MGT 340 Chapter 16 Updated

Privately held corporation

- A corporation that does not sell ownership interests through sales via a broker to the general public or to financial institutions or investors. - May forgo an annual meeting by filing a unanimous consent resolution.

The Revised Model Business Corporation Act

- Provides that a self-dealing transaction is not a breach of the duty of loyalty if a majority of disinterested parties approve the transaction after disclosure of the conflict. - Each state sets the required number of board members, and some states make no minimum requirement the rule.

Qualification of subclass S

- The unanimous consent of the shareholders must occur for Subchapter S designation. - Cannot be insurance or bank companies

Corporation

A fictitious legal entity that exists as an independent "person" separate from its principals.

Duty of care

A fiduciary duty owed to shareholders in which officers and directors must exercise that degree of skill, diligence, and care that a reasonably prudent person would exercise under the same circumstances, acting in good faith and in a manner that is reasonably calculated to advance the best interests of the corporation.

Duty of loyalty

A fiduciary duty owed to shareholders in which officers and directors must not engage in self-dealing or conflicts of interests, requiring fiduciaries to put the corporation's interest ahead of their own.

Business judgement rule

A protection for corporation officers and directors from their fiduciary duties when they have acted in good faith, have no private financial self-interest, and used diligence to acquire the best information related to a proposed decision, but still made an unwise decision that resulted in some loss to the corporation.

Corporate Bylaws

Bylaws are not public documents and are not filed with the state.

Officers authority to bind

Corporation may be expressly granted or may be implied from their position as officers of the corporation.

Delaware for state of incorp.

Delaware provides many incorporation advantages but does not provide significant tax benefits to out-of-state corporations

Revised Model Business Corporation Act (RMBCA)

Model act drafted by the American Law Institute and adopted by over half of the states as a template for compiling their own statutes governing corporations.

Business Corporation Law

Often the title for a specific state law that covers such matters as the structure of the corporation, oversight of the activity of the corporation's managers, rights of the principals in the case of the sale of assets or ownership interests, annual reporting requirements, and other issues that affect the internal rules of the business venture.

Promoters liability

Promoters may act on behalf of a corporation as it is forming but will have some personal liability for liabilities incurred. Once the corporation is formed, the corporation becomes liable, with the promoter's liability ceasing the moment formation occurs.

Subchapter S

Subchapter S corporations may not own more than 80 percent of the stock of a subsidiary corporation.

Articles of incorporation

The document filed with a state authority that sets in motion the incorporation process, including the corporation's name, purpose, number of shares issued, and address of the corporation's HQ. - The document filed in a majority of the states that begins the incorporation process

Corporate veil

The liability protection shareholders, directors, and officers of a corporation have from personal liability in case the corporation runs up large debts or suffers some liability.

Shareholders

The owners of a corporation that act principally through electing and removing directors and approving or withholding approval of major corporate decisions.

Officers

Those appointed by the board of directors carry out the directors' set course of direction through management of the day-to-day operation of the business.

Directors

Those responsible for oversight and management of the corporation's course of direction.

Venture Capital firms

Usually long term investors

Piercing the corporate veil

When the court discards the corporate veil and holds some or all of the shareholders personally liable because fairness demands it in certain cases of inadequate capitalization, fraud, and failing to follow corporate formalities.