Chapter 45 Introduction to Corporation Law Twomey, Business Law and the Regulatory Environment (14th Ed.)

(c) 2000 West Legal Studies Chapter 452 Corporations [45-1] A corporation is an artificial being, existing in the eyes of the law as a person, separate and distinct from the persons who own the corporation. A corporation is formed by obtaining approval of: certificate of incorporation, articles of incorporation, or charter. Classifications of Corporations Domestic Corporation Special Service Corporation Public Corporation Close Corporation Private Corporation Professional Corporation Quasi-Public Corporation Nonprofit Corporation Public Authority “S” Corporation Foreign Corporation

(c) 2000 West Legal Studies Chapter 453 Liability of a Promoter and a Corporation During Formation of the Corporation [45-2]

(c) 2000 West Legal Studies Chapter 454 Particular Corporate Powers [45-3] Perpetual Succession Stock Issuing Bonds Doing Business in Another State Marking Contracts Transferring Property Participating in Enterprise Corporate Seal Executing Commercial Paper Acquiring Property (Investments & Holding companies) Paying Employee Benefits Bylaws Buying Back Stock Making Charitable Contributions Corporate Name Borrowing Money

(c) 2000 West Legal Studies Chapter 455 ConsolidationConsolidation New Corporation “C” (A & B Disappear) Corporation “A” Corporation “B” Consolidation Transaction

(c) 2000 West Legal Studies Chapter 456 Corporation “A” Corporation “B” (Survivor) Corporation “A” (Corporation B Disappears) Merger Transaction MergerMerger

(c) 2000 West Legal Studies Chapter 457 Chapter 45 Summary [1] A corporation is an artificial person created by government action. It exists as a separate and distinct entity possessing certain powers. In most states, the corporation comes into existence when the secretary of state issues a certificate of incorporation.

(c) 2000 West Legal Studies Chapter 458 The most common forms of corporations are private business corporations whose stock is sold to the public (publicly held) and close corporations, which are business firms whose shares are not traded publicly. Corporations may be formed for purposes other than conducting a business. For example, there are nonprofit corporations, municipal corporations, and public authorities for governmental purposes. Chapter 45 Summary [2]

(c) 2000 West Legal Studies Chapter 459 Ordinarily each corporation will be treated as a separate person, and the law will not look beyond the corporate identity merely because the corporation had been formed to obtain tax savings or limited liability. The fact that two corporations have the same shareholders does not justify disregarding the separate corporate entities. Chapter 45 Summary [3]

(c) 2000 West Legal Studies Chapter 4510 However, when a corporation is formed to perpetrate a fraud, a court will ignore the corporate form, or “pierce the corporate veil.” The corporate form will also be ignored to prevent injustice or because of the functional reality that the two corporations in question are one. Chapter 45 Summary [4]

(c) 2000 West Legal Studies Chapter 4511 A promoter is a person who brings together the persons interested in the enterprise and sets in motion all that must be done to form a corporation. A corporation is not liable on contracts made by its promoter for the corporation unless it adopts the contracts. The promoter is personally liable for contracts made for the corporation before its existence. A promoter stands in a fiduciary relation to the corporation and stockholders. Chapter 45 Summary [5]

(c) 2000 West Legal Studies Chapter 4512 The procedures for incorporation are set forth in the statutes of each state. In most states, the corporation comes into existence upon issuance of the certificate of incorporation. When all requirements have been satisfied, the corporation is a corporation de jure. When there has not been full compliance with all requirements for incorporation, a de facto corporation may be found to exist. Chapter 45 Summary [6]

(c) 2000 West Legal Studies Chapter 4513 Or when sufficient compliance for a de facto corporation does not exist, in some jurisdictions a third person may be estopped from denying the legal existence of the “corporation” with which it did business (corporation by estoppel). Chapter 45 Summary [7]

(c) 2000 West Legal Studies Chapter 4514 A corporation has the power to continue as an entity forever or for a stated period of time regardless of changes in the ownership of the stock or the death of a shareholder. It may make contracts, issue stocks and bonds, borrow money, execute commercial paper, transfer and acquire property, acquire its own stock if it is solvent and the purchase does not impair capital, and make charitable contributions. Chapter 45 Summary [8]

(c) 2000 West Legal Studies Chapter 4515 Subject to limitations, a corporation has the power to do business in other states. A corporation also may participate in a business enterprise to the same extent as an individual. That is, it may be a partner in a partnership, or it may enter a joint venture or other enterprise. Special service corporations, such as banks, insurance companies, and railroads, are subject to separate statutes with regard to their organization and powers. Chapter 45 Summary [9]

(c) 2000 West Legal Studies Chapter 4516 An ultra vires act occurs when a corporation acts beyond the scope of the powers given it. Because states now grant broad powers to corporations, it is unlikely that a modern corporation would act beyond the scope of its powers. Chapter 45 Summary [10]

(c) 2000 West Legal Studies Chapter 4517 Two or more corporations may be combined to form a new enterprise. This combination may be a consolidation, with a new corporation coming into existence, or a merger, in which one corporation absorbs the other. Chapter 45 Summary [11]