Steps For the Discussion: Please remember as we discussed in the zoom session, you are debating the DEBATE THIS prompt. You are going to write an 1 introductory paragraph sta
Steps For the Discussion:
Please remember as we discussed in the zoom session, you are debating the DEBATE THIS prompt. You are going to write an 1 introductory paragraph stating your position then 3 supporting paragraphs, and lastly 1 conclusion paragraph (total of 5 paragraphs). Feel free to incorporate the fact pattern I gave you as an example to help prove your point. But you do not necessarily have to answer the questions posed. I want to see reasoned analysis and critical thinking. There is no right or wrong answer. Feel free to use the internet for all supporting resources, cases, journal, articles, etc… Make sure that you cite your sources.
William Sharp was the sole shareholder and manager of Chickasaw Club, Inc., an S corporation that operated a popular nightclub of the same name in Columbus, Georgia. Sharp maintained a corporate checking account but paid the club’s employees, suppliers, and entertainers in cash out of the club’s proceeds. Sharp owned the property on which the club was located. He rented it to the club but made mortgage payments out of the club’s proceeds and often paid other personal expenses with Chickasaw corporate funds.
At 12:45 a.m. on July 31, eighteen-year-old Aubrey Lynn Pursley, who was already intoxicated, entered the Chickasaw Club. Chickasaw employees did not check Pursley’s identification to verify her age, as required by a city ordinance. Pursley drank more alcohol at Chickasaw and was visibly intoxicated when she left the club at 3:00 a.m. with a beer in her hand. Shortly afterward, Pursley lost control of her car, struck a tree, and was killed. Joseph Dancause, Pursley’s stepfather, filed a tort lawsuit against Chickasaw Club and William Sharp. Using the information presented in the chapter, answer the following questions.
- Under what theory might the court in this case make an exception to the limited liability of share-holders and hold Sharp personally liable for the damages? What factors would be relevant to the court’s decision?
- Suppose that Chickasaw’s articles of incorporation failed to describe the corporation’s purpose or management structure as required by state law. Would the court be likely to rule that Sharp is personally liable to Dancause on that basis? Why or why not?
- Suppose that the club extended credit to its regular patrons in an effort to maintain a loyal clientele, although neither the articles of incorporation nor the corporate bylaws authorized this practice. Would the corporation likely have the power to engage in this activity? Explain.
- How would the court classify Chickasaw Club, Inc.—domestic or foreign, public or private?
Debate This:
The sole shareholder of an S corporation should not be able to avoid liability for the torts of her or his employees
BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e
Roger LeRoy Miller
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporations and Financing
Chapter 33
Chapter Outline
33-1 Nature and Classification
33-2 Formation and Powers
33-3 Piercing the Corporate Veil
33-4 Corporate Financing
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
What is a close corporation?
What four steps are involved in bringing a corporation into existence?
In what circumstances might a court disregard the corporate entity (“pierce the corporate veil”) and hold the shareholders personally liable?
What is the difference between stocks and bonds?
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-1 Nature and Classification (slide 1 of 2)
A corporation is a legal entity created and recognized by state law.
33-1a Corporate Personnel
A board of directors handles the overall management of the firm.
Corporate officers and employees run the corporation’s daily business operations.
33-1b The Limited Liability of Shareholders
Corporate shareholders’ liability is limited to the amount of their investments.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4
33-1 Nature and Classification (slide 2 of 2)
33-1c Corporate Earnings and Taxation
Corporations can pay out profits to shareholders (dividends) or retain them (retained earnings).
33-1d Torts and Criminal Acts
A corporation may be held liable for the criminal acts of its agents and employees.
Case Example 33.1 Belmont v. MB Investment Partners, Inc. (2013)
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5
33-1e Classification of Corporations (slide 1 of 4)
Domestic, Foreign, and Alien Corporations
Public and Private Corporations
Public corporation: One formed by the government to meet some political or governmental purpose
Publicly held corporation: Any corporation whose shares are publicly traded in securities markets
Nonprofit Corporations
Corporations that are formed without a profit-making purpose. Examples include hospitals, educational institutions, and charities.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-1e Classification of Corporations (slide 2 of 4)
Close Corporations
One whose shares are held by relatively few persons, often members of a family
Management of Close Corporations
The management of a close corporation resembles a sole proprietorship or partnership but the firm must meet all specific legal requirements in state statutes.
Transfer of Shares in Close Corporations
The transfer of one shareholder’s shares to someone else can cause serious management problems.
