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Business Associations/Corporations
Temple University School of Law
Porrata-Doria, Rafael A.


public company – stock registered w/SEC and sold in the stock market
corporation – unique entity – series of attributes and characteristics that make it profitable to have
shareholders – owners of the corp, but limited rights – don’t own corp itself, own an undivided proportional ownership interest
share/stock – gives limited rights – elect/remove directors, vote on fundamental transactions, receive a dividend if company so chooses
director – the corp statute gives them the power to run the business and affairs of the corp
management – hired help – board hires to do a specific job with limitations
shareholders who elect directors who hire management
Corporations – given perpetual life – means property must be liquidated and can continue as long as entity has a business; and separate personhood – at law a separate person from its owners
separates liability
shareholders not liable for anything
not responsible for tax liability
History: Romans – rediscovered in 19th century
Form: purpose of entity – exists as a statutory form, not common law entity
how to choose
how do you incorporate
corporate finance
piercing the corporate veil – abusive or outrageous situations where the separate person doctrine is ignored
how corporate runs
director’s fiduciary duties
The Corporation and Society
Dodge v. Ford – Henry Ford runs company but still has shareholders, etc. – made lots of money – Ford wanted more efficiency so wanted to make own parts – needed to build smelter; wants to lower price and flood market – so to obey by-laws which call for minimal dividend – which had been supplementing with special dividend
says he’s the company, etc.
Dodges are board members – say problem is Ford thinks is his company and his money and he can do what he wants with it
economic arrange for investment – and the goal is the profit maximization for the shareholders
Ford is reducing price of car, wasting money building factories and company towns, etc.
minimizing shareholder profits to fulfill social views
but Dodge is also competitor – investors and built parts but decided to break into car market – and were using the dividends to build their business
Ford Lawyer: all he is doing is good for society and corporation isn’t just about making money – it is a citizen, a member of society
Judge didn’t like Henry Ford – differing theories about the nature of the corporation in society
Dodge: not a charitable institution but can have incidental social effects – but the question is what does profit mean – Dodge is right, primary responsibility to maximize shareholder profits – not social
but HOW goes about doing that is something that corp management has the almost absolute ability to choose
ct. won’t say that the only way to maximize SH profit is to not build the smelter and not build company towns
can max SH profit however they choose – short/long term or both
will not enjoin constriction
maximizing SH rights is not the ultimate prime directive
doesn’t mean can’t have other incidental purposes
can have other directives
but judge doesn’t say what that means
so leaves open possibility of corp considering interests and other purposes
doesn’t say what those are, weight them or determine what % can be filtered to other things
Exogen problem – Shareholders not only constituency
not just one constituency and one goal, to maximize profits
ct. in Dodge v. Ford was reacting to Henry Ford’s attitude that he was only boss
a corporate expenditure that doesn’t make money CAN be ok
More to the Corporation thank just its Shareholders
duties are owed to it as a whole, not just to the individual groups that make it up
Board has to consider in determining what the corp’s interests are going to be the interests of all these categories of people – employees, shareholders, people in the community, directors, officers, etc.
is a corporation just a contractual relationship between investors and entrepreneurs?
Corporate Statutes
DE – legislature has taken position is a total contractual arrangement and statutes are just the general rules and very very minor issues
specialized expert court to settle disputes; little state involvement
most others: some rules of some kind, some kind of state intervention when needed
corporation-hood is a privilege given by the state, it’s a damn profitable one – no reason why the state cannot or could not put restrictions on the privilege
a legal person – so maybe it is a citizen – same responsibilities as any other citizen – must to best to further societal enterprise
problematic – each one has a problem – personhood doesn’t really fit

Can be dissolved at any time

Easy – just sell your interest

Depends on statute some limit transferability, some don’t

All partners need to consent to transfer interest and cannot sell interest


Relatively easy: sell additional membership interests in the LLC assuming you have either authorization in LLC charter or agreement of members

K raising
Hard – partners can make capital contributions, bring in more partners, or incur debt, but hard to get loan because of the risk

Double taxation of both dividends and the corporate income since corp considered a person

Same as partnership

Flow through: partnership profits taxed to partners in their proportionate share. Main virtue of partnership

Limited Partnership

Little more complicates and expensive than reg. – formal but not as complex

Limited liability – no personal liability for debt and obligations

Has a general partner and one or more limited partners-the limited partners can participate in management decisions or else they lose status as a limited partner, so they lose the right to participate in management in exchange for limited liability. Losing management voice can be a drawback.