INTRO TO CORPORATE LAW
ASPECTS OF THE CORPORATION
-1) limited liability- investors only stand to lose what they invested; however, you are always liable for your own actions
-2) Centralized management- power is concentrated in board of directors; all employees act subject to authority given by the board
-3) all property is held in the name of the corporation and is transferable; ownership is readable transferable; ability to raise capital
-4) separate legal entity- corporation lives forever as a legal entity; perpetual life; separate legal entity in eyes of the law
-5) taxation- taxed as a separate entity apart from its SHs; separate corporate income tax; double taxation, once at the corporate level on profits and once at the personal income level as dividends
TYPES OF CORPORATIONS
-Close Corporation- generally 35 or fewer SHs; often restrictions on transfer of shares (ex- right of first refusal for existing shareholders); not easy to get out and dispose of interest; most of the SHs are active participants and take most of the income through salaries and other fringe benefits, declaring small dividends; passive SHs generally become zeroed out of any income
-S Corporation- treated like partnerships for taxation purposes; not subject to the corporate income tax; requirements (must be fewer than 75 SHs, all SHs must be natural persons or their estates, not another business entity, only one class of stock may be issued)
CORPORATE STRUCTURE
-SHs- elect board of directors
-BODs- maintain ultimate control over corporation; represents SHs; appoint day-to-day management
-inside directors- primary obligation is corporation and works full time for the company
-outside directors- work full time for company but may also work for another company; provide more objectivity for corporation
-management- runs day-to-day operations under control of BODs
-public company- sells stock to public; solicits outside investors; traded publicly; may or may not be on stock exchange; must release info to the public
-privately held corporations- do not offer stock to public; do not need to release info to public
-parent company- company that owns the stock in other companies and controls the company through such ownership
-subsidiary company- companies that the parent owns or controls
-affiliate company- subsidiaries both owned by the same parent
-holding company- company created by parent to manage a subsidiary
-operating company- company under control of holding company
-capital structure- debt/equity ratio
-articles of incorporation (Charter)- document filed with state making the corporation a legitimate legal entity
-bylaws- rules governing internal affairs (time and place of annual meetings, # of directors, listing of officers); usually not filed with state; may usually be amended by the board of SHs
AGENCY LAW
-Agent (A) negotiates or makes deals on behalf of Principal (P) with Third Parties (TP)
-3 Elements of Agency
1) A acts on behalf of P- fiduciary relationship (A must act in P’s best interest and put Ps interest first; relationship of trust and confidence; special relationship; Meinard)
2) A acts with consent, express or implied, of P- fiduciary relationship does not have to be contractual, but can be implied through circumstantial evidence; label not important, substance over form; both parties have to consent
3) A acts subject to the control of P
-agency beyond debtor/creditor (Cargill)- pure debtor creditor relationship is arms-length and not built on the same trust and confidence as the P-A relationship
-control is the key- how much control does the creditor have over the debtor (negative control- telling company what not to do); where creditor has too much control over debtor, the relationship begins to move into the realm of P-A
-beyond franchiser/franchisee (Murphy)- requisite level of control to find P-A is enough for contract, but not tort; in tort a Master/Servant has to be found (master/servant involves P exercising physical control over daily operations of A)
AUTHORITY OF A TO ACT ON BEHALF OF P
-Actual Authority- can be express or implied
-express- specifically and expressly discussed and authorized; P expressly endows authority to A
-implied- authority implicitly given to A (related to express; does not exist without express; ex- express to negotiate, implied to prepare draft agreements, letter of intent, etc., but not to sign on the dotted line)
-Apparent Authority- focuses on dealings between P and TP (P manifests to TP that A has authority); never based on actions of the A
-TP’s reasonable belief based on actions of P (in corporate law, P is always the BODs, and they must act collectively)
-TP must have actually believed A had the authority based on P’s actions (factual/factor based analysis: would look at the business sophistication of TP; was k extraordinary?; corporation’s usual manner of conducting business; circumstances that gave rise to the k; reasonableness of k; amount involved; etc.)
ative control)
-a share of the profits, alone, does not create a partnership
-Martin and Cargill= use on test to demonstrate control (Cargill= stayed in relationship not just for return of investment, but for continued access to grain supplies; inability to enter into mortgages; purchase stock and paying dividends required approval; creditor is sole source of financing for purchases; line was crossed in Cargill, but not Martin)
Joint Venture/Profit Sharing (Meinard)
-joint ventures are for a specific purpose and specific period of time whereas partnerships are indefinite
-partners to a joint venture must disclose all material facts and important info regarding opportunities that arise during the course of the partnership; is the opportunity new or an enlargement of the old venture?
-joint venturers owe each other a fiduciary duty; have to at least disclose the opportunity, and probably share it; always at least disclose it
Expulsion of Partners (Bohatch)- partnerships exist by agreement of the partners; partners have no duty to remain partners (released from partnership from whistleblowing ok)
Retired Partners (Bane)- whatever fiduciary duties partners owe to each other, they do not owe fiduciary duties to former partners; fiduciary duty stops when the partner is no longer a partner
Non-Cash Capital Contributions (Schymanski)- a partner contributing only personal services is ordinarily not entitled to any share of partnership capital pursuant to dissolution. However, personal services may qualify as a capital contribution to a partnership where an express or implied agreement to that effect exists (ie general rule is that the person who put up the money gets all their money back before the person who only put in labor gets anything, unless of course there is an express or implied agreement to the contrary)
-partners share equally in losses and profits (A loses 30; B loses 20; C loses 10 but pays A 10; everybody loses 20) (if it’s a corporation, nobody gets anything back)
