A. Agency-fiduciary relationship created by mutual consent.
1. Fiduciary-legal relationship in which someone owes a duty to someone else in which agent is supposed to be furthering the interest of the principal
a. Actual – the agent may act on principals behalf if words or conduct would lead a reasonable person to believe that the principal wishes the agent to so act.
b. Apparent- a reasonable third party (T) would believe P authorized A to act based conduct of P. Binds P.
B. Characteristics of the corporate form
a. Default form of business with multiple owners
b. Partners are personally liable for debts of the business
c. Each partner has the power to bind the business
2. Close Corporation
a. Few stock holders
b. Shares not publicly traded
c. Most of the shareholders are involved in the management of the corporation
3. Advantages of Corporations
a. Indefinite life
b. Limited liability-All you can lose is you initial investment
c. Shares can be sold
4. Board of directors
a. Responsible for managing corporation
b. Elected by shareholders at annual meeting
c. Board of directors are not employees of corporation
d. Appoint officers
e. Officers can be director (Inside Director)
5. Sources of Corporate Law
a. Federal Law (Publicly Traded Corporations)
b. Rules of the exchange (NYSE NASDAQ rules)
c. State Law
(a.) State Corporations Statute
(b) Cases interpreting statute
ii. Common Law/ Equitable principles
6. Location of Corporation
a. Can incorporate in any state
b. Small corps incorporated in State in which they do business.
c. Larger Corps shop around
d. Model Business Statute (Does not apply in DE, NY, CA)
C. The Corporation as a device to allocate risk
1. Walkovszky v. Carlton
a. Facts: P is injured by taxicab. Taxi companies are structured so no corp owns more than one cab, but one person controls several corps.
b. Procedure: P tries to hold owner of corp. personally liable.
c. Issue: Can P hold owner of Corp. personally liable?
d. Holding: No
e. Rule: Whenever a person uses the corp. to further his own business rather than the corporations, he is personally liable. Shareholder’s themselves have not respected the corporate form.
f. Reasoning: P cannot prove that D was conducting business in individual capacity.
e. Subsequently: P amended complaint and claim was upheld.
2. Piercing the Corp veil
dments must be proposed by board and approved by shareholders
2. By Laws
a. Adopted by board
b. Procedures for corporate governance
c. Both shareholders and board can amend by laws
d. By laws cannot conflict with articles of incorporation
3. Issue Shares
a. Authorized shares-max number of shares that can be issued by corp
b. If corp wants to issue more shares articles must be amended
c. Common Shares
i. 1 vote per share
ii. Right to receive dividends if applicable
iii. Residual owners-gets what ever is left after all debts are paid
d. Preferred Shares
ii. First and limited claim on dividends
iii. Preference on liquidation before common shareholders but still after creditors
iv. May or may not have voting rights
a. Rights of debt holders fixed by contract
b. Contractual right to principle and interest
c. Can force corp into bankruptcy if it defaults
Does not owe fiduciary duties to debt holders unlike shareholders