CORPORATIONS
COHN
FALL 2013
INTRODUCTION
– 99 percent are closed corporations in America – Closed Corporation is a close relationship between shareholders and management
– Public Corporation – publically traded corporations, divide because there are few corporations that a single individual owns a majority of stock.
· Diverse shareholders, and very few corporations are controlled by a single person
– Directors, officers and shareholders – state law that put forth rules of conduct
– Corporation – Nexus of Contracts between people
– Forms we aren’t touching:
· Not for profit corps- like churches, corp formed as a corporation and can function as a business. Not for profit duh, but cant have shareholders. Can make money and have people on salary, but the corporation can take the revenue and retain that profit and distribute it.
· Municipals
· Government corps
BUSINESS FORMS
o Pyramid Structure
Officers (app by board and serve at the whim of the board)
BOD (directors elect officers)
Shareholders (elect BOD)
– History
o British E. India Co in 1600s formed to have monopoly on India tea trade. Petition the queen for a charter for the British E India Co, (corporations are issued by the sovereign i.e. state). Queen gave charter recognizing the business. Once it had a charter, the corporation became an entity
o Until 1800s, India was then taken over by England
o When this company was formed, had to think about what this entity was going to be. At the time of its formation, only two legal entities of businesses recognized:
o General Partnership
§ Consist of all General Partners.
§ Every GP is equal, with equal voice or distribution rights no mater the amount put into the business.
§ Standard traditional partnership law even today unless a special agreement
§ All GP are personally liable for the debts of the partnership
o Limited Partnership
§ General Partners
ú Same as above (equalness, personal liability)
§ Limited Partnerships
ú Investors with little management authority (no equal voice, like semi-passive investors)
ú Certain rights (today by statute)
· Elect or remove GP
· Approval rights on actions
· Liability for only the amount invested
o Problem with the two types for the BEI Co, the GP had a heavy load of liability, so in came limited liability companies. Also, If a GP died, the partnership would have to dissolve, means continuity of life was needed.
o So in comes the corporation characteristics.
– Corporation Characteristics:
1. Limited Liability
2. Continuity of Life (continues on regardless of shareholder changes
3. Transferability of interest (needs unanimous approval)
4. Centralized Management
o All these default stat set ups can be changed by an agreement
o Can have a corporation with only one owner, that owner cant represent the corp in the court, bc the court is an entity, a client, and only an attorney can represent it.
o Corporations can commit crimes through agency theory
– Forms of Business Enterprises
1. General Partnership
2. Limited Partnership
3. Limited Liab Co
4. Corporation
8/22/13
Business Forms
– General Partnership
o RUPA (revised uniform partnership act)
– GP/LP
o RULPA (revised uniform limited partnership act)
– LLC
o LLCA (limited liability company act)
– Corp
o MBCA (Model Business Corporation Act)
o FBCA (Florida Business Corporation Act)
o Enabling statutes bc they enable the promoters to create this entity and create a structure they want within the entity. The statutes are default provisions.
Handout 1 +2
– Question if Corporation is right? Look at the liability. No one wants to be liable for the corporation. It’s not a total immunity, but there is limited liability.
o GP – oldest form. Has personal liability traditionally, but it is no longer the law in any state. About 20 years ago, revolution and legislation gave limited liability for GP = limited liability partnership LLP. When a GP is formed (only entity not needing state
100 shareholders
§ Inc in the US
§ Only one class of stock
§ Shareholders must be individuals estates or specified types of trusts
§ No shareholder may be a non-resident alien (can be resident alien, but can be a foreigner living outside us, Gov doesn’t want to have to mess with getting tax money from outside the state.)
§ The corporation may not be a life insurance company or certain other excluded types of businesses
§ All shareholders must agree to the type S election
Handout 1 and 2
– Pass through
o GP is out bc of investors
o Corp S for the friends may not work bc there can only be one type of stock and we need outside investors
o LP can work
8/26/13
Model Act
– Corporation is created on the filing of the articles with the state
– De facto corps: act like corp but never filed is not a corporation (needs to file according to a the model act/state; if they never file = GP)
pg 148
– Advantages of the Corporate Form:
o Flexible capital structure
§ More commonly understood by investors
o Centralized management (doesn’t really exist anymore bc this can be created in any entity)
o Perpetual life of co (also can be achieved by any entity by agreement of the parties)
o Limited liab for shareholders
§ Also exist in other entities so not really an advantage
o Well estab form for all types of businesses
§ True bc its preferred bc of limited liab
– Major advantage is its flexible capital structure à investors understand what they are getting. Realistic plus.
– In the other forms, variation can be created via Ks, but this is a lot of work and cost of drafting these Ks
