Language III: Make-up Examination (First Term)

*Business Organizations: US
Unit !": So#e $roprietors%ips an& $artners%ips
' So#e proprietors%ip: It is a (orm o( )usiness o*ners%ip in *%i+% on#, one in&i-i&ua# a+.uires a## t%e )ene(its
an& risks o( running an enterprise/ In a so#e-proprietors%ip t%ere is no #ega# &istin+tion )et*een t%e assets an&
#ia)i#ities o( a )usiness an& t%ose o( its o*ner/ It is ), (ar t%e most popu#ar )usiness stru+ture (or startups/
- &-antages: T%e o*ner %as +omp#ete +ontro# o-er t%e )usiness0 %e ma, keep a## o( t%e pro(its ma&e
), t%e so#e proprietors%ip0 t%is )usiness is simp#e to )egin an& en&0 t%e re+or& keeping re.uirements are
minima#0 o*ners a-oi& &ou)#e taxation/
- 1isa&-antages: T%e )usiness existen+e &epen&s entire#, upon t%e #i(e o( t%e so#e proprietor: %is
persona# properties ma, %a-e to )e use& to pa, (or expenses arising out o( )usiness a+ti-ities0 o*ners o( so#e
proprietors%ips o(ten (in& it &i((i+u#t to raise a %uge amount o( +apita# .ui+k#, (or expansion purposes0 -enture
+apita#ists an& )anks genera##, &o not #en& mone, to so#e proprietors/
' $artners%ips: T%e Uni(orm $artners%ip +t (U$) &e(ines partners%ip as 2an asso+iation o( t*o or more
persons to +arr, on as +o-o*ners o( a )usiness (or pro(it/3 T%e s%aring o( pro(its is +onsi&ere& prima (a+ie
e-i&en+e o( t%e existen+e o( a partners%ip/ $artners a#so s%are #osses/ Un#imite& #ia)i#it, +%ara+terizes
partners%ips4 )ut it is possi)#e to stipu#ate in a gi-en +ontra+t t%at non-partners%ip propert, *i## ne-er )e use&
to satis(, a &e)t arising out o( a +ertain agreement/
T%ere exist t*o t%eories *%i+% %a-e trie& to &e(ine t%e existen+e o( partners%ips: on t%e one %an&4 t%e
Entit, T%eor, &es+ri)es a partners%ip as an in&i-i&ua# unit *it% its o*n i&entit, (2a partners%ip is an entit,
&istin+t (rom its partners4 5U$4 arti+#e 64 se+tion 678(a)3)0 on t%e ot%er %an&4 a++or&ing to t%e ggregate
T%eor,4 t%e partners%ip is simp#, an assem)#, or +o##e+tion o( partners *%o &o )usiness toget%er/
$artners%ips +an )e (orme& ), +ontra+t (*%i+% is +a##e& 2arti+#es o( partners%ip3 or 2partners%ip
agreement3): T%ere must )e a *ritten agreement esta)#is%ing t%e partners%ip/ T%e +ontents o( su+% agreement
must )e t%e name an& nature o( t%e partners%ip4 its &uration4 amount o( +apita#4 amount o( reser-e (un&s4
#o+ation an& *it%&ra*a#0 &uties o( t%e partners4 #o+ation o( a++essi)i#it, o( a (u## an& a++urate a++ount o(
partners%ip transa+tions4 times an& amounts ea+% partner is entit#e& to *it%&ra* (rom partners%ip earnings4
pro-isions (or t%e preparation o( an annua# )a#an+e s%eet an& in+ome statement an& t%e &istri)ution o( net
pro(its or net #osses )et*een partners4 #imitations on partners4 an& termination on noti+e pro+e&ure/
$artners%ips ), estoppe# are #ega##, )in&ing partners%ips t%at ma, arise *%ere4 in (a+t4 no (orma#
partners%ip agreement is in e((e+t in or&er to &e(en& inno+ent t%ir& parties/ person *%o ), +on&u+t or *or&s
represents4 or a##o*s %imse#( to )e represente&4 as a partner in a (irm is #ia)#e (or t%e +re&it or #oans o)taine&
), (irm on t%e )asis o( su+% representation/
$artners%ips ), proo( o( existen+e: I( a part, +#aims t%at a partners%ip exists an& t%e ot%er part, &enies
its existen+e4 t%e +ourt *i## #ook at a series o( e#ements to so#-e t%e pro)#em/ person *%o re+ei-es a s%are o(
t%e pro(its o( a )usiness is presume& to )e a partner in t%e )usiness4 un#ess t%e pro(its *ere re+ei-e& in
pa,ment o( a &e)t4 as *ages to an emp#o,ee4 (or ser-i+es as an in&epen&ent +ontra+tor4 o( rent to a #an&#or&4 as
an annuit,4 interest on a #oan4 as +onsi&eration (or t%e sa#e o( goo&*i##4 et+etera/
+.uisition o( partners%ip propert,: 9apita# +ontri)utions are sums +ontri)ute& ), t%e partners as
permanent in-estments an& t%at t%e partners are entit#e& to %a-e returne& *%en t%e partners%ip is &isso#-e&/
+apita# +ontri)ution is a +ontri)ution o( +apita#4 in t%e (orm o( mone, or propert,4 to a )usiness ), an
o*ner4 partner4 or s%are%o#&er/ T%e +ontri)ution in+reases t%e o*ner:s e.uit, interest in t%e )usiness/ 9apita#
+ontri)utions are not +ounte& as )usiness in+ome4 un#ess t%e +ontri)utions are in t%e (orm o( a #oan t%at is
expe+te& to )e repai&/
$artners; rig%ts4 &uties an& #ia)i#ities are &etermine& in t%e 5U$ an& t%e partners%ip agreements:
- Tenan+, in partners%ip: Tenan+, in partners%ip is t%e +o-o*ners%ip o( t%e partners%ip propert, on#,
(or partners%ip purposes an& t%at &oes not permit t%e separate assignment ), a partner o( %is rig%t to t%e
propert,/ T%is tenan+, is +%ara+terize& ), an e.ua# rig%t *it% partners to possess an& use spe+i(i+ partners%ip
propert,/ partner;s interest in partners%ip propert, ma, not )e assigne& to a non-partner0 partners; rig%ts in
partners%ip propert, are not su)<e+t to atta+%ment =secuestro> (or persona# &e)ts or +#aims against t%e partners
t%emse#-es/ &e+ease& partner;s interest in rea# propert, %e#& ), t%e partners%ip passes to t%e sur-i-ing
partners.
