bus law ch22

self-tender offer

One common method is a self-tender offer, in which the target corporation offers to buy its shareholders' stock. If the shareholders accept the offer, the target corporation maintains control of the business.

business self-dealing,

occurs when a director or officer makes decisions that benefit other companies with which he has a relationship.

retained earnings

Alternatively, corporations can keep profits

directors as Managers

Although directors meet to vote on major decisions about the corporation, they are also responsible for many day-to-day managerial activities of the company. The directors appoint, supervise, and remove corporate officers as they see fit, and they declare and pay corporate dividends to shareholders. They are also responsible for making financial decisions and authorizing corporate policy decisions.

fiduciary duties

Because all individuals within a corporation depend on one another, the law requires directors, officers, and shareholders to perform certain duties within the business. In other words, individuals within the corporation have legal responsibilities to the corporation. These duties to the corporation are called fiduciary duties. The two primary fiduciary duties of directors and officers are the duty of care and the duty of loyalty.

Duty of Loyalty

Because directors and officers have great decision-making freedom, they have the power to make business decisions that will benefit themselves while harming the company. Thus, to protect shareholders, directors and officers have a fiduciary duty of loyalty. In other words, they have a fiduciary duty to put the corporation's interest above their own when making business decisions.

major types of stock

Common stock and preferred stock are the two major types of stock.

our major rights

Directors have four major rights within a corporation: rights of compensation, participation, inspection, and indemnification.

Stock Certificates

Some corporations issue stock certificate to shareholders as proof of ownership in the corporation. Each certificate includes the corporation's name and the number of shares represented by the certificate. An example of a stock certificate is shown in Exhibit 22-5. A shareholder's ownership in the corporation, however, does not depend on his possession of the physical stock certificate. For example, if the certificate is destroyed in a fire, the shareholder's ownership in the corporation is not destroyed.

State incorporation

State incorporation statutes typically grant the following express powers to corporations: the power to have perpetual existence, the power to sue and be sued in the corporation's name, the power to acquire property, the power to make contracts and borrow money, the power to lend money, the power to make charitable donations, and the power to establish rules for managing the corporation. In addition, corporations may take whatever actions are necessary to execute these express powers. Thus, corporations have implied powers. Generally, the statement of corporate purpose in each corporation's articles of incorporation gives each corporation its implied powers.

creation of a corporation

The creation of a corporation involves two parts: general organizational activities and legal activities necessary for incorporation.

Share Transfer

The law generally permits property owners to transfer their property to another person, and, in most cases, stock is considered transferable property. In closely held corporations, however, the transfer of stock is usually restricted so that shareholders can choose the corporation's other shareholders.

personal self-dealing

The second form of self-dealing, called personal self-dealing, occurs when a director or officer makes business decisions that benefit her personally.

for-profit corporations

Thus, their objective is to operate for profit. Shareholders seeking to make a profit purchase the stock these corporations issue. This profit can take two forms. First, shareholders receive dividends from the corporation. Second, the market price of the stock can increase. Shareholders can then sell their stock at a higher price than the purchase price of the stock.

target corporation.

To initiate a stock purchase, the aggressor must appeal directly to the shareholders of the corporation it hopes to buy

shareholders

Unless the articles of incorporation specify otherwise, shareholders do not participate in corporate management. Instead, shareholders elect a board of directors. The board, in turn, selects officers to manage the day-to-day business of the corporation.

public corporation

a corporation created by government to help administer law. Thus, public corporations often have specific government duties to fulfill. The Federal Deposit Insurance Page 476Corporation (FDIC) is an example of a public corporation.

Officers

are executive managers whom the board of directors hires to run the organization. Although directors are in charge of major policy decisions, officers run the day-to-day business of the corporation. Officers act as agents of the corporation; thus, the rules of agency apply to their work.

S corporations

are named after the subchapter of the Internal Revenue Code that provides for them. They are a particular type of closely held corporation. Government taxes S corporations differently from other corporations. Government taxes most corporations twice on their income: corporations must pay income tax, and shareholders must pay taxes on dividends they receive. S corporations, however, enjoy the tax status of partnerships. Thus, shareholders of S corporations report their income from the corporation as personal income

Promoters

begin the corporate creation and organization process by arranging for necessary capital, financing, and licenses. Promoters raise capital for the infant corporation by making subscription agreements with subscribers (investors) in which the subscribers agree to purchase stock in the new corporation.

aggressor,

can buy any or all of another corporation's voting shares. Through such a stock purchase, the purchasing corporation gains control of the selling corporation in a corporate takeover

closely held corporations (also called close, family, or privately held corporations)

generally do not offer stock to the general public. Shareholders are usually family members and friends who are often active in the business. Controlling shareholders typically manage closely held corporations. Because closely held corporations are often family businesses, they often maintain restrictions on the transfer of shares to prevent outsiders from obtaining control of the business. Although they account for only a small fraction of corporate assets and revenues, most U.S. corporations are closely held corporations.

articles of incorporation

important elements of the corporate formation process is the articles of incorporation, a document providing basic information about the corporation. According to RMBCA, a corporation's articles of incorporation must include (1) the name of the corporation, (2) the address of the registered office, (3) the name of the registered agent (i.e., the specific person who receives legal documents on behalf of the corporation), and (4) the names and addresses of the incorporators.

foreign corporation

in states in which it conducts business but is not incorporated. For example, the McDonald's Corporation is incorporated in Delaware but does business in all 50 states. Thus, McDonald's is a domestic corporation in Delaware and a foreign corporation in the other 49 states.

corporation by estoppel;

in such cases, courts hold that the corporation is a corporation by estoppel; thus, courts estop (prevent) the corporation from denying its corporate status. Although a court ruling of corporation by estoppel prevents the business from denying corporate status, it does not remedy the error or grant the organization corporate status for conducting future business

domestic corporation

in the state in which it is incorporated. Many corporations, however, do business in more than one state. A corporation that does business in states other than the state in which it is incorporated must obtain a certificate of authority in each state in which it does business.

alien corporation

is a business incorporated in another country. Thus, if a U.S. corporation wants to do business in Canada or Mexico, it is an alien corporation in those countries

incorporator

is an individual who applies to the state for incorporation on behalf of a corporation. RMBCA requires only one incorporator to incorporate a business, although it permits more. Generally, the incorporators' only duty is to sign the articles of incorporation.

publicly held corporations

is available to the public. Thus, if you want to invest in a corporation, you could purchase stock in a publicly held corporation. Most publicly held corporations have many shareholders, and managers of these corporations usually do not own large percentages of the corporation's stock. Shareholders wishing to sell their shares do not face many transfer restrictions.

private corporations

private persons create private corporations for private purposes. Private corporations do not have government duties.

meetings

shareholders meet once a year, but, in emergencies, they can meet more often. The board of directors, shareholders who own at least 10 percent of the corporation's outstanding shares, and others authorized in the articles of incorporation may call a special shareholder meeting. Before each meeting, each shareholder receives notice of the time and place of the meeting. If the meeting is a special meeting, the purpose of the meeting is also included in the notice.