of wire or wireless
communication; or by mail or private carrier.  If these forms of
personal notice are impracticable, notice may be communicated by
a newspaper of general circulation in the area where published;
or by radio, television, or other form of public broadcast
communication.

   (c) Written notice by a domestic or foreign corporation to its
shareholder, if in a comprehensible form, is effective when
mailed, if mailed postpaid and correctly addressed to the
shareholder's address shown in the corporation's current record
of shareholders.

   (d) Written notice to a domestic or foreign corporation
(authorized to transact business in this state) may be addressed
to its registered agent at its registered office or to the
corporation or its secretary at its principal office shown in its
most recent annual report or, in the case of a foreign
corporation that has not yet delivered an annual report, in its
application for a certificate of authority.

   (e) Except as provided in subsection (c), written notice, if
in a comprehensible form, is effective at the earliest of the
following:

   (1) when received:

   (2) five days after its deposit in the United States Mail, as
evidenced by the postmark, if mailed postpaid and correctly
addressed;

/* Interestingly enough, the same time lag allowed for mailing
under the federal rules of civil procedure. */

   (3) On the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee.

   (f) Oral notice is effective when communicated if communicated
in a comprehensible manner.

   (g) If this Act prescribes notice requirements for particular
circumstances, those requirements govern. If articles of
incorporation or bylaws prescribe notice requirements, not
inconsistent with this section or other provisions of this Act,
those requirements govern.

1.42 Number of Shareholders

   (a) For purposes of this Act, the following identified as a
shareholder in a corporation's current record of shareholders
constitutes one shareholder:

   (1) three or fewer coowners;

   (2) a corporation, partnership, trust, estate, or other
entity;

   (3) the trustees, guardians, custodians, or other
fiduciaries of a single trust, estate, or account.

   (b) For purposes of this Act, shareholdings registered in
substantially similar names constitute one shareholder if it is
reasonable to believe that the names represent the same person.

Chapter 2

INCORPORATION

2.01 Incorporators

   One or more persons may act as the incorporator or
incorporators of a corporation by delivering articles of
incorporation to the secretary of state for filing.

2.02 Articles of Incorporation

   (a) The articles of incorporation must set forth:

   (1) a corporate name for the corporation that satisfies the
requirements of section 4.01;

   (2) the number of shares the corporation is authorized to
issue;

   (3) the street address of the corporation's initial registered
office and the name of its initial registered agent at that
office; and

   (4) the name and address of each incorporator.

   (b) The articles of incorporation may set forth:

   (1) the names and addresses of the individuals who are to
serve as the initial directors;

   (2) provisions not inconsistent with law regarding:

   (i)  the purpose or purposes for which the corporation is
organized;

   (ii) managing the business and regulating the affairs of the
corporation;

   (iii) defining, limiting, and regulating the powers of the
corporation, its board of directors, and shareholders;

   (iv) a par value for authorized shares or classes of shares;

   (v) the imposition of personal liability on shareholders for
the debts of the corporation to a specified extent and upon
specified conditions; and

/* A provision that should not be present in many articles of
incorporation. */

   (3) any provision that under this Act is required or permitted
to be set forth in the bylaws.

   (c) The articles of incorporation need not set forth any of
the corporate powers enumerated in this Act.

   Official Comment

1. Introduction

Section 2.02(a) sets forth the minimum mandatory requirements
for all articles of incorporation while section 2.02(b) describes
optional provisions that may be included.  A corporation that is
formed solely pursuant to the mandatory requirements will
generally have the broadest powers and least restrictions on
activities permitted by the Model Act. The Model Act thus permits
the creation of a "standard" corporation by a simple and easily
prepared one-page document.

   No reference is made in section 2.02(a) either to the period
of duration of the corporation or to its purposes.  A corporation
formed under these provisions will automatically have perpetual
duration under section 3.02(1) unless a special provision is
included providing a shorter period. Similarly, a corporation
formed without reference to a purpose clause will automatically
have the purpose of engaging in any lawful business under section
3.01(a).  The option of providing a narrower purpose clause is
also preserved in sections 2.02(b)(2) and 3.01, with the effect
described in the Official Comment to section 3.01.

   e. Shareholder liability

The basic tenet of modern corporation law is that shareholders
are not liable for the corporation's debts by reason of their
status as shareholders.  Section 2.02(b)(2)( v) nevertheless
permits a corporation to impose that liability under specified
circumstances if that is desirable.  If no provision of this type
is included shareholders have no liability for corporate debts
except to the extent they become liable by reason of their own
conduct or acts.  See section 6.22(b).

