Chapter 27 The Law of Corporations 11/16/2018 Chapter 27 The Law of Corporations 27-1 Founding a Corporation 27-2 Shareholders, Directors, and Officers 27-3 Corporate Powers and Termination Chapter 27 LAW

27-1 Founding a Corporation GOALS Compare the advantages and disadvantages of the corporate form Explain the steps in corporate formation Chapter 27

ATTRIBUTES OF THE CORPORATE FORM Advantages of the corporate form Perpetual life Limited liability Transferability of ownership interests Ability to attract large sums of capital Professional management Disadvantages of the corporate form Types of corporations Chapter 27

Explain the corporate advantage of limited liability. Chapter 27

HOW IS A CORPORATION FORMED? The role of promoters Articles of incorporation The role of incorporators Corporate charter Chapter 27

What is the difference between a promoter and an incorporator? Chapter 27

27-2 Shareholders, Directors, and Officers GOALS Understand the types of stock shareholders may own List the rights of shareholders Explain the roles of corporate directors and officers Chapter 27

THE ROLE OF SHAREHOLDERS Types of stock Par and no-par stock Common stock Preferred stock Continued on the next slide Chapter 27

THE ROLE OF SHAREHOLDERS Shareholder rights Right to a stock certificate Right to transfer shares Right to attend shareholder meetings and to vote Right to increase capital stock Right to share the profits Right to share in a distribution of the capital Right to inspect corporate books of account Chapter 27

Name the most significant powers of a common shareholder. Chapter 27

THE ROLES OF DIRECTORS AND OFFICERS Directors as fiduciaries Requirements for directors Duties of directors Officers Chapter 27

What is the importance of the business judgment rule? Chapter 27

27-3 Corporate Powers and Termination GOALS Explain the powers of a corporation Relate the various ways that the dissolution of a corporation might be brought about Chapter 27

THE POWERS OF A CORPORATION Power to conduct business Power to continue indefinitely Power to operate under a name of its own choosing Power to make rules to govern its operation Implied powers Chapter 27

What are bylaws? Chapter 27

CAUSES OF CORPORATE DISSOLUTION At a time specified in the articles of incorporation By agreement of the shareholders By forfeiture of the charter By consolidation or merger As a result of bankruptcy By court order Chapter 27

What is the difference between a consolidation and a merger? Chapter 27

PREVENT LEGAL DIFFICULTIES Directors should be extremely careful to obey all laws, study the corporate records, and use independent judgment on policy decisions. To “rubber stamp” management proposals is to invite lawsuits by disgruntled shareholders and potential personal liability if losses occur. Corporate officers should be selected with great care because they make most of the day-to-day management decisions. Directors tend to rely on the advice of the officers. Continued on the next slide Chapter 27

PREVENT LEGAL DIFFICULTIES Shareholders should not casually sign proxies that give directors continued control. Shareholders should try to exercise their voting rights after studying the annual reports and comparing the corporation’s progress with that of similar corporations. Shareholders with a minority position have a better chance to be represented on the board if the company uses cumulative voting. Continued on the next slide Chapter 27

PREVENT LEGAL DIFFICULTIES It is usually risky to buy stock in new or small, once closely held corporations because they are more likely to fail. The majority of shareholders may favor themselves with high salaries as officers and pay low or no dividends, and it may be difficult to sell the shares to others. The buyer of preferred stock who desires greater assurance of receiving dividends should invest in cumulative and participating shares. Chapter 27