- Interest in t%e partners%ip: In prin+ip#e4 t%e e+onomi+ interest in t%e partners%ip4 i/e/ pro(its an&
surp#us =utilidades>4 is s%are& e.ua##,/ Su+% interest +an )e assigne&4 un&er an assignment *%i+% &oes not -est
an, rig%t to parti+ipate in t%e a&ministration o( t%e propert, in t%e assignee/
- Management rig%ts: 1e+isions are ma&e ), a ma<orit, -ote0 *%en &e+isions +annot )e taken a
&ea&#o+k is sai& to exist an& t%e partners%ip must )e &isso#-e&/ T%ose &e+isions *%i+% nee& to )e ma&e
unanimous#, an& %a-e )een out#ine& ), t%e 5U$ in+#u&e a&mitting a ne* partner to t%e (irm4 &isposing o(
t%e (irm;s goo&*i##4 su)mitting a partners%ip +#aim to ar)itration4 using partners%ip propert, as +o##atera#4 an&
se##ing or ot%er*ise &isposing o( t%e partners%ip;s rea# property/
- 5ig%t to inspe+tion o( )ooks an& an a++ounting: $artners%ip )ooks an& re#ate& +opies must )e
a-ai#a)#e (or t%e inspe+tion o( a## partners/
- Fi&u+iar, &uties: T%e partners o*e a (i&u+iar, &ut, to one anot%er (t%e, are sai& to )e (i&u+iaries to
ea+% ot%er)/ T%e partners o*e one anot%er a &ut, o( goo& (ait%/ T%e o)#igation o( utmost goo& (ait% )egins
*it% t%e pre#iminar, negotiations in (orming t%e partners%ip an& +ontinues t%roug%out t%e #i(e o( t%e
partners%ip4 exten&ing to t%e &isso#ution an& +omp#ete sett#ement o( t%e partners%ip a((airs/ Ea+% partner must
&ea# %onest#, an& open#, *it% %is (e##o*s an& &is+#ose a## re#e-ant in(ormation to t%em/ (ai#ure to &is+#ose is
a )rea+% o( t%is &ut,/ s a (i&u+iar,4 a partner +annot put %is interests )e(ore t%ose o( t%e )usiness: a partner
must not make unaut%orize& persona# pro(it/
- Lia)i#ities: T%e #ia)i#it, (or torts +ommitte& ), a partner or an emp#o,ee o( t%e partners%ip is <oint
an& se-era#/ $artners *%o +ommit +rimes are se-era##, #ia)#e/ $artners are <oint#, #ia)#e on a## +ontra+tua#
o)#igations o( t%e partners%ip/
1isso#ution: ++or&ing to t%e 5U$4 t%e &isso#ution o( a partners%ip is 2a +%ange in t%e re#ation o( t%e
partners +ause& ), an, partner +easing to )e asso+iate& in t%e +arr,ing on o( t%e )usiness/ 3 partners%ip ma,
)e &isso#-e& ), mutua# +onsent4 ), expiration o( a pre&etermine& time4 t%e o++urren+e o( an agree&-upon
e-ent4 or t%e +omp#etion o( a purpose0 ), partners; &e+ision (partners%ip at *i##)0 ), operation o( #a*: ), &eat%
o( one o( t%e partners4 t%eir expe##ing0 ), insanit,4 t%e )ankrupt+, o( eit%er partner0 or ), +ourt &e+ree (or an,
goo& +ause (it must re(#e+t irrepara)#e &i((eren+es among t%e partners4 in+apa+it, or insanit, o( a partner4
)rea+% o( agreement4 or %arm(u# )e%a-ior)4 su+% as &is%onest, o( one partner against t%e rest4 or in+apa+it,
+ause& ), %a)itua# &runkenness or +on-i+tion o( an, +rime/ partner ma, *it%&ra* at an, time/
T%ere is a +%ange in t%e re#ation o( t%e partners +ause& ), &isso#ution in *%i+% t%e partners +ease to )e
asso+iate& in t%e +arr,ing on o( t%e )usiness0 *in&ing up *%en t%ere is a pro+ess o( sett#ing t%e )usiness or
partners%ip a((airs a(ter &isso#ution0 an& termination *%en a## partners%ip a((airs are +omp#ete#, *oun& up an&
(ina##, sett#e& *%i+% signi(ies t%e &emise o( t%e partners%ip #i(e/ T%e *in&ing up in-o#-es 2+omp#eting a##
ongoing )usiness an& se##ing t%e partners%ip propert, to o)tain +as% to satis(, a## &e)ts o*e& ), t%e (irm/3
Termination puts t%e (irm out o( )usiness/
T%e noti+e o( &isso#ution must )e exp#i+it to peop#e #en&ing +re&it to t%e partners%ip0 an& +onstru+ti-e
(or t%e rest: e/g/ an a&-ertisement in a ne*spaper/ Be(ore )eing noti(ie&4 t%ir& persons *%o &ea# *it% a
partners%ip are <usti(ie& in +ontinuing to &ea# *it% it in t%eir usua# manner/
T%e *in&ing up o( a partners%ip;s a((airs in-o#-es t%e or&er#, sa#e o( t%e partners%ip;s assets4 t%e
pa,ment o( +re&itors4 an& t%e &istri)ution4 i( an,4 o( t%e remaining surp#us to t%e partners a++or&ing to t%eir
pro(it-s%aring ratios/ T%e #ia)i#ities o( a partners%ip are ranke& in t%e (o##o*ing or&er: 8) t%ose o*e& to
+re&itors ot%er t%an partners0 6) t%ose o*e& to partners (or #oans or a&-an+es ma&e to t%e partners%ip0 !) t%ose
o*e& to partners as repa,ment (or t%eir +apita# +ontri)utions0 ?) t%ose o*e& to partners (or t%eir s%are o(
pro(its4 i( an,/
' 5egistere& $artners%ip @a-ing Limite& Lia)i#it, (5$LL or $LL): Un&er statutor, terms4 t%e partners in an
5$$LL +an es+ape <oint an& se-era# #ia)i#it, ), registering a registration statement (-arious#, +a##e&
registration4 app#i+ation (or registration or +erti(i+ate o( #imite& #ia)i#it, partners%ip) *it% t%e appropriate state
o((i+e/
On+e an 5$LL %as )een +reate&4 partners +an no #onger )e %e#& <oint#, or se-era##, #ia)#e (or t%e torts
+ommitte& ), anot%er partner or ), an emp#o,ee o( t%e partners%ip/ T%e #imite& #ia)i#it, partners%ip (ALL$A)
is a (orm o( genera# partners%ip +reate& un&er state genera# partners%ip #a*s4 in *%i+% partners are statutori#,
re#ie-e& o( a## or part o( t%eir persona# #ia)i#it, (or partners%ip #ia)i#ities4 &e)ts an& o)#igations: Un#ike
mem)ers o( or&inar, partners%ips4 t%e LL$ itse#( is responsi)#e (or an, &e)ts t%at it runs up4 not t%e in&i-i&ua#
partners/
' Limite& $artners%ips: T%e 5e-ise& Uni(orm Limite& $artners%ip +t (5UL$) &e(ines a #imite& partners%ip
as 2a partners%ip =B> %a-ing one or more genera# partners =*%o %a-e un#imite& #ia)i#it, an& manage t%e (irm
), -irtue o( t%eir agen+, aut%orit,> an& one or more #imite& partners =*%o are nonparti+ipating in-estors *%o
are not -este& in an, manageria# or agentia# po*er>/3
LPs are creatures of statute since they must fle with the state to form them. Because of the
limited liability of limited partnerships, they often are used as vehicles for raising capital. The limited
partnership is a separate entity and fles taxes as a separate entity.