/* The last part of the sentence refers to piercing the corporate
veil. */

2.03 Incorporation

   (a) Unless a delayed effective date is specified, the
corporate existence begins when the articles of incorporation are
filed.

   (b) The secretary of state's filing of the articles of
incorporation is conclusive proof that the incorporators
satisfied all conditions precedent to incorporation except in a
proceeding by the state to cancel or revoke the incorporation or
involuntarily dissolve the corporation.

 Official Comment

   5. Conclusiveness of Secretary of State's Action on Question
of Individual Liability for Corporate Actions

Under section 2.03(b) the filing of the articles of incorporation
as evidenced by return of the stamped copy of the articles with
the fee receipt is conclusive proof that all conditions precedent
to incorporation have been met, except in proceedings brought by
the state. Thus the filing of the articles of incorporation is
conclusive as to the existence of limited liability for persons
who enter into transactions on behalf of the corporation.  If
articles of incorporation have not been filed, section 2.04
generally imposes personal liability on all persons who
prematurely act as or on behalf of a "corporation" knowing that
articles have not been filed. Section 2.04 may protect some of
these persons to a limited extent, however; see the Official
Comment to that section.

2.04 Liability for Preincorporation Transactions

   All persons purporting to act as or on behalf of a
corporation, knowing there was no incorporation under this Act,
are jointly and severally liable for all liabilities created
while so acting.

 Official Comment

Earlier versions of the Model Act, and the statutes of many
states, have long provided that corporate existence begins only
with the acceptance of articles of incorporation by the secretary
of state. Many states also have statutes that provide expressly
that those who prematurely act as or on behalf of a corporation
are personally liable on all transactions entered into or
liabilities incurred before incorporation. A review of recent
case law indicates, however, that even in states with such
statutes courts have continued to rely on common law concepts of
de facto corporations, de jure corporations, and corporations by
estoppel that provide uncertain protection against liability for
preincorporation transactions.  These cases caused a review of
the underlying policies represented in earlier versions of the
Model Act and the adoption of a slightly more flexible or relaxed
standard.

   Incorporation under modern statutes is so simple and
inexpensive that a strong argument may be made that nothing short
of filing articles of incorporation should create the privilege
of limited liability.  A number of situations have arisen,
however, in which the protection of limited liability arguably
should be recognized even though the simple incorporation process
established by modern statutes has not been completed.

   (1) The strongest factual pattern for immunizing participants
from personal liability occurs in cases in which the participant
honestly and reasonably but erroneously believed the articles had
been filed. In Cranson v. International Business Machines Corp.,
234 Md. 477, 200 A.2d 33 (1964), for example, the defendant had
been shown executed articles of incorporation some months earlier
before he invested in the corporation and became an officer and
director. He was also told by the corporation's attorney that the
articles had been filed, but in fact they had not been filed
because of a mix-up in the attorney's office. The defendant was
held not liable on the "corporate" obligation.

   (2) Another class of cases, which is less compelling but in
which the participants sometimes have escaped personal liability,
involves the defendant who mails in articles of incorporation and
then enters into a transaction in the corporate name; the letter
is either delayed or the secretary of state's office refuses to
file the articles after receiving them or returns them for
correction. E.g., Cantor v.  Sunshine Greenery, Inc., 165
N.J.Super. 411, 398 A.2d 571(1979).  Many state filing agencies
adopt the practice of treating the date of receipt as the date of
issuance of the certificate even though delays and the review
process may result in the certificate being backdated. The
finding of nonliability in cases of this second type can be
considered an extension of this principle by treating the date of
original mailing or original filing as the date of incorporation.

   (3) A third class of cases in which the participants sometimes
have escaped personal liability involves situations where the
third person has urged immediate execution of the contract in the
corporate name even though he knows that the other party has not
taken any steps toward incorporating.  E.g., Quaker Hill v. Parr,
148 Colo. 45, 364 P.2d 1056 (1961).

   (4) In another class of cases the defendant has represented
that a corporation exists and entered into a contract in the
corporate name when he knows that no corporation has been formed,
either because no attempt has been made to file articles of
incorporation or because he has already received rejected
articles of incorporation from the filing agency. In these cases,
the third person has dealt solely with the "corporation" and has
not relied on the personal assets of the defendant. The
imposition of personal liability in this class of case, it has
sometimes been argued, gives the plaintiff more than he
originally bargained for. On the other hand, to recognize limited
liability in this situation threatens to undermine the
incorporation process, since one then may obtain limited
liability by consistently conducting business in the corporate
name.  Most courts have imposed personal liability in this
situation.  E.g., Robertson v. Levy, 197 A.2d 443 (D.C.App.1964).

