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

CORPORATIONS OUTLINE

I. GENERAL
a. Features of a Corporation
i. Separate entity
1. Independent
a. Can be sued, sue, hold property independent from shareholders/directors
2. Taxation
a. Must pay independent tax
i. Note: This leads to double taxation when dividends get taxed again when sent to ind.
3. Vs. Partnership
a. Dependant relationship. If partner leaves, entity dissolves
b. Only personal tax to each partner
ii. Limited Liability
1. Shareholders not responsible for debts
2. Vs. Partnership
a. Partners responsible for anyone’s debt
iii. Centralized Management
1. Shareholders vote on centralized board who designates officials
2. Vs. Partnership
a. Decentralized so that any partner can enter into business on behalf of partnership
b. History
i. Companies given charters to run colonies (eg East Indian Co.)
ii. Trend towards enabling charters so that only a form need to be filled out
1. Prevented inefficient controlled capital by government, but created corruption by less government control
a. Created current corporation scheme where a corporation is a privilege that is subject to gov conditions
iii. Wonnell Approach
1. Rules are necessary to prevent abuse of limited liability (eg capitalization minimum and insurance minimum)
2. However, too many rules create inefficient capital movement
c. Setting Up
i. Usually in DE although can be in any state
1. DE had reduced restrictions and so now has certain law
2. Criticisms
a. Corp in DE even if no assets/locations there?
b. Race to the bottom to reduce restrictions
i. Federal corporation solution?
ii. OK b/c competition makes efficient law
d. Regulating the Corporation
i. Contract Model vs. Social Institutions?
ii. Consumer regulation
1. Exit strategy – corp must be accountable to retain consumer
2. Voice strategy – giving members a voice to prevent problems that corp would be accountable for
a. Complementary b/c if consumers can leave then they will get a voice to have their concerns heard
i. Argument that if shareholders ca

will shift it to the investors in hopes of large profits
2. Constrained through Reputation
a. Time Horizon – Less monitoring needed of younger managers who don’t want to blow a good thing
b. Forfeiting specific capital

II. CORPORATIONS vs. OTHER ENTITIES
a. Formation
i. Corporations
1. Articles of Incorporation (§2.01 & §2.02)
a. (a) Required Provisions
i. Name and address, number of shares to be authorized/issued, name and address of people incorporating
ii. Partnerships
1. No statute
2. Group of people in business together for common profit even if they don’t claim they are a partnership
iii. Limited Partnerships
1. Forms with name, etc to be filed with Secretary of State to put creditors on awareness of limited liability
iv. Limited Liability Company
Articles of Organization (§203)