Learning Objectives
History of corporations
Classifications of corporations
Regulation of for-profit corporations
Regulation of nonprofit corporations
Regulation of foreign and alien corporations
Piercing the corporate veil
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CorporationsHistory & Nature of CorporationsOrganizational and Financial Structure of CorporationsManagement of Corporations10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.CorporationsShareholders’ Rights & LiabilitiesSecurities RegulationLegal & Professional Responsibilities of Auditors, Consultants, and Securities Professionals10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.History and Nature of CorporationsPAETRHC41“In every era, society must strike the right balance between the freedom businesses need to compete for a market share and to make profits and the preservation of family and community values.”Hillary Clinton, It Takes a Village (1996)Learning ObjectivesHistory of corporationsClassifications of corporationsRegulation of for-profit corporationsRegulation of nonprofit corporationsRegulation of foreign and alien corporationsPiercing the corporate veil41 - *In 1886, the private corporation gained legal status as a "natural person" under the U.S. Constitution with the associated protectionsCorporations today have legal status as a person, specific authority for operation and management, limited liability for owners, easy transferability of an owner’s interest, and the obligation to pay taxesSee Fig. 1, page 969The Corporation As a Person41 - *By purpose:For-profit corporationsNot-for-profit corporationsBy ownership:Publicly held (shareholders)Close (a few shareholders)Subchapter SGovernment-owned corporationsClasses of U.S. Corporations41 - *By origin – a company is:Domestic in the state in which the company incorporatesForeign in all other states in which a company operatesAlien in all countries other than the country in which it incorporatedClasses of U.S. Corporations41 - *Federal government has power to regulate interstate commerce under the Commerce Clause of the U.S. ConstitutionDue Process Clause of Fourteenth Amendment interpreted to allow a state to exercise jurisdiction over foreign corporation if firm has sufficient minimum contacts with a state“Doing business” will allow jurisdiction, but minimum contacts may be lesser activity Federal Regulation of Firms41 - *Not doing business:Soliciting orders, sales through independent contractors, owning property for investment, conducting isolated transaction, maintaining bank account for collection purposesDoing business: Maintaining an office, contracts with local businesses, using real property, maintaining inventory for order fulfillment, performing service activitiesDoing Business Within a State41 - *Corporation law provides an imaginary wall – the corporate veil – between a corporation and its shareholders to protect owners from personal liability for corporation’s actionsA court may pierce the corporate veil to reach individual shareholders if the shareholders dominate the corporation (alter ego) or the corporation is used for an improper purposeSee Fig. 2, page 979Piercing the Corporate Veil41 - *Test Your KnowledgeTrue=A, False = BA corporation is a fictitious, but legal, person.Corporations may be classified only in terms of ownership.Under the Commerce Clause, states have the power to regulate interstate commerce.Texas Shipping, Inc. owns buildings and has employees in Houston, TX and New Orleans, LA, but “does business” only in Texas.41 - *Test Your KnowledgeTrue=A, False = BA state organized under Kansas corporate law is a domestic company when it operates within the state of Kansas and a foreign company in any state other than Kansas.Cole Inc. is owned by two people. Each owner built a home with money obtained by a loan from State Bank to Cole Inc. The corporate shield provides absolute protection to both owners from personal liability for repayment of the loans.41 - *Test Your KnowledgeMultiple ChoiceA state law that regulates business activities of a foreign corporation is constitutional if : (a) It serves a legitimate state interest(b) The legitimate state interest outweighs the burden on interstate commerce(c) It is the most burdensome means of promoting that interest(d) All of the above (e) A and B, but not C41 - *Test Your KnowledgeMultiple ChoiceWhich of the following activities meet the requirements for doing business in a state?(a) Owning personal property as investment(b) Maintaining a bank account for collection purposes(c) Maintaining a storefront for product sales(d) Soliciting product orders through a catalog(e) All of the above41 - *Thought QuestionsDoes an online stock transaction meet the sufficient minimum contacts criteria of the International Shoe ruling? In other words, if a consumer is injured by an online stock trade, could the consumer sue the company in her or her state court system?41 - *