Misappropriation of Close Corporation Funds
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-1e Classification of Corporations (slide 3 of 4)
S Corporations
Important Requirements
Domestic corporation
Not be member of affiliated group of corporations
Shareholders must be individuals, estates, or certain trusts
No more than 100 shareholders
Only one class of stock
No shareholder may be a nonresident alien
S corporations are taxed like partnerships.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-1e Classification of Corporations (slide 4 of 4)
Professional Corporations
An entity used by physicians, lawyers, dentists, and accountants to incorporate
Benefit Corporations
A for-profit corporation that seeks to have a material positive impact on society and the environment. It differs from traditional corporations in the following ways:
Purpose
Accountability
Transparency
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Case 33.1
Drake Manufacturing Co. v. Polyflow, Inc. (2015)
Why would the appellate court permit Polyflow to get away with not paying for delivered and presumably merchantable goods?
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2 Formation and Powers (slide 1 of 3)
33-2a Promotional Activities
Businesspersons are personally liable for any preincorporation contracts made with investors, accountants, or others on behalf of the future corporation.
Liability continues until the corporation is formed and explicitly assumes the contract by novation.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2 Formation and Powers (slide 2 of 3)
33-2b Incorporation Procedures
Select the State of Incorporation
Secure an Appropriate Corporate Name
Prepare the Articles of Incorporation
Generally, the articles must include:
The corporation’s name
Number of shares of stock that the corporation is authorized to issue
Name and street address of the corporation’s initial registered agent and registered office
The name and address of each incorporator
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2 Formation and Powers (slide 3 of 3)
33-2b Incorporation Procedures
Prepare the Articles of Incorporation
A corporation can be formed for any lawful purpose, and no specific statement of purpose is required.
File the Articles of Incorporation
Once prepared and signed by the incorporators, the articles are sent to the appropriate state official (often the secretary of state).
33-2c First Organizational Meeting to Adopt Bylaws
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2d Improper Incorporation
De Jure Corporations
De Facto Corporations
State statute exists under which corporation can be validly incorporated
Parties have made good faith attempt to comply with statute
Parties have undertaken to do business as a corporation
Corporation by Estoppel
Case Example 33.2 Lamancusa v. Big Little Farms, Inc. (2013)
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2e Corporate Powers (slide 1 of 2)
Express Powers
A firm’s express powers are found in its articles of incorporation, in the law of the state of incorporation, in the state and federal constitutions, and the corporation’s bylaws.
Implied Powers
Corporations have the implied power to perform all acts reasonably appropriate and necessary to accomplish their corporate purposes (barring express constitutional, statutory, or other prohibitions).
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-2e Corporate Powers (slide 2 of 2)
Ultra Vires Doctrine
Ultra vires acts: Acts of a corporation that are beyond its express and implied powers to undertake.
Cases that allege ultra vires usually involve nonprofit corporations or municipal (public) corporations.
Shareholders can seek an injunction from a court to prevent (or stop) the corporation from engaging in ultra vires acts.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-3 Piercing the Corporate Veil (slide 1 of 2)
33-3a Factors That Lead Courts to Pierce the Corporate Veil
A party is tricked or misled into dealing with the corporation rather than the individual.
The corporation is set up never to make a profit or always to be insolvent, or it is too thinly capitalized.
Statutory corporate formalities, such as holding required corporation meetings, are not followed.
Personal and corporate interests are commingled (no longer having separate identities) such that corporation has no separate identity.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-3 Piercing the Corporate Veil (slide 2 of 2)
33-3b A Potential Problem for Close Corporations
Potential for corporate assets to be used for personal benefit is especially great in a close corporation.
Spotlight Case Example 33.4 Brennan’s, Inc. v. Colbert (2012)
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-4 Corporate Financing (slide 1 of 3)
33-4a Bonds
Bond: A security that evidences a corporate (or government) debt.
33-4b Stocks
Stock: An ownership (equity) interest in a corporation, measured in units of shares.
Common Stock: Shares of ownership in a corporation that give the owner a proportionate interest in the corporation with regard to control, earnings, and net assets.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-4 Corporate Financing (slide 2 of 3)
Preferred Stock: Stock that has priority over common stock as to payment of dividends and distribution of assets on the corporation’s dissolution.
34-4c Venture Capital
Venture capital: Financing provided by professional, outside investors (venture capitalists) to new business ventures.
Miller, Business Law Today, Comprehensive Edition: Text & Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
33-4d Private Equity Capital
Private equity capital: Funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it.
33-4e Crowdfunding
Crowdfunding: A cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause (such as disaster relief) or invest in a venture (business).
33-4 Corporate Financing (slide 3 of 3)
Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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