   (5) A final class of cases involves inactive investors who
provide funds to a promoter with the instruction, "Don't start
doing business until you incorporate." After the promoter does
start business without incorporating, attempts have been made,
sometimes unsuccessfully, to hold the investors liable as
partners.  E.g., Frontier Refining Co. v. Kunkels, Inc., 407 P.2d
880 (Wyo.1965). One case held that the language of section 146 of
the 1969 Model Act ["persons who assume to act as a corporation
are liable for preincorporation transactions"] creates a
distinction between active and inactive participants, makes only
the former liable as partners, and therefore relieves the latter
of personal liability.  Nevertheless, "active" participation was
defined to include all investors who actively participate in the
policy and operational decisions of the organization and is,
therefore, a larger group than merely the persons who incurred
the obligation in question on behalf of the "corporation."
Timberline Equipment Co. v. Davenport, 267 Or.  64, 72-76, 514
P.2d 1109, 1113-14 (1973).

 After a review of these situations, it seemed appropriate
to impose liability only on persons who act as or on behalf of
corporations "knowing" that no corporation exists.  Analogous
protection has long been accorded under the uniform limited
partnership acts to limited partners who contribute capital to a
partnership in the erroneous belief that a limited partnership
certificate has been filed. Uniform Limited Partnership Act 12
(1916); Revised Uniform Limited Partnership Act 3.04 (1976).
Persons protected under 3.04 of the latter are persons who
"erroneously but in good faith" believe that a limited
partnership certificate has been filed. The language of section
2.04 has essentially the same meaning.

 While no special provision is made in section 2.04, the
section does not foreclose the possibility that persons who urge
defendants to execute contracts in the corporate name knowing
that no steps to incorporate have been taken may be estopped to
impose personal liability on individual defendants.  This
estoppel may be based on the inequity perceived when persons,
unwilling or reluctant to enter into a commitment under their own
name, are persuaded to use the name of a nonexistent corporation,
and then are sought to be held personally liable under section
2.04 by the party advocating that form of execution.  By
contrast, persons who knowingly participate in a business under a
corporate name are jointly and severally liable on "corporate"
obligations under section 2.04 and may not argue that plaintiffs
are "estopped" from holding them personally liable because all
transactions were conducted on a corporate basis.

2.05 Organization of Corporation

   (a) After incorporation:

   (1) if initial directors are named in the articles of
incorporation, the initial directors shall hold an organizational
meeting, at the call of a majority of the directors, to complete
the organization of the corporation by appointing officers,
adopting bylaws, and carrying on any other business brought
before the meeting;

   (2) if initial directors are not named in the articles, the
incorporator or incorporators shall hold an organizational
meeting at the call of a majority of the incorporators:

   (i) to elect directors and complete the organization of the
corporation; or

   (ii) to elect a board of directors who shall complete the
organization of the corporation.

   (b) Action required or permitted by this Act to be taken by
incorporators at an organizational meeting may be taken without a
meeting if the action taken is evidenced by one or more written
consents describing the action taken and signed by each
incorporator.

   (c) An organizational meeting may be held in or out of this
state.

 2.06 Bylaws

   (a) The incorporators or board of directors of a corporation
shall adopt initial bylaws for the corporation.

   (b) The bylaws of a corporation may contain any provision for
managing the business and regulating the affairs of the
corporation that is not inconsistent with law or the articles of
incorporation.


Chapter 3

PURPOSES AND POWERS

3.01 Purposes

(a) Every corporation incorporated under this Act has the purpose
of engaging in any lawful business unless a more limited purpose
is set forth in the articles of incorporation.

(b) A corporation engaging in a business that is subject to
regulation under another statute of this state may incorporate
under this Act only if permitted by, and subject to all
limitations of, the other statute.

