Chapter 30  What is a corporation? Fictitious legal entity that exists as an independent “person” separate from its principals  What is business corporation law? Covers the structure of the corporation, oversight of the activity of the corporation’s managers, rights of the principals in the case of the sale of assets or ownership interests, annual reporting requirements, and other issues that affect the internal rules of the business venture  What document is filed with a state authority to form a corporation? Articles of incorporation  What is the difference between a privately held corporation and a publicly held corporation? Privately held corporation: a corporation that does not sell ownership interests through sales via a broker to the public or to financial institutions or investors  What is the general rule regarding a promoter’s personal liability for a contract the promoter makes on behalf of a not-yet-formed corporation, and when does a promoter’s personal liability cease? Promoters are liable for contracts made for nonexistent businesses, ceases when the corporation is formed AND adopts the contract  What is the difference in tax treatment of a C corporation versus an S corporation? C = Double taxation Separate from owners Owners pay tax on earnings, Shareholders pay tax on dividends 5 S = Pass-through  What are bylaws? Procedures and requirements for elections like term length and limits  What are the four factors most courts have used to consider whether to pierce a corporation’s protective veil? 1. 2. 3. 4.  Lack of capitalization (shell company) Nature of the claim (injury due to negligence) Fraud Failing to follow formalities What is the difference between a corporation’s shareholders, directors, and officers? Shareholders: owners of the corporation, electing and removing directors and approve or withhold major corporate decisions Directors: oversight and management of the corporation's course of direction Officers: carry out directors’ set course of direction through management of the dayto-day operations of the business  Which two fiduciary duties do officers and directors owe a corporation’s shareholders? Duty of care – Must act as a reasonable person would Duty of loyalty – Protection of shareholders (possibility of self-dealing)  How did the Delaware Supreme Court rule in Smith v. Van Gorkom (1985)? The directors were grossly negligent and breached duty of care 6