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

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

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

Prentice Hall © 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

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

Prentice Hall © 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

Prentice Hall © 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

Prentice Hall © 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

Prentice Hall © 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

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

Prentice Hall © Methods of Electing Directors Straight voting Cumulative voting Supramajority voting

Prentice Hall © 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

Prentice Hall © 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

Prentice Hall © 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

Prentice Hall © 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

Prentice Hall © 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

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

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

Prentice Hall © 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

Prentice Hall © 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.

Prentice Hall © 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

Prentice Hall © 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