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Business Associations/Corporations
South Texas College of Law Houston
McGovern, Bruce A.

Spring 2000

I. Introduction
A. General Characteristics of the Corporation
1. Separate entity with perpetual existence
2. Limited liability
3. Centralized management
4. Transferability of ownership interest
B. The Economics of the Firm
1. Risk Preference
a. Risk Neutral
1. one who makes decisions based on expected return of venture
2. thought process looks at expected return which equals weighted average of all possible outcomes
b. Risk Adverse
1. one who prefers not to take risks and willing to pay to avoid risks
2. most people are risk advers
c. Risk Loving
1. one willing to take risks
d. Shirking: the avoidance of work
e. All risks can be classified as controllable or non-controllable risks
1. Controllable Risks
a. Employee’s incentive to work
2. Uncontrollable Risks
a. weather
b. price
C. Introduction to the Law of Corporations
1. Basic Terms and Concepts
a. two levels of delegation of authority
1. Shareholders elect board of directors
2. Board of Directors appoint officers
b. Articles of Incorporation (a.k.a. certificate of incorporation, corporation charter) Constitution of corporation governing internal structure and operation of corporation.
1. in order to amend board must recommend, shareholders vote §10.03
2. board may change articles w/o shareholder approval if non-fundamental change.
c. Bylaws
1. adopted by board at first meeting
2. details of internal governance of corporation
3. easier to amend then articles of incorporation
2. Equitable Limitations on Legal Possibilities
a. RMBCA §3.02. Laundry list of what a corp. may do.
b. RMBCA §12.02. A corp.’s assets may be sold other than in the course of business. If the assets consist of “all or substantially all” then Bd must get SH approval.
c. Independent Legal Significance. If the transaction undertaken by

ee Dodge.
II. Formation of Corporations and Related Issues
A. The Choice of Organizational Form
1. See appendix
2. Corporations have perpetual existence and the same powers as an individual to carryout its business and affairs. RMBCA §3.02.
3. Unless the articles state otherwise, a SH is not personally liable for the acts or debts of the corporation. RMBCA §6.22(b).
4. Every corporation must have a board. All corporate powers are exercised by the board. The board is also responsible for carrying out of the corporation’s business. RMBCA §8.01.
B. The Incorporation Process
1. Lawyers’ Professional Responsibilities: Who is the Client?
a. The corporation is the client.
2. The Process of Incorporation
The corporate name may be reserved (fo