#imite& partner *%o exer+ises too mu+% +ontro# o-er partners%ip a((airs *i## #ose t%e prote+ti-e
mant#e o( #imite& #ia)i#it,/ (ai#ure to (i#e a +erti(i+ate o( #imite& partners%ip *i## &epri-e a #imite& partner o(
#imite& #ia)i#it, i( t%ir& parties attempting to %o#& t%e #imite& partner #ia)#e &i& not kno* t%at t%e, *ere &ea#ing
*it% a #imite& partners%ip/
*Unit 37: Corporate Formation and Finance
' +orporation is a #ega# entit, (existing apart (rom its o*ners) +reate& ), eit%er a state or (e&era#
statute *%i+% aut%orizes in&i-i&ua#s to operate an enterprise/ T%e +orporate (orm o((ers #imite& #ia)i#it, to its
s%are%o#&ers/ T%e #ega# status o( t%e +orporation is not a((e+te& ), t%e &eat%4 in+apa+it,4 or )ankrupt+, o( an
o((i+er or s%are%o#&er/ T%e +orporation is &ire+t#, taxe& on t%e in+ome it earns/
Cenera##,4 a +orporation (i#es arti+#es o( in+orporation *it% t%e go-ernment4 #a,ing out t%e genera#
nature o( t%e +orporation4 t%e amount o( sto+k it is aut%orize& to issue4 an& t%e names an& a&&resses o(
&ire+tors/ On+e t%e arti+#es are appro-e&4 t%e +orporation:s &ire+tors meet to +reate ),#a*s t%at go-ern t%e
interna# (un+tions o( t%e +orporation4 su+% as meeting pro+e&ures an& o((i+er positions/
' T,pes o( +orporations:
- $ri-ate: 9orporation (orme& ), pri-ate persons to a++omp#is% a task )est un&ertaken/ It +an )e
organize& (or pro(it-making purposes or (or nonpro(it +%arita)#e4 e&u+ation4 or s+ienti(i+ purposes/
- $u)#i+: More proper#, use& to &es+ri)e a +orporation +reate& ), t%e (e&era#4 state4 or #o+a#
go-ernment (or go-ernmenta# purposes/ Large pri-ate +orporations *%i+% genera##, se## t%eir sto+k to t%e
pu)#i+ at #arge ma, a#so )e re(erre& to as $u)#i+ +orporations/
- Duasi-pu)#i+: It is pri-ate#, organize& (or pro(it )ut a#so pro-i&es a ser-i+e upon *%i+% t%e pu)#i+ is
&epen&ant/
- 1omesti+: Operates in t%e states granting t%e +orporation;s +%arter/
- Foreign: Operates in a## ot%er states ), grant o( t%e +ommer+e +#ause o( t%e U/S/ 9onstitution/ For
grant4 it must o)tain a +erti(i+ate o( aut%orit, ), pro-i&ing in(ormation simi#ar to t%e in(ormation pro-i&e& ),
a &omesti+ +orporation app#,ing (or a +%arter/
- #ien: 9orporation *it%out t%e +ountr,/
- 9#ose: )usiness +orporation ma, )e &esigne& as +#ose +orporation *%en t%e outstan&ing s%ares o(
sto+k an& manageria# +ontro# are +#ose#, %e#& ), (e*er t%an (i(t, s%are%o#&ers or ), one person/
- $ro(essiona#: Se-era# states a#so a##o* a -ariation o( t%e +orporation (or use ), pro(essiona#s (i/e/4
t%ose in&i-i&ua#s t,pi+a##, +onsi&ere& as pro(essiona#s *%o re.uire a #i+ense (rom t%e state to +on&u+t
)usiness)/
- S +orporation: It a-oi&s &ou)#e taxation: s%are%o#&ers %a-e agree& to %a-e t%e pro(its o( t%e
+orporation taxe& &ire+t#, to t%em rat%er t%an to t%e +orporation (sing#e taxation or pass t%roug% in+ome
taxation)/ In+ome an& #osses are &i-i&e& among s%are%o#&ers on a per s%are )asis/
T%e (o##o*ing re.uirements must )e met:
- Must )e an e#igi)#e entit,4 a &omesti+ +orporation4 or a #imite& #ia)i#it, +ompan,/
- Must %a-e on#, one +#ass o( sto+k/
- Must not %a-e more t%an 877 s%are%o#&ers/
- S%are%o#&ers must )e U/S/ +itizens or resi&ents4 an& must )e natura# persons4 so +orporate
s%are%o#&ers an& partners%ips are genera##, ex+#u&e&/ @o*e-er4 +ertain trusts4 estates4 an& tax- exempt
+orporations are permitte& to )e s%are%o#&ers/
- Must not )e an ine#igi)#e +orporation i/e/ +ertain (inan+ia# institutions4 insuran+e +ompanies4
an& &omesti+ internationa# sa#es +orporations/
' Limite& Lia)i#it, 9ompanies: T%e, are )est t%oug%t o( as a +ross )et*een a partners%ip an& a
+orporation/ Like a +orporation4 t%e LL9 o((ers t%e prote+tion o( #imite& #ia)i#it, to its mem)ers0 )ut un#ike
+orporations4 t%e, &o not pa, taxes4 *%i+% (a## to o*ners (pass t%roug% in+ome taxation or sing#e taxation)/
LL9;s ma, on#, +ome into existen+e i( t%e o*ners (o##o* t%e pre+ise #egis#ati-e steps (t%e, are
statutor,)0 a#t%oug% t%e, are )usiness entities4 t%e, are a t,pe o( unin+orporate& asso+iations/ T%e o*ners o( an
LL9 are +a##e& mem)ers0 t%ose managing t%em are managers/
' 9orporate Formation:
- $romoters: $eop#e *i##ing to )egin a ne* +orporation or *i##ing to in+orporate an existing )usiness
are +a##e& promoters/ T%e, must a+t in t%e )est interests o( t%e ne* +orporation an& its s%are%o#&ers: t%e, must
)e %onest an& #o,a# an& (u##, re-ea# a## in(ormation a)out an, +ontra+t ma&e/
- $re(ormation 9ontra+ts: +orporation is not )oun& ), an, o( t%e promoters; +ontra+ts un#ess it
a&opts t%em/ &option o++urs express#, i( t%e &ire+tors pass a reso#ution agreeing to )e )oun& ), a +ontra+t/
Imp#ie& a&option o++urs i( t%e +orporation a++epts t%e )ene(its o( a +ontra+t or makes an, pa,ments +a##e& (or
), t%e agreement/
- Eo-ation: It is a +ontra+t entere& into ), t%e ne*)orn +orporation an& t%e parties to t%e +ontra+ts
a&opte& ), su+% +orporation4 *%o )ot% agree to re#ease t%e promoters (rom an, #ia)i#it,/
- rti+#es o( In+orporation: T%e arti+#es o( in+orporation are t%e *ritten app#i+ation to t%e state (or
permission to in+orporate/ T%is *ritten app#i+ation is prepare& ), t%e +orporation;s in+orporators/ T%e arti+#es4
toget%er *it% t%e status o( in+orporation4 represent t%e #ega# )oun&aries *it%in *%i+% a +orporation must
+on&u+t its )usiness/ Some state in+orporation statutes are -er, stri+t4 re.uiring &etai#e& in(ormation in t%e
arti+#es o( in+orporation4 i/e/ t%e +orporation;s name4 t%e &uration4 t%e purposes4 t%e num)er an& +#asses o(
s%ares4 t%e s%are%o#&ers; rig%ts in re#ation to s%ares4 +#asses o( s%ares4 an& spe+ia# s%ares4 t%e s%are%o#&ers;
