Corporations Outline
I. What is a corporation
§ Corporations are created under STATE law. It only has powers and attributes given to it by state law. It is the vehicle by which capital is amalgamated. This shields the individual from personal liability.
§ A corporation has an existence in society as an individual — separate from its investors and its employees.
II. Stockholders
§ They invest capital into the company in exchange for their equity in the company, they get shares of stock. Stockholders vote at shareholders’ meetings. They vote to elect the Board of Directors to run the company. They also vote to approve certain fundamental transactions (like dissolving the corporation).
§ Stockholders sue. They sue the Board of Directors, the company, or one stockholder that owns so much stock that they control the board of directors.
§ Money comes out primarily as dividends. Stockholders have no right to dividends. They only get one if the BOD authorizes to give them one. Also, stockholders get it back if there is the decision to liquidate the company. Finally, you get the money back by sale of stock.
§ Stockholder suffrage consists of 2 things:
i. Vote
ii. The right to express written consent.
§ Shareholder voting rights addressed in 3 places:
i. Statute: MBCA
1. Basic Theme: Rights by default in the absence of doing something to customize them. Default is 1 share, 1 vote. Sec 7.21(a). Subject to articles and bylaws, shareholders can only vote on 3 things:
Elect directors as provided in 8.03(c)
Approve or disapprove significant transactions after those transactions have been approved and recommended by the board of directors
Amend articles (things fundamental to the corporation)(10.03)
Mergers & Acquisitions (11.04)
Sale of all or substantially all of the company’s assets (12.04)
Dissolving company and going out of business (14.02)
Where directors may have conflicting self-interests and instead of therefore approving the transaction themselves, they put it to the shareholders for approval. (8.63)
Amend the bylaws (10.20)
Can do this unilaterally
ii. Articles
iii. Bylaws
III. Directors
§ They manage the business. Decisions are made by the board as a group. Only collectively, at a meeting, with a quorum that has been duly noticed, can they make decisions that will effect the company.
§ They make the big decisions (buy the fleet of cars, enter into a merger, close a plant). These decisions are then carried about by the officer
i. Subordinate to the Articles
4. Judge-Made Law
i. Where most of the law is
5. Federal Securities Law
i. Governs issuance and trading of stock
VI. State Law
§ Delaware unlike most states has not joined equity and law in its court. Corporation law involves the judges decision about board of director’s fiduciary duties. There are 5 judges on the court of chancery and know corporate law very well.
§ The MBCA is drafted with the expectation that a circuit court judge will have to hear lots of different types of cases and doesn’t really know corporation law very well. The result is that the MBCA is VERY specific. This always gives you the answer.
§ The statue functions in two ways:
1. It provides mandatory provisions. You must do specific things (file articles, you must have a stockholder, board of directors, etc).
2. Permissive areas: Allows you to change things within your company anyway you want to (within certain limits)
