i. Almost any organization can be a corporation
1. File form and pay fee w/ secretary of state.
2. Articles of Incorporation.
b. Business Corporations
i. Other organizations can incorporate- cities, schools, churches etc ® governed by other rules- they can’t distribute dividends
ii. Only similarity is they are both legal entities.
1. Owners of the business. Role is passive. Ownership interest evident in stock. Their main role is to vote for Board of Directors and for organic changes.
2. Have economic interest b/c they receive dividends (payment from net profit). Receive proportion of net assets in liquidation. Almost always allowed to sell stock.
ii. Board of Directors
1. Elected by shareholders to run the corporation.
2. Have the most power: evaluate and hire/fire officers and approve or reject major corporate decisions.
3. Officers: Selected by Board to run the business on a daily basis; answerable to Board- most of time they are actually running the show.
iii. Officers- Selected by Board to run the business on a daily basis; answerable to Board- most of time they are actually running the show.
d. Types of Corporations
i. Public: Companies whose stocks are traded publicly, mostly on stock exchanges. Broker can buy available stock in publicly traded.
ii. Closely Held: Companies whose stock is not traded in the public markets. To buy stock in one of these companies you probably hav eot talk to an owern.
Part I: The Concept of the Corporation as a Legal Eniity and the Formation of the Corporation
I. Limited Liability and Piercing the Corporate Veil:
a. Limited Liability
i. A corporation is a separate legal entity, and thus incurs its own separate liabilities. The norm is that shareholders/directors are not vicariously liable for the corporation’s debts. This means they can only lose what they put into the corporation and creditors are limited to the corporate assets.
b. Piercing the corporation veil
i. Shareholders can lose their limited liability by their own conduct. Ordinarily creditors cannot sue the shareholders personally, but they can make shareholders vicariously liable for the debts of the business if the corporate veil has been pierced.
1. Drew: “who
e. OPM Articles
i. Two shareholders who have lots of personal wealth commit fraud. OPM has little assets before bankruptcy. Shareholders sold their houses to wives for $10. Probably grounds for piercing the corporate veil.
ii. The law of fraudulent conveyances- by request of creditor a judge will invalidate a transfer of property for inadequate consideration if the debtor is at or near insolvency
1. Could it help here?
a. Maybe but first must show that you have a claim against the owners of the houses. If however the claim is just against OPM you don’t have a claim against houses because not part of the corporation.
iii. To get to the owners of the houses, or to get any other assets of the shareholders, they have to have lose limited liability from one of the above four ways.
iv. This case shows the unfairness of limited liability:
A corporation owes money but it no longer has the assets to pay off the claims