rig%t to )u, ne* s%ares4 t%e a&&resses o( its origina# registere& o((i+e an& its origina# registere& agent4 t%e
num)er o( &ire+tors p#us an& a&&resses o( t%e initia# &ire+tors4 ea+% in+orporator;s name an& a&&ress/
- 9orporate Eame: +orporate;s name (eatures t%e *or&s or an a))re-iation o( t%e *or&s +orporation4
+ompan,4 or in+orporate&/ T%e +orporation +annot +%oose a name t%at *ou#& +on(use t%e ne* +orporation *it%
one a#rea&, in existen+e/ It is a#so possi)#e to reser-e a name/
- ppro-a# o( arti+#es: (ter t%e arti+#es o( in+orporation are su)mitte& to t%e state4 t%e appropriate
state o((i+er4 o(ten t%e se+retar, o( state *i## a#so make +ertain t%at a## (i##ing (ees %a-e )een pai& an& t%at a
registere& o((i+e an& a registere& agent (in&i-i&ua# &esignate& to re+ei-e ser-i+e o( pro+ess *%en a #a*suit is
(i#e& against t%e +orporation) %a-e )een appointe&/ T%e +%arter4 or +erti(i+ate o( in+orporation4 is t%e
+orporation;s o((i+ia# aut%orization to &o )usiness in t%e state/ Fit% t%e issue o( t%e +%arter4 t%e +orporation
)e+omes a (u##, an& #ega##, in+orporate& entit,/
- 9ommen+ement o( )usiness: Most state statutes pro-i&e t%at t%e (irst or&er o( )usiness upon
in+orporation is t%e %o#&ing o( an organizationa# meeting/
In a&&ition to t%e appointment o( t%e (irst &ire+tors4 t%e a&option o( ),#a*s (ru#es t%at gui&e t%e
+orporation;s &a,-to-&a, interna# a((airs0 t%e, usua##, stipu#ate t%e time an& p#a+e o( s%are%o#&ers; an&
&ire+tors; meetings4 .uorum re.uirements4 .ua#i(i+ations an& &uties o( &ire+tors an& o((i+ers an& pro+e&ures
(or (i##ing )oar& -a+an+ies)4 or regu#ations4 a#so o++urs at t%e organizationa# meeting/
' Formation o( an LL9: T%e, re.uire at #east t*o persons/
- rti+#es o( Organization: T%e, are t%e *ritten app#i+ation to t%e state (or permission to (orm an LL9/
T%ese arti+#es must in+#u&e t%e name o( t%e LL94 t%e &uration o( t%e LL94 an& t%e a&&ress *%ere t%e LL9;s
operating agreement an& ),#a*s are to )e kept/ T%e name o( t%e LL9 must in+#u&e t%e term Limite& Lia)i#it,
9ompan,/ statutor, agent (or t%e ser-i+e o( pro+ess must )e name& at t%e time t%at t%e arti+#es are (i#e& in
t%e o((i+e o( t%e se+retar, o( state/ Fi#ing (ees must a#so )e pai&/
- Operating greement: It esta)#is%es t%e ),#a*s o( t%e LL9/ T%e operating agreement in+#u&es t%e
(ormation pro-isions4 operating pro-isions4 t%e nature o( t%e )usiness to )e +on&u+te& ), t%e LL94 t%e
&istri)ution o( pro(its an& #osses4 t%e po*ers o( t%e managers4 t%e -oting rig%ts o( t%e mem)ers4 t%e a&mission
an& *it%&ra*a# pro+e&ures4 t%e pro-isions regar&ing t%e trans(er o( a mem)er;s interest in t%e LL94 t%e
pro-isions in-o#-ing t%e termination o( t%e LL9/ &&ing a pro-ision to t%e *ritten operating agreement t%at
t%ere +an )e no ora# mo&i(i+ations to t%at agreement +an pre-ent su+% t%ing (rom %appening ina&-ertent#,/
' 1e(e+ti-e In+orporation:
- 1e Gure 9orporation: +orporation *%ose existen+e is t%e resu#t o( t%e in+orporators %a-ing (u##, or
su)stantia##, +omp#ie& *it% t%e re#e-ant +orporation statutes is a &e <ure +orporation/ Its status as a +orporation
+annot )e +%a##enge& ), pri-ate +itizens or t%e state/
- 1e Fa+to 9orporation: Sometimes an error is ma&e in t%e in+orporation pro+ess/ In t%is +ase t%e
+orporation &oes not exist #ega##,/ But as #ong as +ertain +on&itions %a-e )een met4 a &e (a+to +orporation *i##
exist: a -a#i& state in+orporation statute must )e in e((e+t4 t%e parties must %a-e ma&e a )ona (i&e attempt to
(o##o* t%e statute;s re.uirements (or in+orporation0 t%ere must %a-e )een a#so an a+t ma&e on t%e +orporation;s
)e%a#( ), its purporte& o((i+ers or agents0 t%e )usiness must %a-e pro+ee&e& as i( it *ere t%at o( a +orporation/
On#, t%e state +an +%a##enge t%e existen+e o( a &e (a+to +orporation/
' 9orporation ), Estoppe#: I( a group o( peop#e a+t as i( t%e, are a +orporation *%en in (a+t an& at #a*
t%e, are not4 an, parties *%o %a-e a++epte& t%at +ounter(eit +orporation;s existen+e *i## not )e a##o*e& to &en,
t%at representation/ Simi#ar#,4 in&i-i&ua#s *%o a+te& as i( t%e, *ere a +orporation *i## not )e a)#e to &en, t%at
t%e +orporation exists/ 9orporations ), estoppe#s &o not +reate a rea# +orporation: it is on#, a #ega# (i+tion use&
), +ourts to pre-ent in<usti+e/
' $ier+ing t%e 9orporate Hei#: Sometimes t%e +ourt *i## &isregar& +orporate status to impose persona#
#ia)i#it, on t%ose *%o %a-e use& t%e +orporation to +ommit (rau& or +rimes or to %arm t%e pu)#i+/ T%e +ourt
*i## pier+e t%e +orporate -ei# an& %o#& t%e *rong&oers persona##, #ia)#e (or a+ti-ities +ommitte& in t%e
+orporation;s name/ Setting up su)si&iaries to t%en +ommit (rau& t%roug% t%em is a#so a reason (or +orporate
-ei# pier+ing (*%i+% is &etermine& ), app#,ing t%e 2instrumenta#it, test3)/
T%e term 2pier+ing (or #i(ting) t%e +orporate -ei#3 &es+ri)es a #ega# &e+ision to treat t%e rig%ts or &uties
o( a +orporation as t%e rig%ts or #ia)i#ities o( its s%are%o#&ers or &ire+tors/
Cenera##,4 *%en e-a#uating i( a +orporation is in (a+t #egitimate4 or i( t%e +orporate -ei# s%ou#& )e
pier+e&4 +ourts #ook at t%e (o##o*ing (a+tors:
- 9orporate (orma#ities: F%et%er t%e +orporation (o##o*e& an appropriate pro+e&ure regar&ing its
(ormation4 appointment o( &ire+tors4 issuan+e o( sto+k0 *%et%er t%e (inan+es o( t%e +orporation *ere
+omming#e& *it% t%ose o( its s%are%o#&ers/
- T%e amount o( in&i-i&ua# +ontro# o( t%e prin+ipa#s/
- $ersona# use o( t%e +orporation ), t%e s%are%o#&ers/
- +ourt ma, a#so pier+e t%e +orporate -ei# to pre-ent a (rau&4 *%ere t%e +orporation is (oun& to )e a
As%amA meant to (a+i#itate (rau& against t%ir& parties/
SEE $CE 86 BELOF: FEST: 9@$TE5 !I: 9O5$O5TIOES:
