Chapter 45 Introduction to Corporation Law Twomey, Business Law and the Regulatory Environment (14th...

Chapter 45Chapter 45

Introduction to Corporation LawIntroduction to Corporation Law

Twomey, Business Law and the Regulatory Environment (14th Ed.)

(c) 2000 West Legal Studies Chapter 45 2

Corporations Corporations [45-1][45-1]

A corporation is an artificial being, existing in the eyes of the law as a person, separate and distinct from the persons who own the corporation.

A corporation is formed by obtaining approval of: certificate of incorporation, articles of incorporation, or charter.

Classificationsof CorporationsDomestic

Corporation

Special ServiceCorporation

PublicCorporation

CloseCorporation

PrivateCorporation

ProfessionalCorporation

Quasi-PublicCorporation

NonprofitCorporation Public

Authority

“S”Corporation

ForeignCorporation


Liability of a Promoter and a CorporationLiability of a Promoter and a CorporationDuring Formation of the CorporationDuring Formation of the Corporation [45-2][45-2]

Liability of a Promoter and a CorporationLiability of a Promoter and a CorporationDuring Formation of the CorporationDuring Formation of the Corporation [45-2][45-2]

Promoter: one or more persons whobring together other persons to formthe corporation itself

Corporation: an artificial being,existing as a person, separate anddistinct from the persons who own it

Liable for all contracts made on behalfof the corporation before its existence,unless exempted by agreement orcircumstances. Liable on contractionsif the corporation is never formed,unless exempted by agreement

Not liable on a contract made by itspromoter for its benefit unless it adoptssuch contract

Liable for all torts committed inconnection with promoter’s activities

Not ordinarily liable for torts of thepromoter, but may become liable by itsown conduct after incorporation

Cannot make secret profits at theexpense of the corporation or itssubscribers

Not liable for expenses and services ofpromoter, unless it subsequentlypromises to pay, or charter or statuteimposes such liability


Particular Corporate PowersParticular Corporate Powers [45-3][45-3]Particular Corporate PowersParticular Corporate Powers [45-3][45-3]

PerpetualSuccession

Stock

IssuingBonds

Doing Business in

Another State

MarkingContracts

TransferringProperty

Participatingin

Enterprise

CorporateSeal

ExecutingCommercial

Paper

AcquiringProperty

(Investments& Holding companies)

PayingEmployeeBenefits

Bylaws

Buying BackStock

MakingCharitable

Contributions

CorporateName

BorrowingMoney


ConsolidationConsolidationConsolidationConsolidation

NewCorporation “C”

(A & B Disappear)

Corporation“A”

Corporation“B”

Consolidation Transaction


Corporation“A”

Corporation“B”

(Survivor)Corporation

“A”(Corporation B

Disappears)

MergerTransaction

MergerMerger


Chapter 45 SummaryChapter 45 Summary [1][1]Chapter 45 SummaryChapter 45 Summary [1][1]

A corporation is an artificial person created by government action. It exists as a separate and distinct entity possessing certain powers. In most states, the corporation comes into existence when the secretary of state issues a certificate of incorporation.


The most common forms of corporations are private business corporations whose stock is sold to the public (publicly held) and close corporations, which are business firms whose shares are not traded publicly. Corporations may be formed for purposes other than conducting a business. For example, there are nonprofit corporations, municipal corporations, and public authorities for governmental purposes.



Ordinarily each corporation will be treated as a separate person, and the law will not look beyond the corporate identity merely because the corporation had been formed to obtain tax savings or limited liability. The fact that two corporations have the same shareholders does not justify disregarding the separate corporate entities.



However, when a corporation is formed to perpetrate a fraud, a court will ignore the corporate form, or “pierce the corporate veil.” The corporate form will also be ignored to prevent injustice or because of the functional reality that the two corporations in question are one.



A promoter is a person who brings together the persons interested in the enterprise and sets in motion all that must be done to form a corporation. A corporation is not liable on contracts made by its promoter for the corporation unless it adopts the contracts. The promoter is personally liable for contracts made for the corporation before its existence. A promoter stands in a fiduciary relation to the corporation and stockholders.



The procedures for incorporation are set forth in the statutes of each state. In most states, the corporation comes into existence upon issuance of the certificate of incorporation. When all requirements have been satisfied, the corporation is a corporation de jure. When there has not been full compliance with all requirements for incorporation, a de facto corporation may be found to exist.



Or when sufficient compliance for a de facto corporation does not exist, in some jurisdictions a third person may be estopped from denying the legal existence of the “corporation” with which it did business (corporation by estoppel).



A corporation has the power to continue as an entity forever or for a stated period of time regardless of changes in the ownership of the stock or the death of a shareholder. It may make contracts, issue stocks and bonds, borrow money, execute commercial paper, transfer and acquire property, acquire its own stock if it is solvent and the purchase does not impair capital, and make charitable contributions.



Subject to limitations, a corporation has the power to do business in other states. A corporation also may participate in a business enterprise to the same extent as an individual. That is, it may be a partner in a partnership, or it may enter a joint venture or other enterprise. Special service corporations, such as banks, insurance companies, and railroads, are subject to separate statutes with regard to their organization and powers.



An ultra vires act occurs when a corporation acts beyond the scope of the powers given it. Because states now grant broad powers to corporations, it is unlikely that a modern corporation would act beyond the scope of its powers.



Two or more corporations may be combined to form a new enterprise. This combination may be a consolidation, with a new corporation coming into existence, or a merger, in which one corporation absorbs the other.


Chapter 45 Introduction to Corporation Law Twomey, Business Law and the Regulatory Environment (14th...

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