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Business Associations/Corporations
University of Oklahoma College of Law
Cleveland, Steven J.

Cleveland Corporations Fall 2017
A BUSINESS ENTITY AMOUNTS TO A LEGAL FICTION, that exists separately from its owners and operators.
An aggregate corporation, at common law, is a collection of individuals, united into one collective
Nobody, under a special name, and possessing certain immunities, privileges and capacities, in its collective character, which do not belong to the natural persons comping it. (TRUSTEES OF DARMOUTH COLLEGE V. WOODWARD)
State Law governs the organizations of business.  (Federal Law does apply in certain circumstances)
Each state can create its own corporations
Corporations also submit themselves to private rules (I.E. NYSE)
A business can incorporate in one state, and avail itself, of that jx's law, while operating in a different JX.
Source of Law
Delaware (DE) is the nation’s leading provider of corporate law
Well devolved due to age
Amends it's corporate code every year
Due to lots of litigation, there is a lot of common law
Special judiciary allocated to corporation issues
More accurate
Oklahoma Corporate Code
Oklahoma adopted DE Corp. Code as its own in 1986.
Foreign Corp.
A Corp that operates in a Jx, but is organized in a different Jx.
All states impose a fee for operating in that Jx.
Internal v. External Matters…
State law will govern the external affairs of the corporation in the JX of the matter
The law of the JX of the organization will govern matters “internal” to the corporation.
Corporate Constitution
The foundational document of the corporation is known as its charter
Must include specified elements 
Provisions relating to the conduct of the company's affairs
Cannot be inconsistent with the law or with the Charter
Board of Directors
State law provides that the business and affairs of the corp. shall be managed by, or under the direct of a board of directors
DCGL 141(a)
The B.O.D. makes significant, fundamental decisions about the corp, but not without approval of the shareholders.
Oversight Responsibilities include
Business performance and plans
Major risks to which the corporation is or may be exposed
The performance of senior officers
Policies and practices to foster the corporation's compliance with law and ethical conduct
Director are Not necessarily employees of the Corp.
Full board can delegate some tasks to a bard committee.
Inside Director: Employee of Corp (Mark Zuckerberg)
Outside Director: Non-employee of Corp
May still have stake in the decisional outcome of the board
Independent Director:
Not employee
No relationship with Corp. that taints decisions
No stake in decisional outcome
More credible to judges
Those who implement the directives of the B.O.D.  (DCGL 142)
Shareholders are said to “own” the corporation, but directors and officers “control” the corporation.
This creates an agency problem
The separation of ownership and division must be overcome
Mom and Babysitter analogy
Monitoring cost are borne by the principle (The SHH) to police the agent (BOD)
Bonding costs are borne by the agent (BOD) to prove the principle (SHH) that the agent will behave appropriately
Residual loss results from the unavoidable divergence of the respective interests of the principal and agent
Purpose of Corporation: To increase SHH Value
Choice of Organizational Form
Corporations (DGCL § 102)
Must comply with formalities to establish a corporation
Pay Fee
Filed with the Secretary of State
Must include Unique Name (including magic word, like corporation, company, business, etc. (DGCL § 102(a)(1)
Registered office in the JX of organization (doesn't have to be an operational office – just somewhere to send mail or serve process)
Nature of the business
Can be extremely broad
DE Code state the nature of business as: “To engage

sfer ownership interests in the general partnership
Marked by decentralized management (1 partner = 1 vote)
The partnership is not subject to taxation, but the partners ar
The partners in a partnership owes fiduciary duties to other partners
Not liable for joining an existing partnership
Leaving a partnership excuses you from any partnership if the partnership continues, but not from liabilities from the time you were there.
Limited Partnerships (LPS)
Limited partnership acts commonly set forth certain default rules, from which the parties may deviate by agreement
Parties must comply with formalities to organize
1 or more (but not less than all) partners must execute a certificate of limited partnership.
Filed with the Secretary of State
Name of the LP
Address of the registered office and name of agent for service of process
Name and mailing address of each general partner.
LP's enjoy perpetual existence
Limited liability for certain investors
General partners: Unlimited Liability
Limited Partners: Limited Liability.
Managers are the managers of the ltd partnership.
Their interest is non transferable
Owe a fiduciary duty to the limited partnership
The Uniform LP A includes no default rules regarding the allocation of profits and losses amount the partners
Marked by centralized management
Limited Liability Company (LLC)
No formalities
Perpetual existence
Members enjoy limited liability
LLC's have tremendous freedom to contract
Statutory instructions and Common Law limited in regards to LLC