S%are%o#&ers; persona# #ia)i#it, (-ei# pier+ing):
- I##ega# &i-i&en&s: $ai& inappropriate#,
- Brea+% o( sto+k- su)s+ription agreement
-Fatere& sto+k: Sto+k issue& (or #ess t%an its (air market -a#ue
' Fai#ure to maintain an LL9: For tax purposes4 an unin+orporate& entit, *i## )e treate& as a
+orporation i( it ex%i)its at #east t%ree o( t%e (o##o*ing:
- 9ontinuit, Existen+e: T%ose LL9s *%i+% %a-e a perpetua# existen+e an& &o not &isso#-e *it% t%e
&eat%4 in+apa+it,4 retirement4 )ankrupt+,4 resignation4 or expu#sion o( a mem)er/
- 9entra#ize& management: F%en t%e LL9 is manager- manage&/
- Free#, trans(era)#e interest: T%e mem)ers o( an LL9 %a-e (ree#, trans(era)#e interests on#, i( t%e,
+an assign a## t%eir rig%ts4 in+#u&ing (inan+ia# rig%ts an& management rig%ts4 *it%out t%e +onsent o( t%e ot%er
mem)ers/
- Limite& #ia)i#it,: T%e on#, +%ara+teristi+ o( t%e (our t%at LL9;s *i## a#*a,s ex%i)it/
' 9orporate Finan+ing:
1i-i&en&s are t%e portions o( +orporate pro(its pai& out to sto+k%o#&ers/ F%en a +orporation earns a
pro(it or surp#us4 t%at mone, +an )e put to t*o uses: it +an eit%er )e re-in-este& in t%e )usiness (+a##e& retaine&
earnings)4 or it +an )e pai& to t%e s%are%o#&ers as a &i-i&en&/
' 9#asses o( +orporate sto+k:
- 1i-i&en&s: 1e+#are& an& pai& out o( +urrent +orporate earnings or a++umu#ate& surp#us at regu#ar
inter-a#s/ T%e )oar& o( &ire+tors %as t%e so#e aut%orit, to &etermine t%e amount4 time4 #a+e4 an& manner o(
&i-i&en& pa,ment/ In a (e* instan+es4 a &istri)ution o( earnings is ma&e in s%ares o( +apita# sto+k: sto+k
&i-i&en&/
- 9ommon sto+k: It is t%e most usua# t,pe o( +orporate sto+k/ It +arries *it% it a## t%e risks o( t%e
)usiness4 inasmu+% as it &oes not guarantee its %o#&er t%e rig%t to pro(its/ T%e s%are%o#&er is usua##, entit#e& to
one -ote (or ea+% s%are o( sto+k %e#&/ T%e %o#&ers o( +ommon sto+k are pai& &i-i&en&s *%en t%e +orporation
e#e+ts to make su+% a &istri)ution/ @o#&ers o( +ommon sto+k risk *%ate-er t%e, in-est/
- $re(erre& sto+k: T%e, %a-e rig%ts or pre(eren+es o-er ot%er +#asses o( sto+ks/ $re(eren+es genera##,
in-o#-e t%e pa,ment o( &i-i&en&s an&Jor t%e &istri)ution o( assets on t%e &isso#ution o( t%e +orporation/
$re(erre& sto+k ma, )e +umu#ati-e (&i-i&en&s unpai& one ,ear *i## )e pai& on t%e (o##o*ing ,ear) or
non+umu#ati-e (&i-i&en&s unpai& one ,ear *i## not )e pai& a(ter*ar&s)/
- Sto+k -a#uation: $ar -a#ue is t%e -a#ue t%at is p#a+e& on t%e s%ares o( sto+k at in+orporation/ T%is
-a#ue is state& on t%e +orporation;s +erti(i+ate o( in+orporation/ Unin(orme& )u,ers o(ten interpret par -a#ue
printe& on t%e (a+e o( t%e +erti(i+ate as t%e a+tua# market -a#ue o( t%e s%ares/ To +orre+t t%is +on&ition4 a##
states %a-e aut%orize& t%e issuan+e o( no par -a#ue sto+k (+orporate sto+k t%at is issue& *it%out an, state&
pri+e)/
*Unit 38: Corporate Management and Contro#
T%e )usiness a((airs o( a +orporation are manage& ), a )oar& o( &ire+tors e#e+te& ), t%e s%are%o#&ers/
T%e, are t%e genera# agents o( t%e +orporation0 t%e, ma, issue an& se## sto+k0 &e+#are &i-i&en&s0 appoint or
e#e+t o((i+ers to manage t%e )usiness o( t%e +orporation an& a+t as its agents0 make #oans0 exe+ute mortgages
on t%e +orporation:s propert,0 )u, propert, nee&e&0 an& in genera# per(orm a## su+% &uties as t%e ),-#a*s an&
+%arter gi-en ), t%e State permit/ T%is in+#u&es not on#, t%ose spe+i(i+a##, state& )ut t%ose ne+essar, to +arr,
out t%e pro-isions o( t%e ),-#a*s an& +%arter/ T%e &ire+tors an& o((i+ers o( a +orporation +annot #ega##, engage
in u#tra -ires a+ts4 t%at is4 a+ts )e,on& t%e s+ope o( t%e +orporation:s +%arter po*ers/
Un#ess pro%i)ite& ), t%e +orporation;s +erti(i+ate o( in+orporation4 mem)ers%ip on t%e )oar& o(
&ire+tors +an )e exten&e& to an,one/ 1ire+tors are e#e+te& at t%e annua# meeting o( s%are%o#&ers/ One t%ir& o(
t%e )oar& is e#e+te& annua##,/ K7-s%are%o#&ers +orporations ma, e#iminate t%e )oar& o( &ire+tors/
I( an, &ire+tor is not noti(ie& o( a spe+ia# meeting4 a## a+tions taken at t%e meeting are -oi&/ It is a#so
ne+essar, t%at a .uorum exists0 spe+ia# .uorums (more t%an K7L o( t%e tota#) are re.uire& (or spe+ia#
&e+isions/
O((i+ers o( t%e +orporation are appointe& to run a((airs o( t%e +orporation: presi&ent4 -i+epresi&ent4
se+retar,4 treasurer/ O((i+ers %a-e t%e aut%orit, o( genera# agents (or t%e operation o( t%e norma# )usiness o(
t%e +orporation/
' 9orporate +ontro# t%eor,:
- Spe+ia# interest group +ontro#: Man, +orporate &e+isions4 su+% as a &e+ision to open or +#ose a
(a+tor,4 a((e+t t%e +ommunit, t%roug% its +onsumers4 supp#iers4 emp#o,ees4 an& +ommunit, neig%)ors/ ## o(
t%ese groups an& more s%ou#& )e represente& on t%e )oar&s o( &ire+tors/ O)<e+tion: it is impra+ti+a#/
- State +ontro#: Be+ause +orporate &e+ision making impa+ts upon more in&i-i&ua#s an& groups t%an
<ust t%e s%are%o#&ers an& t%e managers4 t%ose +orporate &e+isions s%ou#& )e ma&e ), an impartia# group o(
+orporate outsi&ers (go-ernment o((i+ia#s)/ O)<e+tions: so+ia#isti+ an& impra+ti+a#/
- Manageria# +ontro#: T%e o((i+ers an& t%e &ire+tor o( a +orporation are in t%e )est position (or <u&ging
not on#, t%e nee&s o( t%e +orporation )ut a#so t%e nee&s o( t%e +ommunit, an& t%e nee&s o( so+iet, at #arge/
S%are%o#&ers *ou#& %a-e a #imite& inter-ention/ O)<e+tion: se#(-interest/
- S%are%o#&er &emo+ra+,: T%e s%are%o#&ers %a-e t%e rig%t to run t%e +orporation )e+ause *it%out t%eir
mone, t%e +orporation *ou#& not )e a)#e to sur-i-e/ Supporters o( s%are%o#&er &emo+ra+, *ou#& make
management more responsi-e to s%are%o#&ers ), gi-ing greater -oting +ontro# an& ), making it easier (or
t%em to take managers to +ourt/ O)<e+tion: s%are%o#&ers; &e+ision is not an in(orme& one/
