Business Associations Lecture Three: Corporations (Part Two)

This lecture provides a comprehensive overview of corporations, a key business structure defined as a separate legal entity with characteristics like limited liability for owners, centralized management, and continuity of existence. It outlines the historical context, the formation process involving filing articles of incorporation and holding an organizational meeting, and the typical corporate structure with shareholders, directors, and officers. The lecture also explores different types of corporations, the concept of piercing the corporate veil, the fiduciary duties of duty of care and duty of loyalty owed by directors and officers (including the business judgment rule), and common shareholder rights including derivative suits. Additionally, it touches on securities regulation for publicly traded companies, how corporations engage in corporate finance through equity and debt, various corporate governance mechanisms, practical scenarios illustrating key doctrines, and important doctrinal debates, policy considerations, and criticisms and reform proposals related to corporate law.

Limited liability means that shareholders are generally not personally responsible for the debts or obligations of the corporation, limiting their risk to their investment amount.

The board of directors sets corporate policy, appoints officers, and oversees major corporate decisions, providing centralized management.

The foundational document filed with the state to create a corporation is called the articles of incorporation (or charter/certificate of incorporation).

In a publicly held corporation, the shareholders are the owners.

Piercing the corporate veil allows courts to hold shareholders personally liable for the corporation's debts in certain circumstances, typically involving fraud or injustice.

The two core fiduciary duties are the duty of care and the duty of loyalty.

The business judgment rule protects directors from liability for good-faith decisions made on an informed and rational basis, even if they turn out poorly.

Derivative suits are lawsuits brought by shareholders on behalf of the corporation against directors or officers, and any recovery goes to the corporation.

Insider trading is the illegal practice of buying or selling securities based on nonpublic material information.

Preferred shareholders typically have priority over common shareholders for dividends and liquidation proceeds, while common shareholders usually have voting rights that preferred shareholders may lack.