BUS LAW Chapter 18
Ultra Vires Doctrine
"beyond the power"; acts of a corporation that are beyond its express and implied powers
Publicly held corporation
(Public company) any corporation whose shares are publicly traded in a securities market, such as the NYSE or NASDAQ
Factors that lead courts to pierce the corporate veil
1. A party is tricked or misled into dealing with the corporation rather than the individual 2. The corporation is set up never to make a profit or always to be insolvent 3. The corporation is formed to evade an existing legal obligation 4. Statutory corporate formalities, such as holding required corporate meetings, are not followed 5. Personal or corporate interests are mixed together (commingled) to such an extent that the corporation has no separate identity
S Corporations
A close corporation that meets the qualifying requirements specified in Subchapter S of the Internal Revenue Code. Allows single taxation Requirements: 1. The corporation must be a domestic corporation. 2. The corporation must not be a member of an affiliated group of corporations. 3. The shareholders must be individuals, estates, or certain trusts and tax-exempt organizations. Partnerships and nonqualifying trusts cannot be shareholders. Corporations can be shareholders under certain circumstances. 4. The corporation must have no more than one hundred shareholders. 5. The corporation must have only one class of stock, although it is not necessary that all shareholders have the same voting rights. 6. No shareholder of the corporation may be a nonresident alien
Derivative Action
A shareholder thinks something has happened and the corporation should file a suit. Send a letter to the board of directors that is a demand, then the board has to vote or respond within 30 days. If they don't do either, then the shareholder can bring forward the suit
Shareholder agreement
A way the close corporation can effect restrictions on transferability. This can also provide for proportional control when one of the original shareholders dies.
Holding Company
Also referred to as a parent company; a company whose business activity consists of holding shares in another company Typically, a holding company is established in a low-tax or no-tax offshore jurisdiction
Limited Liability of Shareholders
Corporate shareholders are not personally liable for the obligations of the corporation beyond the extent of their investments.
Person
Corporations are recognized under U.S. law as legal persons rather than natural persons. Enjoys many of the same rights and privileges under state and federal law that U.S. citizens enjoy.
Nonprofit Corporations
Corporations formed for purposes other than profit; allows various groups to own property and to form contracts without exposing the individual members to personal liability
Alter-ego theory
Courts pierce the corporate veil under the theory that the corporation was not operated as a separate entity. Rather, it was just another side (the alter ego) of the individual or group that actually controlled the corporation. -Applied when a corp is so dominated and controlled by an individual that the separate identities of the person and the corp are no longer distinct -Used to avoid injustice or fraud that would result if wrongdoers were allowed to hide behind the protection of limited liability
Preferred Stock
Holders of this usually have priority over holders of common stock as to dividends and payment on dissolution of the corporation but frequently don't have the right to vote.
De Facto Corporation
If the defect in formation is substantial, the outcome will vary depending on the jurisdiction. Following 3 requirements: 1. A state statute exists under which the corporation can be validly incorporated 2. The parties have made a good faith attempt to comply with the statute 3. The parties have already undertaken to do business as a corporation
Corporation
Legal entity created and recognized by state law. The business entity can have one or more owners (called shareholders), and it operates under a name distinct from the names of its owners. Both individuals and other businesses can be shareholders. Double Taxation
Professional Corporations
Physicians, lawyers, dentists, and accountants; typically identified by P.C., S.C. (service corporation), or P.A. (professional association)
Express powers
The express powers of a corp are found in its articles of incorporation, in the law of the state of incorporation, and in the state and federal constitutions The following order of priority is used if a conflict arises among the various documents involving a corporation: 1. The U.S. Constitution 2. State Constitutions 3. State statutes 4. The articles of incorporation 5. Bylaws 6. Resolutions of the board of directors
Alien corporation
a corporation formed in another country but doing business in the US is referred to in the United States as an alien corp
Foreign corporation
a corporation formed in one state but doing business in another is referred to in the second state as a foreign corporation
Outside director
a director who does not hold a management position
Shareholders
all info on pages 405-407
Voting Trust
an agreement under which a shareholder assigns the right to vote his or her shares to a trustee, usually for a specified period of time.
Securities
corporations are financed by these, including stocks and bonds
Private corporations
created either wholly or in part for private benefit (for profit). Most corporations are private.
Bonds
debt securities; represent the borrowing of funds by firms and governments
Public corporation
formed by the government to meet some political or governmental purpose.
De Jure Corporation
if a corporation has substantially complied with all conditions precedent to incorporation, it has rightful and lawful existence
Pierce the corporate veil
in certain limited situations, courts can impose liability on shareholders for the corporation's obligations; exposing the shareholders to personal liability (page 399)
Bylaws
internal rules of management for the corporation
Close corporation
one whose shares are held by relatively few persons, often members of a family. Also referred to as closely held, family, or privately held corporations
Duty of Loyalty
page 403
Watered stock
when a corporation issues shares for less than their fair market value
shareholder's derivative suit
when the corporation is harmed by the actions of a third party, directors can bring a lawsuit in the name of the corp against that party. If the corp directors fail to bring a lawsuit, shareholders can do so "derivatively"
Business Judgment Rule
A corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgment and bad business decisions 1. Took reasonable steps to become informed about the matter 2. Had a rational basis for her or his decision 3. Did not have a conflict between her or his personal interest and the interest of the corporation
Criminal Law
A corporation may be held liable for the criminal acts of its agents and employees. Corporations cannot be imprisoned but can be fined greatly.
Certificate of authority
A corporation must obtain this in any state in which it plans to do business
Articles of incorporation
Primary document needed to incorporate a business; include basic info about the corporation and serve as a primary source of authority for its future organization and business functions. (page 395)
Crowdfunding
a cooperative activity in which people network and pool funds and other resources via the internet to assist a cause or invest in a venture
Benefit Corporation
a for-profit corporation that seeks to have a material positive impact on society and the environment: 1. Purpose. Although it is for-profit, the purpose is to benefit the public as a whole 2. Accountability. Shareholders determine whether the company has achieved a material positive impact 3. Transparency. Must issue an annual benefit report on its overall social and environmental performance that uses a recognized third party standard to assess its performance
Directors
board of directors is the ultimate authority in every corp; have responsibility for all policy-making decisions necessary to the management of all corporate affairs.
Venture Capital
capital provided by professional, outside investors, to new business ventures. These are high risk investments but offer the potential for doing well-above-average returns at some point in the future
Inside director
director who is also an officer of the corporation
Right to participation
directors are entitled to participate in all board of directors' meetings and have a right to be notified of these meetings
Right to inspection
each director can access the corporation's books and records, facilities, and premises
Corporate officers
employees who run the daily business operations; elected by the board of directors.
Stocks
equity securities, represent the purchase of ownership in the business firm
Stock certificates
evidence ownership of a specified number of shares in the corporation
Private equity capital
firms use this to invest in existing and often, publicly traded, corporations
Domestic Corporations
referred to by its home state or the state in which it incorporates
Board of Directors
responsible for the overall management of the firms; members are elected by the shareholders.
Stock warrants
rights given by a company to buy stock at a stated price by a specified date
Preemptive rights
shareholder receives a preference over all other purchasers to subscribe or to purchase a prorated share of a new issue of stock; must be exercised within a specified time period, usually 30 days
Quorum
the minimum number of members of a body of officials or other group that must be present for business to be validly transacted
Common Stock
true ownership of a corporation; provides proportionate interest in the corporation with regard to control (voting rights), earnings, and net assets
Right to indemnification
when a director becomes involved in litigation by virtue of her or his position, right to reimbursement for the legal costs, fees, and damages incurred