*S%are%o#&ers; -oting +ontro#:
- One s%are o( +ommon sto+k e.ua#s one -ote/
' Hoting met%o&s:
- S%are%o#&er $roposa#: S%are%o#&ers +an +ompe# management to in+#u&e t%eir proposa#s in
management;s prox, so#i+itation prior to t%e next s%are%o#&ers meeting/ T%e proposa# s%ou#& )e o( #ess t%an
K77 *or&s an& su)mitte& 867 &a,s )e(ore t%e meeting/ T%e s%are%o#&er must o*n at #east 8 per+ent or M84777
in market -a#ue o( t%e -oting sto+k/
- 9umu#ati-e -oting: T%is s,stem a##o*s s%are%o#&ers to mu#tip#, t%e num)er o( t%eir -oting s%ares ),
t%e num)er o( &ire+tors to )e e#e+te&/ T%is pro+e&ure a##o*s minorit, s%are%o#&ers an opportunit, to )e
represente& on t%e )oar& o( &ire+tors/
- $rox, -oting: $rox, so#i+itation (a#so a &o+ument) is t%e pro+ess *%ere), one s%are%o#&er asks
anot%er (or %is -oting rig%t/
- Hoting trusts: -oting trust is an agreement among s%are%o#&ers to trans(er t%eir -oting rig%ts to a
trustee/ On+e a -oting trust %as )een +reate&4 it +annot )e en&e& unti# t%e spe+i(ie& time perio& %as run its
+ourse/
- $oo#ing agreement: Hoting agreement among s%are%o#&ers/ T%e, &i((er (rom proxies an& -oting
trusts )e+ause t%e s%are%o#&ers retain +ontro# o( t%eir o*n -otes/ I( a mem)er o( a poo#ing agreement +%anges
%er -ote4 %o*e-er4 t%e ot%er mem)ers ma, )ring a #a*suit against t%e s%are%o#&er *%o )roke t%e agreement/
' S%are%o#&er suits:
- 1ire+t suits: Broug%t ), s%are%o#&ers *%o %a-e )een &epri-e& o( a rig%t t%at )e#ongs to t%em as
s%are%o#&ers/
- 1eri-ati-e suits: ##o*s s%are%o#&ers to sue +orporate management on )e%a#( o( t%e +orporation/ T%e
s%are%o#&ers; rig%t to sue is &eri-e& (rom t%e +orporate in<ur,/ One prere.uisite is t%e ex%austion o( interna#
reme&ies/ T%e s%are%o#&ers must state t%e steps t%at t%e, took to ex%aust a## interna# reme&ies/ In or&er to
)ring a &eri-ati-e suit4 a s%are%o#&er must a#so o*n sto+k at t%e time o( t%e in<ur, an& at t%e time o( t%e suit/
State +orporate #a*s a#so re.uire t%at a se+urit, &eposit )e pai& to +o-er t%e +orporation;s potentia# expenses in
&e(en&ing t%e &eri-ati-e suits/
' Management responsi)i#ities:
- 5u#es to <u&ge +on&u+t:
' T%e )usiness <u&gment ru#e: T%e ru#e prote+ts managers *%o a+t *it% &ue +are an& in goo& (ait%4 as
#ong as t%eir &e+isions are #a*(u# an& in t%e )est interests o( t%e +orporation/
' 5easoning presumption: Managers are in t%e )est position to run t%e +orporation0 not as
s%are%o#&ers an& <u&ges/
' Fairness ru#e: 5e.uires managers to )e (air to t%e +orporation *%en t%e, persona##, )ene(it (rom
t%eir )usiness &e+isions/ F%en +ontra+ting *it% t%e +orporation/ In t%e )usiness <u&gment ru#e4 managers &o
not pro(it (rom )usiness &e+isions/ 5e.uirement: &is+#osure o( +ru+ia# in(ormation/
' Ot%er s%are%o#&ers; rig%ts:
- 5ig%t to examine +orporate re+or&s
- 5ig%t to s%are in &i-i&en&s0 s%are%o#&ers +annot (or+e t%e &ire+tors to &e+#are a &i-i&en& un#ess t%e
&ire+tors are not a+ting in goo& (ait% in re(using to &o so/
- 5ig%t to se## an& trans(er s%ares o( sto+k/
- $reempti-e rig%ts: S%are%o#&ers %a-e t%e rig%t to pur+%ase a proportionate s%are o( e-er, ne*
o((ering o( sto+k ), t%e +orporation/
' Management o( a #imite& #ia)i#it, +ompan, (LL9):
- Mem)ers as managers: Ma, )e+ome agents o( t%e LL9/
- Outsi&e managers: Limite& po*er o( &e+ision/
' Fi&u+iar, &uties: To t%e LL9 an& to t%e mem)ers o( t%e LL9/
*Chapter 39: Government Regulation of Corporate Buine
' Business an& t%e +onstitution:
Co-ernment regu#ations on )usiness organizations are )ase& on t%e go-ernment;s po#i+e po*er4 *%i+%
is t%e state;s aut%orit, to restri+t pri-ate rig%ts in or&er to promote an& maintain pu)#i+ %ea#t%4 sa(et,4 *e#(are4
an& mora#s (rt/ I4 Se+t/ N4 9#ause ! o( t%e US 9onstitution)/ T%is po*er +an a#so regu#ate )usiness a+ti-it,
t%at a((e+ts interstate +ommer+e/
T%e Se+urities an& Ex+%ange 9ommission (SE9) regu#ates t%e issuan+e o( se+urities ), +orporation/
(Se+urit,: mone, in-estment t%at expe+ts a return so#e#, )e+ause o( anot%er person;s e((orts/)
Se+urities +t o( 8I!!: 5egu#ates t%e issuan+e o( ne* se+urities ), +orporations an& partners%ips/
registration statement (+ontaining &etai#e& in(ormation a)out t%e +orporation0 &esigne& (or experts o( t%e SE9)
an& a prospe+tus (+ontains same in(ormation in a simp#i(ie& (orm0 &esigne& (or potentia# in-estors) must )e
(i#e& *it% t%e SE9/
Se+urities Ex+%ange +t o( 8I!?: 1ea#s *it% t%e su)se.uent tra&ing in se+urities/ It re.uires perio&i+
reports o( (inan+ia# in(ormation +on+erning registere& se+urities4 an& it pro%i)its manipu#ati-e an& &e+epti-e
a+tions in t%e sa#e an& pur+%ase o( se+urities/ S%are%o#&ers so#i+it proxies must a#so (o##o* stri+t reporting
re.uirements/
' ntitrust regu#ation: 1is+ourages monopo#ies (*%i+% %a-e ex+#usi-e +ontro# o( a market) ), a
)usiness enterprise/
- S%erman nti-trust +t: $ro%i)its monopo#ization +ontra+ts4 +om)inations4 an& +onspira+ies in
restraint o( tra&e/
- $er se -io#ations (*%et%er or not t%e, %arm an,one): @arm is presume& an& t%e pra+ti+e is
pro%i)ite&/
- 5u#e-o(-reason stan&ar&: T%e ru#e-o(-reason stan&ar& *i## stop +ertain pra+ti+es on#, i( t%e,
are an unreasona)#e restri+tion o( +ompetition/
- $ost-S%erman ntitrust Legis#ation:
- 9#a,ton +t: gainst spe+i(i+ )usiness pra+ti+es (e/g/: t,ing agreements4 inter#o+king
&ire+torates ser-ing as &ire+tor (or t*o +ompeting +orporations (at #east one o( t%e +orporations must %a-e an
aggregate *ort%0 )anks an& +ommon +arriers are exempt)) t%at +ou#& )e use& to +reate a monopo#,/
- 5o)inson $atman +t: $ro%i)its a se##er (rom +%arging &i((erent pri+es to &i((erent +ustomers
