Bài giảng Business Law (13th edition) - Chapter 42: Organization and Financial Structure of Corporations

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.Organization and Financial Structure of CorporationsPAETRHC42“Our business is company creation.”Ann Winblad, venture capitalist, quoted in Fortune (Sellen and Daniels, Oct. 1999)Learning ObjectivesPromoters and preincorporation transactionsIncorporation and defective attemptsFinancing for-profit and nonprofit corporationsThe nature and operation of shares42 - *As a fiduciary, a promoter incorporates the business, organizes the initial management team, and raises the initial capital Promoter is liable for contracts made during preincorporation period unless corporation adopts preincorporation contracts made by promoter (adoption) and third party agrees to replace promoter with corporation (novation)See Crye-Leike Realtors v. WDM, Inc.Promoter Activities42 - *Prepare articles of incorporationSign and authenticate articles by one or more incorporatorsFile articles with secretary of state and pay feesReceive articles of incorporation stamped “Filed” by secretary of state, with fee receiptHold organizational meeting to adopt bylaws, elect officers, and transact other businessSteps in Incorporation42 - *Articles of incorporation (or charter) is the basic document stating rights and duties of corporation, its management, shareholdersOther provisions (consistent with law) may be added to articles of incorporation or included within corporate bylawsIf the attempt to incorporate fails, corporate shield does not exist to protect shareholders, officers, and directors from personal liability Incorporation Details42 - *De jure corporation: exists when promoters and incorporators substantially comply with each mandatory (shall, must) requirement to incorporate the businessFiling articles of incorporation is conclusive proof that corporation exists (MBCA)De facto corporation: exists when promoters fail to comply with all mandatory rules, but comply with most mandatory requirementsDe Jure Corporation42 - *For-profit corporations are financed by sale of securities (e.g., shares, debentures, bonds, long-term notes payable), bank loans, and short-term financing (e.g., inventory financing)Financing Corporations42 - *For-profit corporations are financed by sale of securities, bank loans, and short-term financing Equity securities, better known as stock or shares, create an ownership relationship, thus stockholders or shareholders own a corporationDebt securities – bonds, debentures, notes payable – create creditor-debtor relationship between corporation and security holderFinancing & Securities42 - *Corporations may issue classes of shares with specific rights: common or preferredCommon shareholder claims are subordinate to creditor or preferred shareholder claims, but common shareholders have exclusive right to elect corporate directorsPreferred shareholders receive liquidation and dividend preferences over common shareholdersShareholder Classes42 - *Authorized shares: shares a corporation may issue according to articles of incorporationIssued shares: shares sold to shareholdersOutstanding shares: held by shareholdersA board of directors may issue options for purchasing the corporation’s sharesWarrants: options evidenced by certificatesRights: short-term certificated optionsDetails About Shares42 - *Under the terms of a share subscription, a prospective shareholder promises to buy a specific number of shares at a stated priceThe board must issue shares for an adequate dollar amount of consideration (par value)Shares may be issued in return for any tangible or intangible property or benefit to the corporation (MBCA)Purchase of Shares42 - *Share certificates are registered with the corporation in name of a specific person Indorsement of a share certificate on back by registered owner and delivery of certificate to another transfers ownership of shares Transfer of Shares42 - *Generally, shares in a publicly held corporation are freely transferableTest Your KnowledgeTrue=A, False = BA promoter is always liable for contracts made during the preincorporation period.A U.S. business may incorporate in any state.A de facto corporation exists when promoters and incorporators in fact comply with each mandatory requirement to incorporate.Warrants are stock options evidenced by certificates.42 - *Test Your KnowledgeTrue=A, False = BPreferred shareholders have the exclusive right to elect corporate directors and the exclusive right to dividend payments.For-profit corporations are financed only by issuing securities in the form of shares.The MBCA permits shares to be issued in return for any tangible or intangible property or benefit to the corporation.42 - *Test Your KnowledgeMultiple ChoiceWhich of the following is not a debt security: (a) Stock(b) Bond (c) Debenture(d) Note(e) none of the above42 - *Test Your KnowledgeMultiple ChoiceThe Steel Inc. Board of Directors plan to issue dividends this year. Which of the following is false? (a) Preferred shareholders receive their dividends before common shareholders(b) Creditors receive their dividends before common shareholders(c) Common shareholders receive their dividends before either creditors or preferred shareholders 42 - *Thought QuestionDo you believe that a company’s stock price reflects a company’s value or success in (a) the marketplace, and (b) society?42 - *