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


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 adverse

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

actor for determining the validity of the gift is whether or not it provides a tax benefit. If the gift generates a tax benefit then it is valid against Ultra Vires. See Theodora Holding

Corporate Social Responsibility Trends

The primary mission of a corporation is to earn revenue for it’s shareholders. See Dodge.

Formation of Corporations and Related Issues

The Choice of Organizational Form

See appendix
Corporations have perpetual existence and the same powers 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).