*%en su+% &i((eren+es mig%t in<ure +ompetition/
- Fe&era# Tra&e 9ommission +t: Esta)#is%e& t%e Fe&era# Tra&e 9ommission/ Un(air met%o&s
o( +ompetition4 an& un(air or &e+epti-e pra+ti+es in or a((e+ting +ommer+e are %ere), &e+#are& un#a*(u#/
' 5egu#ation o( +orporate expansion: T%e SE9 is +on+erne& *it% regu#ating t%e expansion itse#(4 *%i#e t%e
FT9 is more +on+erne& *it% t%e e((e+ts o( t%at expansion/
- Expansion Te+%ni.ues an& Se+urities La*: Expansion te+%ni.ues: Merger (one +orporation is
a)sor)e& ), t%e ot%er) an& +onso#i&ation ()ot% +ompanies &isappear an& a ne* +ompan, +arries on t%e
)usiness un&er a ne* name)/ S%are%o#&ers *%o &o not *is% to )e part o( t%e merger ma, separate/ Fritten
noti+e o( a &issent is re.uire& so t%at t%e +ost o( pur+%asing t%e &issenter;s sto+k +an )e (igure& as a part o( t%e
expense in-o#-e& in t%e merger/
- SE9 regu#ation: gainst (a#se or mis#ea&ing prox, so#i+itations0 pro%i)ition o( taking a&-antages o( a
se+ret/
- sset a+.uisition: One +orporation pur+%ases a## t%e propert, o( a se+on& +orporation/
Eo &e)ts or ot%er #ia)i#ities are trans(erre& (rom se##er to )u,er/ Ex+eptions: I( a )u,er is simp#, a
+ontinuation o( t%e se##ing +orporation4 t%e )u,er *i## not es+ape t%e #ia)i#ities o( t%e se##er0 I( t%e sa#e is
stru+ture& (rau&u#ent#, to es+ape t%e #ia)i#ities o( t%e se##ing +orporation0 Expresse& or imp#ie& assumption o(
#ia)i#ities0 I( &espite its #a)e# as an asset a+.uisition4 t%e sa#e is a+tua##, a merger4 t%e #ia)i#ities *i## trans(er to
t%e )u,er/
' Sto+k a+.uisition (takeo-er): Takeo-er )i&: T%e suitor o((ers to )u, t%e -oting sto+k o( t%e target/ n
un(rien&#, suitor is a %osti#e )i&&er4 *i##ing to s%ake up t%e +orporation/ T%e target +orporation *i## #ook (or a
(rien&#, suitor (*%ite knig%t)/ F%ene-er a suitor makes an o((er to a+.uire more t%an K per+ent o( a target4 t%at
suitor must (i#e a statement *it% t%e SE9 (in&i+ating origin o( t%e mone,4 reason o( pur+%ase4 %o* mu+% it is
a#rea&, o*ne&/
- Fa#si(i+ation o( in(ormation: 5eason (or takeo-er )i& stoppe& ), a +ourt or&er/
' Expansion e((e+ts an& ntitrust La*
- 9#a,ton +t (Se+tion Se-en): For)i&s an, +orporate expansion i( t%at expansion sets up a monopo#,
or ot%er*ise %urts +ompetition/
- Expansion attempts (+#ose#, s+rutinize& ), t%e FT9):
' @orizonta# expansion: )et*een +ompanies in t%e same )usiness/
' Herti+a# expansion: pur+%ase o( a +ompan, o( anot%er #ink o( t%e pro+ess/
' 9ong#omerate expansion: Goins t*o +ompanies t%at *ere not in +ompetition *it% one anot%er/ T%e,
&ea# &i((erent pro&u+ts0 t%e, operate in &i((erent geograp%i+a# areas/
- @art-S+ott-5o&ino ntitrust +t: 1esigne& to po#i+e an, expansion attempts t%at mig%t %arm
+ompetition in t%e marketp#a+e/ For expansion matters4 a noti+e o( expansion attempt is re.uire& ), t%e FT94
*%i+% t%en gets t%e +%an+e to in-estigate/
' Energ, 5egu#ation:
- Fe&era# Energ, 5egu#ator, 9ommission: It is responsi)#e (or regu#ating t%e transportation an& t%e
*%o#esa#e pri+e o( natura# gas an& e#e+tri+it, so#& (or use in interstate +ommer+e/ 5ates are +a#+u#ate& to a##o*
+ompanies a spe+i(i+ rate o( return on in-estments/ Fue# a&<ustment +%arges +an )e supporte& ), +ustomers/
- Eu+#ear 5egu#ator, 9ommission (E59): It is responsi)#e (or nu+#ear rea+tors: #i+ensing4
+onstru+tion4 operation0 possession4 use4 an& transportation o( nu+#ear materia#/
' En-ironmenta# $rote+tion 5egu#ation: 9arries out en-ironmenta# #a*s/
' Eationa# En-ironmenta# $o#i+, +t: Its purpose is to esta)#is% a nationa# po#i+, t%at *i## +om)at po##ution
an& impro-e t%e en-ironment/
' Emp#o,ment 5egu#ation: 1esigne& (or emp#o,ees; prote+tion/
- Emp#o,ee 5etirement In+ome Se+urit, +t: Un&er its ru#es4 *orkers are guarantee& t%e rig%t to
re+ei-e t%eir pension )ene(its regar&#ess o( *%et%er t%e, are *orking un&er t%e p#an at t%e time o( retirement/
- $arti+u#ar +ases: Business sa#e or merger: 1epen&s on t%e t,pe:
' Sto+k a+.uisition: Emp#o,ee )ene(it p#an assume& ), pur+%asing +orporation/
' sset a+.uisition: Bu,er ma, or ma, not (amen&ment o( t%e p#an possi)#e) a&opt p#an/
' #ternati-e: Ee* p#an a&option/
*T%e pur+%aser s%ou#& examine pertinent re+or&s: annua# report t%at is gi-en to a## parti+ipants
in t%e p#an4 a## insuran+e an& annuit, +ontra+ts4 a## Interna# 5e-enue Ser-i+e (orms asso+iate& *it% t%e )ene(it
p#an4 as *e## as t%e *riting t%at &es+ri)es t%e p#an/
- Forker &<ustment an& 5etraining Eoti(i+ation +t (F5E): 5e.uires emp#o,ers *it% at #east 877
(u##-time emp#o,ees to gi-e t%ose emp#o,ees sixt, &a,s noti+e (in *riting) )e(ore a## p#ant +#osings an& mass
#a,-o((s/
1isso#ution o( a +orporation
- In-o#untar,: 5e-o+ation ), t%e se+retar, o( state t%roug% a .uo *arranto pro+ee&ing
*Broug%t ), t%e go-ernment (or nonpa,ment o( (ran+%ise taxes4 non+omp#ian+e *it% annua# reports re.uirements4 (rau&u#ent
u#tra -ires a+ts4 or (ai#ure to maintain a registere& agent/
*Broug%t ), an, s%are%o#&er to prote+t t%eir rig%ts4 against (rau&u#ent4 i##ega#4 or oppressi-e a+ts0 or *%en a &ea&#o+k exists/
- Ho#untar,: Must )e noti(ie& to +re&itors an& pu)#is%e& a(ter a statement o( intent is (i#e&
*1e+i&e& ), s%are%o#&ers; +onsensus
*1e+i&e& ), t*o t%ir&s o( t%e s%are%o#&ers *it% a positi-e -ote o( t%e )oar& o( &ire+tors
*Co-ernment an& 9orporate 1isso#ution:
' In-o#untar, 1isso#ution: T%e +orporation;s +%arter +an )e re-oke& ), or&er o( t%e se+retar, o( state un&er a
quo warranto pro+ee&ing *%ene-er t%ere is a (ai#ure to (i#e annua# reports4 a (ai#ure to pa, (ran+%ise taxes4 or a
(ai#ure to maintain a registere& agent (or ser-i+e o( pro+ess0 an& a#so (or (rau&u#ent an& u#tra -ires a+ts/
