CH 39- Corporations

Nature

• recognized under state law

• access to court

  • enjoys many of the same right and privileges under state and federal law that citizens do

    • due process, free speech, freedom from unreasonable searches and seizures ALL APPLY

• corporate personnel

  • officers and employees (run the daily business operations)

  • directors (elected by shareholders)

  • shareholders

    • limited liability of shareholders

    • corporate earnings and taxation

      • holding companies

        • tors and criminal acts

          • liability → torts of agents/officers

          • liability → crimes of agents/officers

    • Retain earnings and dividends

    • corporate taxation→ double taxation

      • “c” corporation

Classification

• Domestic

  • corporation by its homestate

• Foreign

  • a corporation doing business in another state

• Alien

  • a country formed in another country

• Public and Private

  • public: formed by the government to meet some political or governmental purpose

  • private: created wholly or in part for profit

• non-profit

  • formed for purposes other than making a profit (hospitals, educational institution, charities, and religious)

• close corporation

  • one whose shares are held by few persons, often members of a family

• “s” corporations

  • taxation

    • doesn’t have to pay taxes

  • restrictions

    • must be domestic

    • must not be a member of an affiliated group of corporations

    • shareholders must be individuals, estates, or certain trusts and tax-exempt

    • must have no more than one hundred shareholder

    • must have only one class of stock

    • no shareholder of the corporation may be a nonresident alien

• Professional

  • For people who are licensed (physicians, lawyers, dentists, and accountants)

    • can be held liable for malpractice or breach of duty to clients

• Benefit

  • Is a for-profit that seeks to have a material positive impact on society and the environment

  • shareholder rights

    • determines whether the company has achieved a material positive impact

    • right of private action, enables them to sue the corporations if it fails to pursue to or create their missions

  • annual reports are publicly shares

Corporate formation

• step 1 → organization

  • promoters

  • SEC limitations

• step 2 → legal process

  • incorporation procedures

    • select state

    • select name

    • prepare articles (shareholders name?)

    • file articles

    • 1st organizational meeting

      • elect directors

      • issue stock

      • pass bylaws

Improper incorporation

• de jure

  • if corporations has substantially complies with all conditions precedent to incorporation, corporation is said to have de jure (rightful and lawful)

  • minor defects can be overlooked

• de facto

  • when a defect is still in formation

  • good faith

• corporation of estopple

  • a business association holds itself out to others as being a corporation when it has made no attempt to incorporate

Corporate powers

• express powers

  • found in its articles of incorporations and in the state and federal constitutions

• implied powers

  • officers bind company

Piercing the corporate veil

• liability

  • courts will ignore the corporate structure and expose the shareholders to personal liability

• causes

  • 3rd party tricked

  • no profit

  • evading legal obligation

  • formalities to followed

  • comingling funds

Duties and Liabilities of Directors and Officers

• corporate fiduciaries

  • duty of care

    • specific duties

• business judgement rule

  • informed

  • rational basis

  • conflict of interest

• duty of loyalty

  • self dealing

  • personal interest

  • inside trading

  • detriment to minority shareholders