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Business Associations/Corporations
South Texas College of Law Houston
Worley, John J.

Corporations Class Outline

I. The Corporate Form
A. Basic Overview- ownership and management functions are broken into 3 specialized groups having their own bundles of rights and responsibilities.
1. Directors- determine basic corporate polices, appoint and monitor the corporate officers and determine when and if dividends should be paid to shareholders
a. Directors are entitled to compensation for their duties, but do not share in residual profits
b. Directors are given incentives to do right by aligning their compensation w/ that of the shareholders
c. Directors owe a fiduciary duty to the shareholders of the corporation
d. In a closely held corporation directors tend to be the major shareholders, where as publicly traded corporations vary in structure of their directors.
e. All corporate powers shall be exercised by or under the authority of and the business and affairs of the corporation managed under its board of directors.
2. Officers- run day to day business affairs of the corporation
a. Sarbanes Oxley Act of 2002 requires the CEO and CFO to certify the financial reports of the corp. made pursuant to the disclosure rules of the SEC
b. Officer receive compensation but they don’t share in the companies residual profit unless they own shares
c. Offices are described in the bylaws or articles of incorporation or the board is given the board to designate the offices of the corporation.
d. The board of the directors may elect the officers of the corporation and an officer may appoint officers if authorized by the bylaws
3. Shareholders- corporation ownership interests are represented by shares that typically entitle the holder to a pro rata share of the firm’s profits and net assents when the corporation dissolves and winds up its business.
a. Shareholder’s are the corporation’s risk bearers, and they collectively have to power annually elect directors and approve of governing rules.
b. Normally a shareholder has no obligation or liability to the corporation or its creditors beyond the amount paid for the shares, “Limited liability”
c. Most state allow shareholders to initiate changes in a corporation’s bylaw but they may not amend the bylaw to make ordinary business decision or to establish corporate policies.
d. Shareholders’ power is to elect directors annually, vote on fundamental corporate transactions, and may initiate bylaw changes; they do not participate in the management or business affairs of the corporation.
B. Formation
1. Decision Where to Incorporate- more often than not the choice of where to incorporate comes to the choice between the home state of the Corporation or Delaware.
a. Internal Affairs Doctrine- the law of the state of incorporation governs the internal affairs of the corporations: typically things that have to deal wi

s to shareholder for money damages
(6) A provision for indemnification of directors for liability to the corporation.
iv. Incorporation-corporate existence beings when the articles are filed unless otherwise specified; if filed with the secretary of state, conclusive proof met all requirements
v. Pre-incorporation Liability for Transactions- any person acting on behalf of a corporation knowing there was no incorporation yet are jointly and severally liable for all liabilities while acting.
b. Delaware
i. Incorporators-any person or business entity may incorporate by filing w/ the sate a certificate of incorporation; a corporation formed under this chapter may formed for any lawful purpose or business
ii. Specific Requirements of Certificate
(1) Shall set forth the name with one of the words in the statute or abbreviation:
(2) Address of the corporation registered office for service and agent
(3) The nature or business purpose for corporation; enough to state that corporation will engage in all lawful activity; if specified limited to that specification.
(4) Name and mailing address of the incorporators