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

Corporations Outline

Spring 2000


General Characteristics of the Corporation

Separate entity with perpetual existence
Limited liability
Centralized management
Transferability of ownership interest

The Economics of the Firm

Risk Preference

Risk Neutral

one who makes decisions based on expected return of venture
thought process looks at expected return which equals weighted average of all possible outcomes

Risk Adverse

one who prefers not to take risks and willing to pay to avoid risks
most people are risk advers

Risk Loving

one willing to take risks

Shirking: the avoidance of work
All risks can be classified as controllable or non-controllable risks

Controllable Risks

Employee’s incentive to work

Uncontrollable Risks


Introduction to the Law of Corporations

Basic Terms and Concepts

two levels of delegation of authority

Shareholders elect board of directors
Board of Directors appoint officers

Articles of Incorporation (a.k.a. certificate of incorporation, corporation charter) Constitution of corporation governing internal structure and operation of corporation.

in order to amend board must recommend, shareholders vote §10.03
board may change articles w/o shareholder approval if non-fundamental change.


adopted by board at first meeting
details of internal governance of corporation
easier to amend then articles of incorporation

Equitable Limitations on Legal Possibilities

RMBCA §3.02. Laundry list of what a corp. may do.
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.
Independent Legal Significance. If the transaction undertaken by Bd is illegal under one statute but is allowed by another, the activity is allowed. See B

wers as an individual to carryout its business and affairs. RMBCA §3.02.
Unless the articles state otherwise, a SH is not personally liable for the acts or debts of the corporation. RMBCA §6.22(b).
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.

The Incorporation Process

Lawyers’ Professional Responsibilities: Who is the Client?

a. The corporation is the client.

The Process of Incorporation

The corporate name may be reserved (for 120 days) prior to formation by filing with the Secretary of State an application to reserve said name. TBCA art. 2.06.
The board of directors must consist of 1 or more members and must be set by the articles or bylaws. TBCA art. 2.32.A.