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Business Associations/Corporations
University of San Diego School of Law
Dallas, Lynne

Corporations Outline            
 
 
 
 
v     What are some basic characteristics of a corporation?
§         It is a separate legal entity that has special rules associated with it
¨      Separate form what and from whom? From shareholders, managers, directors, ect. What is the “separate thing”? Opinions differ, a ficticious entity, social entity.
¨      Owners of the corporation have limited legal libility
§         It has a “charter,” which is the legal document that declares its corporate status
§         A corporation doesn’t die. It continues indefinitely until it is dissolved. This allows assets to accumulate over time. Audio recorder
§         It has a centralized management structure, and separation between ownership and control. (although this doesn’t always have to exist.) There is a pyramid structure to a corporation SHAREHOLDERS à BOARD OF DIRECTORS à CEO à LOWER MANAGEMENT, ect.
¨      Board delegates the authority for who will act for the corporation, CEO manages the day to day activities of the corp. Share holders are merely investors but they can’t act on behalf of the company. 
¨      They CAN, however, make the directors accountable for operation of the company.
§         Shareholders may have “voice,” which means they can vote to enact change.
§         Shareholders can exit the company. This makes the company accountable because it causes the price of the companies stock to go down. Also, if one person buys all the stocks at a low price, they can replace the board
¨      It has transferability of ownership interests
§         Shareholders can sell stock and sell their investment.
v     There are 2 categories of “for profit” corporations
§         Public Corp
¨      Shares change hands in a publicly traded market (the stock exchange.)
§         Closed Corp
¨      Doesn’t have very many shareholders, and no public trading of shares.
§         State law affects the degree to which a Corp is public or Closed. Mandatory law makes the actions of a corporation of PUBLIC importance.
v     What is the purpose of a corporation?
§         To make money while remaining socially conscious. Corporations have social responsibility.
v     What is a corporate security? 
§         Bonds (least risky but lowest return), shares of stock (Either common shares or preferred shares. Preferred shares give you different voting rights), ect.
v     Fiduciary Duties of a Corporation
§         Bayer v. Beran– divides the issue into duty of care (responsibility) and duty of loyalty. Million dollars were spent on advertising that went to D’s wife. Plaintiff (shareholders) contended advertising was not necessary because company already had enough business.   D conte

§         JAYHAWK CORPORATION PROBLEM
¨      A shareholder derivative action is brought against the Jayhawk Corp. in Kansas court. Kansas state law says that the shareholder must be a shareholder at the time of the action The Delaware law says that you must be a shareholder at the time of the wrong.
¨      Does this issue relate to the INTERNAL affairs? YES.   Internal affairs include the duties of the managers, the issuance of stock, ect.   Since the internal affairs doctrine applies, Delaware law rules.
§         Ross A. Wilson v. Louisiana-Pacific Resources, Inc.
¨      Was the California statute (section 2115) requiring cumulative voting by shareholders for any corp. that conducted the majority of its business in CA creating an undue burden on commerce?
To determine this it is important to evaluate whether the statute will be uniformly applied. It is also important to determine whether the purpose of the statute is to discriminate against non-local businesses. Finally the court mentions that “undue burden” should be considered, i.e., does the statute create confusion?