3.02 General Powers

Unless its articles of incorporation provide otherwise, every
corporation has perpetual duration and succession in its
corporate name and has the same powers as an individual to do all
things necessary or convenient to carry out its business and
affairs, including without limitation power:

   (1) to sue and be sued, complain and defend in its corporate
name;

   (2) to have a corporate seal, which may be altered at will,
and to use it, or a facsimile of it, by impressing or affixing it
or in any other manner reproducing it;

   (3) to make and amend bylaws, not inconsistent with its
articles of incorporation or with the laws of this state, for
managing the business and regulating the affairs of the
corporation;

   (4) to purchase, receive, lease, or otherwise acquire, and
own, hold, improve, use, and otherwise deal with, real or
personal property, or any legal or equitable interest in
property, wherever located;

   (5) to sell, convey, mortgage, pledge, lease, exchange, and
otherwise dispose of all or any part of its property;

   (6) to purchase, receive, subscribe for, or otherwise acquire;
own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise
dispose of; and deal in and with shares or other interests in, or
obligations of, any other entity;

   (7) to make contracts and guarantees, incur liabilities,
borrow money, issue its notes, bonds, and other obligations
(which may be convertible into or include the option to purchase
other securities of the corporation), and secure any of its
obligations by mortgage or pledge of any of its property,
franchises, or income;

   (8) to lend money, invest and reinvest its funds, and receive
and hold real and personal property as security for repayment;

   (9) to be a promoter, partner, member, associate, or manager
of any partnership, joint venture, trust, or other entity;

   (10) to conduct its business, locate offices, and exercise the
powers granted by this Act within or without this state;

   (11) to elect directors and appoint officers, employees, and
agents of the corporation, define their duties, fix their
compensation, and lend them money and credit;

   (12) to pay pensions and establish pension plans, pension
trusts, profit sharing plans, share bonus plans, share option
plans, and benefit or incentive plans for any or all of its
current or former directors, officers, employees, and agents;

   (13) to make donations for the public welfare or for
charitable, scientific, or educational purposes;

   (14) to transact any lawful business that will aid
governmental policy;

   (15) to make payments or donations, or do any other act, not
inconsistent with law, that furthers the business and affairs of
the corporation.

/* This gives corporation "default" and sufficient powers to
transact business, so that it is no longer necessary to state
then in articles of incorporation. */


Official Comment

   Section 3.02(15) permits payments or donations or other acts
"that further the business and affairs of the corporation." This
clause, which is in addition to and independent of the power to
make charitable and similar donations under section 3.02(13),
permits contributions for purposes that may not be charitable,
such as for political purposes or to influence elections.  This
power exists only to the extent consistent with law other than
the Model Act. It is the purpose of this section to authorize all
corporate actions that are lawful or not against public policy
. . .

3.04 Ultra Vires

/* "Ultra Vires means beyond the power of the corporation. No,
not a translation of the Latin, but what lawyers use it to mean.
*/

  (a) Except as provided in subsection (b), the validity of
corporate action may not be challenged on the ground that the
corporation lacks or lacked power to act.

   (b) A corporation's power to act may be challenged:

   (1) in a proceeding by a shareholder against the corporation
to enjoin the act;

   (2) in a proceeding by the corporation, directly,
derivatively, or through a receiver, trustee, or other legal
representative, against an incumbent or former director, officer,
employee, or agent of the corporation; or

   (3) in a proceeding by the Attorney General under section
14.30.

   (c) In a shareholder's proceeding under subsection (b)(1) to
enjoin an unauthorized corporate act, the court may enjoin or set
aside the act, if equitable and if all affected persons are
parties to the proceeding, and may award damages for loss (other
than anticipated profits) suffered by the corporation or another
party because of enjoining the unauthorized act.

Official Comment

The basic purpose of section 3.04 -as has been the purpose of all
similar statutes during the 20th century -is to eliminate all
vestiges of the doctrine of inherent incapacity of
corporations .  . . . Under this section it is unnecessary for
persons dealing with a corporation to inquire into limitations on
its purposes or powers that may appear in its articles of
incorporation. A person who is unaware of these limitations when
dealing with the corporation is not bound by them.  The phrase in
section 3.04(a) that the "validity of corporate action may not be
challenged on the ground that the corporation lacks or lacked
power to act" applies equally to the use of the doctrine as a
sword or as a shield: a third person may no more avoid an
undesired contract with a corporation on the ground the
corporation was without authority to make the contract than a
corporation may defend a suit on a contract on the ground that
the contract is ultra vires.

   The language of section 3.04 extends beyond contracts and
conveyances of property; "corporate action" of any kind cannot be
challenged on the ground of ultra vires.  For this reason it
makes no difference whether a limitation in articles of
incorporation is considered to be a limitation on a purpose or a
limitation on a power; both are equally subject to section 3.04.
Corporate action also includes inaction or refusal to act.  The
common law of ultra vires distinguished between executory
contracts, partially executed contracts, and fully executed ones;
sect ion 3.04 treats all corporate action the same except to the
extent described in section 3.04(b#and the same rules apply to
all contracts no matter at what stage of performance.

