Corporations
Professor William K.S. Wang
Spring 2005
Introduction
I. What Is Corporations Law?
a. Deals with internal corporate relationships (e.g., directors’ duties to the corporation and shareholders)
i. Does not deal with external relationships with third parties outside of corporation (e.g., trot law, labor law)
b. Triangle: Corp.
Dir./Off. Shareholders
c. Not limited to big business, applies to mom-and-pop operations
d. A corporation is just one way to do business
i. E.g., Could operate as a business trust instead (board of trustees run the business trust, investors in business trust who are the beneficiaries, trust certificates instead of stock)
II. Bodies of Law Governing Internal Relationship Within the Corporation
a. State Corporation Code
i. Covers corporation from incorporation to operation to dissolution (cradle to grave)
ii. Each state has its own corporations code, but corporations 99% the same
1. E.g., January 1977, California legislature completely revamped the California corporations code to make it more like other jurisdictions (e.g., Delaware)
iii. Other states use the Revised Model Business Corporations Act (RMBCA): adopted by Texas and mostly smaller states
b. State Case Law
i. Codes have gaps and ambiguities that are filled in by case law
ii. Although corporations law is statutorily based, it has some common law
c. Federal Securities Statutes and Rules, As Interpreted By Cases
i. Two federal New Deal era statutes regulate corporations
1. Securities Act of 1933: Governs newly issued securities (IPO)
2. Securities Exchange Act of 1934
a. 14(a): governs voting and corporate elections
b. 14(e): governs fraud in tender offers
c. 10(b): governs fraud in purchase or sale of securities
d. 16(b): governs short-swing profits by statutorily defined insiders in their own companies’ stock
d. Interaction Between Federal and State Law
i. Statutes were a response to the perceived inadequacies of state regulation pre-Depressi
d (2) one or more limited partners
i. Limited partner: Not bound by the general obligations of the general partner; liability is limited: cannot lose more than she invested
1. Contributes capital and shares in profits but cannot take part in running the business; must remain passive investor(s)
ii. General Partner: Furnishes expertise
iii. Limited partnership can fail if
1. Limited partner takes an active role in the management of the business (control)
a. Voting not considered control (limited partner can vote and retain limited status)
In California, a creditor seeking to hold limited partners liable must (1) know that control is being exercised and (2) the creditor must reasonably believe that the partner is a general partner at the time of the transaction, based on the conduct of the partner
