1. Prentice Hall © 20051 PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman Chapter 16 Domestic and Multinational Corporations

2. Prentice Hall © 20052 Characteristics of Corporations Limited liability of shareholders Free transferability of shares Perpetual existence Centralized management

3. Prentice Hall © 20053 Classification of Corporations Profit and nonprofit Public and private Publicly held and closely held Professional

4. Prentice Hall © 20054 Types of Corporations Domestic A corporation is a domestic corporation in the state in which it is incorporated Foreign A corporation is a foreign corporation in states other than the one in which it is incorporated Alien A corporation is an alien corporation in the United States if it is incorporated in another country

5. Prentice Hall © 20055 Types of Shares Authorized Shares authorized in the corporation’s articles of incorporation Issued Shares sold by the corporation

6. Prentice Hall © 20056 Types of Shares Treasury Shares repurchased by the corporation; these shares do not have the right to vote Outstanding Issued shares minus treasury shares; these shares have the right to vote

7. Prentice Hall © 20057 Equity Securities Common stock An equity security that represents the residual value of the corporation Preferred stock An equity security that is given certain preferences and rights over common stock

8. Prentice Hall © 20058 Corporate Powers Express Powers given to a corporation by The US Constitution State constitutions Federal statutes State statutes Articles of incorporation Bylaws Resolutions of the board of directors Implied Powers beyond express powers that allow a corporation to accomplish its corporate purpose

9. Prentice Hall © 20059 Management of a Corporation Shareholders Owners of the corporation who vote on the directors and other major actions to be taken by the corporation Board of directors Responsible for making policy decisions and employing the major officers for the corporation Officers Responsible for the day-to-day operation of the corporation

10. Prentice Hall © 200510 Methods of Dissolving a Corporation Voluntary dissolution Administrative dissolution Judicial dissolution Dissolution by the state Dissolution by creditors

11. Prentice Hall © 200511 Methods of Electing Directors Straight voting Cumulative voting Supramajority voting

12. Prentice Hall © 200512 Shareholder Lawsuits Direct lawsuits can be brought against a corporation to Enforce the right to vote Enforce preemptive rights Compel payment of declared but unpaid dividends Inspect books and records of the corporation Enjoin the corporation from committing an ultra vires act Compel dissolution of the corporation Derivative lawsuits can be brought by a shareholder against an offending party on behalf of the corporation when the corporation fails to bring the lawsuit

13. Prentice Hall © 200513 Rights of Directors The board of directors of a corporation is responsible for formulating the policy decisions affecting the management, supervision, and control of the operation of the corporation

14. Prentice Hall © 200514 Fiduciary Duties of Corporate Directors and Officers Duty of obedience Duty to act within the authority conferred by law and the corporation Duty of care Duty to use care and diligence when acting on behalf of the corporation Duty of loyalty Duty to subordinate personal interests to those of the corporation and its shareholders

15. Prentice Hall © 200515 Shareholders Liability Shareholders of a corporation generally have limited liability, I.e. they are liable for the debts and obligations of the corporation only to the extent of their capital contribution Shareholders can be found personally liable if: The corporate entity is disregarded, or A controlling shareholder breaches a fiduciary duty to minority shareholders

16. Prentice Hall © 200516 Piercing the Corporate Veil If a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation’s debts and obligations

17. Prentice Hall © 200517 What Is a Merger? A merger occurs when one corporation is absorbed into another corporation and ceases to exist

18. Prentice Hall © 200518 Example of a Merger Corporation A Corporation B Corporation A + =

19. Prentice Hall © 200519 What Is a Tender Offer? A tender offer is an offer that an acquirer makes directly to a target corporation’s shareholders in an effort to acquire the target corporation

20. Prentice Hall © 200520 Illustration of a Tender Offer Tender offeror Target corporation Shareholders Tender offer is made to the shareholders of the target corporation. The tender offeror offers to purchase their shares in the target corporation.

21. Prentice Hall © 200521 Defensive Strategies and Tactics for Fighting a Tender Offer Persuasion of shareholders Delaying lawsuits Selling a crown jewel Adopting a poison pill White knight merger Pac-man or reverse tender offer Issuing additional stock Creating an employee stock ownership plan (ESOP) Flip-over and flip-in rights plans Greenmail and standstill agreements

22. Prentice Hall © 200522 State Antitakeover Statutes State antitakeover statutes are statutes enacted by state legislatures that protect corporations incorporated in or doing business in the state from hostile takeovers