 Section 3.04, however, does not validate corporate
conduct that is made illegal or unlawful by statute or common law
decision.  This conduct is subject to whatever sanction, criminal
or civil, that is provided by the statute or decision.  Whether
or not illegal corporate conduct is voidable or rescindable
depends on the applicable statute or substantive law and is not
affected by section 3.04.

   . . . [Under subsection (c)] an ultra vires act may be
enjoined only if all "affected parties" are parties to the suit.
The requirement that the action be "equitable" generally means
that only third persons dealing with a corporation while
specifically aware that the corporation's action was ultra vires
will be enjoined. The general phrase "if equitable" was retained
because of the possibility that other circumstances may exist in
which it may be equitable to refuse to enforce an ultra vires
contract. . . .

Chapter 4

 NAME

 4.01 Corporate Name

   (a) A corporate name:

   (1) must contain the word "corporation," "incorporated,"
"company,"  or "limited," or the abbreviation "corp.," "inc.,"
"co.," or words or abbreviations of like import in another
language, and

   (2) may not contain language stating or implying that the
corporation is organized for a purpose other than that permitted
by section 3.01 and its articles of incorporation . . .

/* Thus unless authorized to act as a bank or insurance company
the words "bank" or "insurance" company cannot appear so as to
mislead. */

Chapter 5

OFFICE AND AGENT

5.01 Registered Office and Registered Agent

  Each corporation must continuously maintain in this state:

   (1) a registered office that may be the same as any of its
places of business; and

   (2) a registered agent, who may be:

   (i)  an individual who resides in this state and whose
business office is identical with the registered office;

   (ii) a domestic corporation or not-for-profit domestic
corporation whose business office is identical with the
registered office; or

   (iii) a foreign corporation or not-for-profit foreign
corporation authorized to transact business in this state whose
business office is identical with the registered office.


Chapter 6

SHARES AND DISTRIBUTIONS

Subchapter A

Shares

6.01 Authorized Shares

   (a) The articles of incorporation must prescribe the classes
of shares and the number of shares of each class that the
corporation is authorized to issue. If more than one class of
shares is authorized, the articles of incorporation must
prescribe a distinguishing designation for each class, and, prior
to the issuance of shares of a class, the preferences,
limitations, and relative rights of that class must be described
in the articles of incorporation. All shares of a class must have
preferences, limitations, and relative rights identical with
those of other shares of the same class except to the extent
otherwise permitted by section 6.02.

   (b) The articles of incorporation must authorize (1) one or
more classes of shares that together have unlimited voting
rights, and (2) one or more classes of shares (which may be the
same class or classes as those with voting rights) that together
are entitled to receive the net assets of the corporation upon
dissolution.

/* A codification of the requirement that equity be inherent in
the shareholders, but that all other expenses be paid first. */

   (c) The articles of incorporation may authorize one or more
classes of shares that:

   (1) have special, conditional, or limited voting rights, or no
right to vote, except to the extent prohibited by this Act;

   (2) are redeemable or convertible as specified in the articles
of incorporation (i) at the option of the corporation, the
share-holder, or another person or upon the occurrence of a
designated event; (ii) for cash, indebtedness, securities, or
other property; (iii) in a designated amount or in an amount
determined in accordance with a designated formula or by
reference to extrinsic data or events;

   (3) entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative,
noncumulative, or partially cumulative;

   (4) have preference over any other class of shares with
respect to distributions, including dividends and distributions
upon the dissolution of the corporation.

   (d) The description of the designations, preferences,
limitations, and relative rights of share classes in subsection
(c) is not exhaustive.

Official Comment

Section 6.01 adopts a new terminology from that traditionally
used in corporation statutes to describe classes of shares that
may be created, but makes only limited substantive changes from
earlier versions of the Model Act. Traditional corporation
statutes work from a perceived inheritance of concepts of "common
shares" and "preferred shares" that at one time may have had
considerable meaning but that today often do not involve
significant distinctions. It is possible under modern corporation
statutes to create classes of "common" shares that have important
preferential rights and classes of "preferred" shares that are
subordinate in all important economic aspects or that are
indistinguishable from common shares in either voting rights or
entitlement to participate in the assets of the corporation upon
dissolution.  The revised Model Act breaks away from the
inherited concepts of "common" and "preferred" shares and
develops more general language to reflect the actual flexibility
in the creation of classes of shares that exists in modern
corporate practice.  The words "common shares" or preferred
shares" are no longer used in the revised Model Act, though the
words appear in a few instances in examples appearing in the
Official Comment . . .

