Corporations and Agency in DE Law — Vocabulary Flashcards

Vocabulary flashcards covering core terms from notes on Delaware law, corporate structure, agency, and tort liability.

Delaware law (DE law)

Delaware’s corporate statutes and case law, favored for liability protections and a sophisticated Court of Chancery; governs where many charters are established.

Corporation

A legal person created by law to conduct business; separate from its owners, with rights to own property, sue and be sued, and typically perpetual existence with limited liability.

Legal capacity

The rights to own property, enter contracts, sue and be sued on behalf of the corporation.

Agency relationship

A relationship where an agent acts on behalf of and with authority from a principal, creating certainty in dealings with third parties.

Agency costs

Costs that arise when agents’ actions diverge from the principal’s or corporation’s goals.

Institutional investors

Large investors (e.g., pension funds, mutual funds, banks) that own a large share of public company stock and often vote those shares.

Public corporation

A corporation whose shares are available to the general public and typically traded on a national exchange with SEC disclosures.

Private/close corporation

A corporation with restricted shares, controlling shareholders, and little or no federal disclosure; generally smaller.

Capitalization (Equity vs. Debt)

Methods to raise money: equity (stock) and debt (bonds/notes).

Common stock

Equity ownership with governance rights (voting, potential for dividends) but no guaranteed fixed payments.

Preferred stock

Equity with priority over common stock in dividends and liquidation; rights can be tailored and may lack governance rights.

Debt (Bonds/Notes)

Credit instruments that provide fixed payments and interest; typically no governance rights.

Dividends

Distributions of profits to shareholders, determined by the Board and not guaranteed.

Limited liability

Shareholders’ liability is limited to their investment; personal assets are generally protected from corporation debts.

Perpetual existence

The corporation's continued existence unless dissolved or terminated; not tied to any individual shareholders.

Centralized management

Board of Directors holds governance control; officers manage day-to-day operations.

Transferability of ownership

Shares can be bought and sold, enabling capital flow and liquidity.

Directors

Board members elected by shareholders who oversee governance, appoint executives, declare dividends, and authorize major changes.

Officers

Executives (e.g., CEO, CFO) who run day-to-day operations under the Board’s authority.

Derivative suits

Shareholders sue on behalf of the corporation to address harms caused by insiders or mismanagement.

Ultra vires

Acts beyond the corporation’s powers; historically used to challenge improper corporate actions.

Franchisor tort liability

Franchisor’s potential liability for franchisee torts, depending on whether the franchisor retained sufficient control.

Respondeat superior

Vicarious liability where an employer is liable for an employee’s tort committed within the scope of employment.

Employee vs independent contractor

Employees are under the employer’s control and subject to vicarious liability; independent contractors are not.

Scope of employment

Whether a tort or act occurred within the employee’s duties; tested via motive, frolic/detour, and foreseeability.

Frolic and detour

Frolic = substantial deviation from employment; detour = minor deviation within the scope of employment.

Apparent authority

Third parties reasonably believe an agent has authority based on the principal’s representations; binds the principal.

Actual authority

Authority the agent reasonably believes they have, derived from the principal’s manifestations; can be express or implied.

Justifiable inducement

Third party is induced to change position by an agent’s unauthorized conduct, with principal having notice.