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Legal Envi. of Bus

FINAL EXAM (Chapters 17-23, 28) Chp 19

-defined by state law, governed by corporations law of each state -created by a written agreement between two or more persons (legal or natural -creates a separate legal & taxable entity from the owners -corporate liability for debts and torts Essential characteristics of a corporation
-shareholders (owners) -Board of Directors, elected by shareholders -managers, hired by Board of Directors three tiered structure
1. Location 2. Ownership 3. Purpose Classification of Corporations
-Domestic—in its home state, i.e. state in which it was incorporated -foreign—in states other than state where it was incorporated -alien—incorporated in foreign country Location
-public—state agency, e.g. MBTA -publicly held—“private” but stock can be owned without restriction Ownership
-non-profit corporation -closely held corporation -S corporations -professional corporations Purpose
no stock, owned by “members” i.e. directors--cannot pay dividends; assets are dedicated to some public purpose (e.g., education) and must remain dedicated to such purpose—highly regulated by states and by IRS non-profit corporation
shares are not publicly traded, may be subject to significant restrictions on transferability closely held corporation
fits the “subchapter S” rules promulgated by IRS—generally, less than 100 shareholders, only US shareholders—S corps are taxed like partnerships S corporations
similar to partnership but with expanded liability for professional liability (malpractice) professional corporations
Person wishing to form a corporation must decide: -state in which to incorporate -corporate name
basic document that describes corporation, includes basic information about corporation and its stock Articles of incorporation
Technical defect in incorporation process can invalidate incorporation—state law will describe consequences for incorporators and third parties Improper Incorporation
found in state law, and in articles/bylaws Express powers
authorization for agent to take specific action on behalf of corporation Corporate resolution
-resolution -bylaws -articles of incorporation -state law -state constitution -US Constitution “food chain” for corporate authority
corporation has implied power to do what is necessary and reasonable to accomplish its purpose or work an express power Implied powers
a corporate employee/officer has acted beyond his/her authority—third party can sue corporation; corporation can sue employee/officer Ultra vires
is the shielding of individual owners from liability to third parties “corporate veil”
-third party is tricked or misled into dealing with corp. & not individual -no profit motive, inferred by inadequate capitalization -corp was formed to evade an existing obligation -formalities were not followed -personal & corporate, commingled Factors courts use to decide whether to pierce:
corporate documents will describe how many directors and when they are elected—common practice is to elect one-third of any board of directors for three-year terms—this allows continuity while still allowing for turnover Election of directors
_____ of a director—as provided for in state law or in articles/bylaws Removal
______ on board—filled as provided for in articles/bylaws Vacancies
__________ of directors—can be substantial or nominal Compensation
formal meetings with recorded minutes Directors’ meetings
-right of participation (attend meetings and vote) -right to inspect corporate books and records -right to be indemnified (insurance) Directors have rights:
-executive committee -audit -nominating -compensation -litigation Committees of board—include but not limited to:
other responsibility for corporate affairs is extremely limited Shareholders’ powers are described in bylaws or in state law Shareholders elect directors
must occur at least once a year, shareholders are entitled to proper notice of time place etc. Shareholders’ meetings
designation of another person to vote your shares Proxy
gives current shareholders a right of first refusal if corp issues/sells new shares Shareholders can have preemptive rights
Created by: 687631825
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