   Section 6.01(a) requires that the articles of incorporation
prescribe the classes of shares and the number of shares of each
class that the corporation is authorized to issue. If the
articles authorize the issue of only one class of shares, no
designation or description of the shares is required, it being
understood that these shares have both the power to vote and the
power to receive the net assets of the corporation upon
dissolution. See section 6.01(b). Shares with both of these
characteristics are usually referred to as "common shares" or
"common stock," but no specific designation is required by the
Model Act.

   If more than one class of shares is authorized, the
preferences, limitations, and relative rights of each class of
shares must be described in the articles of incorporation before
any shares of that class are issued, or the board of directors
may be given authority to establish them under section 6.02.
These descriptions constitute the "contract" of the holders of
those classes of shares with respect to their interest in the
corporation and must be set forth in sufficient detail reasonably
to define their interest.  The designations, preferences,
limitations, and relative rights of shares with one or more
special or preferential rights which may be authorized are
further described in section 6.01(c).

6.02 Terms of Class or Series Determined by Board of Directors

   (a) If the articles of incorporation so provide, the board of
directors may determine, in whole or part, the preferences,
limitations, and relative rights (within the limits set forth in
section 6.01) of (1) any class of shares before the issuance of
any shares of that class or (2) one or more series within a class
before the issuance of any shares of that series.

   (b) Each series of a class must be given a distinguishing
designation.

   (c) All shares of a series must have preferences, limitations,
and relative rights identical with those of other shares of the
same series and, except to the extent otherwise provided in the
description of the series, with those of other series of the same
class.

   (d) Before issuing any shares of a class or series created
under this section, the corporation must deliver to the secretary
of state for filing articles of amendment, which are effective
without shareholder action, that set forth:

   (1) the name of the corporation;

   (2) the text of the amendment determining the terms of the
class or series of shares;

   (3) the date it was adopted; and

   (4) a statement that the amendment was duly adopted by the
board of directors.

6.03 Issued and Outstanding Shares

   (a) A corporation may issue the number of shares of each class
or series authorized by the articles of incorporation.  Shares
that are issued are outstanding shares until they are reacquired,
redeemed, converted, or cancelled.

   (b) The reacquisition, redemption, or conversion of
outstanding shares is subject to the limitations of subsection
(c) of this section and to section 6.40.

   (c) At all times that shares of the corporation are
outstanding, one or more shares that together have unlimited
voting rights and one or more shares that together are entitled
to receive the net assets of the corporation upon dissolution
must be outstanding.

/* A codification of the bankruptcy "absolute priority rule." */


6.04 Fractional Shares

   (a) A corporation may:

  (1) issue fractions of a share or pay in money the value of
fractions of a share;

   (2) arrange for disposition of fractional shares by the
shareholders;

   (3) issue scrip in registered or bearer form entitling the
holder to receive a full share upon surrendering enough scrip to
equal a full share.

   (b) Each certificate representing scrip must be conspicuously
labeled "scrip" and must contain the information required by
section 6.25(b).

   (c) The holder of a fractional share is entitled to exercise
the rights of a shareholder, including the right to vote, to
receive dividends, and to participate in the assets of the
corporation upon liquidation.  The holder of scrip is not
entitled to any of these rights unless the scrip provides for
them.

   (d) The board of directors may authorize the issuance of scrip
subject to any condition considered desirable, including:

   (1) that the scrip will become void if not exchanged for full
shares before a specified date; and

   (2) that the shares for which the scrip is exchangeable may be
sold and the proceeds paid to the scripholders.

Subchapter B

Issuance of Shares

6.20 Subscription for Shares Before Incorporation

   (a) A subscription for shares entered into before
incorporation is irrevocable for six months unless the
subscription agreement provides a longer or shorter period or all
the subscribers agree to revocation.

   (b) The board of directors may determine the payment terms of
subscriptions for shares that were entered into before
incorporation, unless the subscription agreement specifies them.
A call for payment by the board of directors must be uniform so
far as practicable as to all shares of the same class or series,
unless the subscription agreement specifies otherwise.

/* For example many corporations find that it is easier to raise
funds by taking a subscription that requires payment of less than
the entire subscription amount with a provision for a later call.
*/