Chapter 45 Introduction to Corporation Law

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

2. Corporations [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. Classifications of Corporations Domestic Corporation Foreign Corporation “S” Corporation Special Service Corporation Professional Corporation Close Corporation Nonprofit Corporation Public Authority Public Corporation Quasi-Public Corporation Private Corporation Chapter 45

3. Liability of a Promoter and a CorporationDuring Formation of the Corporation[45-2] Chapter 45

4. Particular Corporate Powers[45-3] Perpetual Succession Corporate Name Corporate Seal Bylaws Executing Commercial Paper Borrowing Money Stock Marking Contracts Acquiring Property (Investments & Holding companies) Buying Back Stock Issuing Bonds Transferring Property Doing Business in Another State Paying Employee Benefits Making Charitable Contributions Participating in Enterprise Chapter 45

5. Consolidation Corporation “A” New Corporation “C” (A & B Disappear) Consolidation Transaction Corporation “B” Chapter 45

6. Merger Corporation “A” (Survivor) Corporation “A” (Corporation B Disappears) Merger Transaction Corporation “B” Chapter 45

7. Chapter 45 Summary[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. Chapter 45

8. Chapter 45 Summary[2] 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. Chapter 45

9. Chapter 45 Summary[3] 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. Chapter 45

10. Chapter 45 Summary[4] 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. Chapter 45

11. Chapter 45 Summary[5] 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. Chapter 45

12. Chapter 45 Summary[6] 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. Chapter 45

13. Chapter 45 Summary[7] 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). Chapter 45

14. Chapter 45 Summary[8] 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. Chapter 45

15. Chapter 45 Summary[9] 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. Chapter 45

16. Chapter 45 Summary[10] 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. Chapter 45

17. Chapter 45 Summary[11] 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