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Legal Envi. of Bus
FINAL EXAM (Chapters 17-23, 28) Chp 19
| Question | Answer |
|---|---|
| -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 |
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