In-o#untar, &isso#ution +an a#so )e re.ueste& ), a s%are%o#&er *%en t%ere is e-i&en+e o( i##ega#4
oppressi-e4 or (rau&u#ent a+ts4 misapp#i+ation or *aste o( +orporate assets4 a &ea&#o+k o( &ire+tors0 or simp#,
to prote+t %is rig%ts/
' Ho#untar, 1isso#ution: It +an )e )roug%t ), unanimous -oting ), s%are%o#&ers0 or *it% t%e positi-e -ote o(
&ire+tors *it% appro-a# o( t*o t%ir&s o( t%e s%are%o#&ers/ On+e t%e &e+ision is ma&e4 a statement o( intent must
)e (i#e& (*it% t%e state)/ T%e +orporation *i## t%en +ease )usiness an& noti(, +re&itors (), +erti(ie& mai#) an&
t%e pu)#i+ (), pu)#i+ation)/ T%en +re&itors must )e pai& t%eir +re&its an&4 a(ter t%at4 t%e surp#us goes to t%e
s%are%o#&ers/ I( t%e existing assets +annot meet a## +#aims4 a re+ei-er (person appointe& ), #a* to %o#& propert,
su)<e+t to &i-erse +#aims) ma, )e +a##e& in/
*1isso#ution o( a Limite& Lia)i#it, 9ompan,:
' 9ir+umstan+es o( &isso#ution are: 8) unanimous *ritten agreement ), mem)ers0 6) an,t%ing +ausing t%e
mem)ers o( an LL9 to &rop )e#o* t*o0 !) in+ompeten+,4 &eat%4 expu#sion4 )ankrupt+,4 or resignation o( a
mem)er0 ?) a +ourt &e+ree ru#ing &isso#ution/
' E((e+ts o( &isso#ution: 1isso#ution must )e &istinguis%e& (rom t%e *in&ing up pro+ess4 *%i+% e((e+ti-e#,
puts t%e LL9 out o( )usiness/ T%e *in&ing up pro+ess imp#ies +omp#eting t%e LL9 )usiness an& t%e sa#e o( t%e
LL9;s propert, to satis(, &e)ts/
DUESTIOE: 1i((eren+e among 1isso#ution4 Fin&ing up pro+ess4 an& Termination/
*Chapter 37: Corporation ! Formation and Financing "#et$:
' 9orporate pro(its are taxe& ), -arious #e-e#s o( go-ernment: t%e, are taxe& )e(ore an& a(ter
)e+oming &i-i&en&s to s%are%o#&ers (&ou)#e taxation)/ 9onse.uen+es o( a (ai#ure to pa, taxes +an )e se-ere
(+orporation;s &isso#ution)/
' T%e Bi## o( 5ig%ts guarantees persons +ertain prote+tions4 an& +orporations are +onsi&ere& persons in
most +ases/ T%e, %a-e rig%t to &ue pro+ess4 to sue an& to )e sue&4 to #i)ert,4 propert,4 as *e## as (ree&om (rom
unreasona)#e sear+%es an& seizures an& (rom &ou)#e <eopar&,0 t%e, are entit#e& to (ree&om o( spee+%/ On#, t%e
+orporation;s in&i-i&ua# o((i+ers an& emp#o,ees possess t%e Fi(t% men&ment rig%t against se#(-in+rimination/
' +orporation +an )e %e#& (or t%e torts an& +rimina# a+ts +ommitte& ), its agents or o((i+ers *it%in
t%e +ourse an& s+ope o( t%eir emp#o,ment (agen+, re#ations%ips)4 pro-i&e& t%e punis%ment is one t%at +an )e
app#ie& to t%e +orporation/
T%e US Senten+ing 9ommission +reate& t%e Fe&era# Organizationa# 9orporate Senten+ing Cui&e#ine4
*%i+% +onsists o( spe+i(i+ senten+ing gui&e#ines (or +rimes +ommitte& ), +orporate emp#o,ees/ T%e +orporate
senten+ing gui&e#ines +o-er t%irt, t*o #e-e#s o( o((enses/ T%e +u#pa)i#it, s+ore o( a +ompan, &epen&s on t%e
ro#e t%at senior management p#a,e& in t%e a##ege& *rong&oing as *e## as t%e +ompan,;s %istor, o( past
-io#ations an& t%e extent o( management;s +ooperation *it% (e&era# in-estigators/
' +orporation +an engage in an, a+t an& enter into an, +ontra+t a-ai#a)#e to a natura# person in or&er
to a++omp#is% t%e purposes (or *%i+% it *as +reate&/ T%e express po*ers o( a +orporation are (oun& in t%e US
9onstitution4 t%e State +onstitutions an& statutes4 its arti+#es o( in+orporation an& ),#a*s an& t%e reso#utions o(
t%e )oar& o( &ire+tors/ T%e +orporation %as t%e imp#ie& po*er to per(orm a## a+ts reasona)#, appropriate an&
ne+essar, to a++omp#is% its +orporate purposes/
+ts o( a +orporation t%at are )e,on& its express or imp#ie& po*ers are u#tra -ires a+ts4 norma##,
+ontra+ts ma&e (or unaut%orize& purposes/ @o*e-er4 *%en an u#tra -ires +ontra+t is partia##, or (u##, exe+ute&
at t%e time o( +%a##enge4 +ourts ma, en(or+e t%em i( it *ou#& )e ine.uita)#e to a##o* a part, to assert t%e
&e(ense o( u#tra -ires/ Un&er se+tion !/7? o( t%e 5MB94 t%e (o##o*ing reme&ies are a-ai#a)#e (or u#tra -ires
a+ts: s%are%o#&ers ma, sue on )e%a#( o( t%e +orporation to o)tain an in<un+tion or to o)tain &amages (or t%e
%arm +ause& ), t%e transa+tion0 t%e +orporation itse#( +an sue o((i+ers an& &ire+tors *%o *ere responsi)#e (or
t%e u#tra -ires transa+tions to re+o-er &amages0 t%e attorne, genera# o( t%e state ma, institute a pro+ee&ing to
o)tain an in<un+tion against t%e u#tra -ires transa+tion or to institute &isso#ution pro+ee&ings against t%e
+orporation (or u#tra -ires a+ts/
' 9#assi(i+ation o( +orporations:
- 1omesti+: Fit%in its %ome state/
- Foreign: Forme& in one state )ut &oing )usiness in anot%er one ((or *%at it is ne+essar, to o)tain a
+erti(i+ate o( aut%orit,)/
- #ien: Forme& in anot%er +ountr, )ut &oing )usiness in t%e US/
- $u)#i+: Forme& ), t%e go-ernment to meet some po#iti+a# or go-ernmenta# purpose/
- $ri-ate: 9reate& eit%er *%o##, or in part (or pri-ate )ene(it/ T%e, are o*ne& ), pri-ate persons4
rat%er t%an ), t%e go-ernment/
- Eon-pro(it or not (or pro(it: Forme& (or purposes ot%er t%an making a pro(it/
- 9#ose: Its s%ares are %e#& ), mem)ers o( a (ami#, or ), re#ati-e#, (e* persons/ T%ere is no tra&e
market (or its s%ares/ Its management usua##, resem)#es t%at o( a so#e proprietors%ip or a partners%ip/
- S: 9#ose +orporation meeting t%e .ua#i(,ing re.uirements spe+i(ie& in Su)+%apter S o( t%e Interna#
5e-enue 9o&e/ It a-oi&s t%e imposition o( in+ome taxes at t%e +orporate #e-e# *%i#e it retains man, o( t%e
a&-antages o( a +orporation4 parti+u#ar#, #imite& #ia)i#it,/
5e.uirements: T%e +orporation must )e a &omesti+ +orporation0 it must not )e a mem)er o( an
a((i#iate& group o( +orporations0 its s%are%o#&ers (*%o must not )e more t%an se-ent,-(i-e or a non-resi&ent
a#ien) must )e in&i-i&ua#s4 estates or +ertain trusts/
- $ro(essiona#: Forme& ), pro(essiona#s to o)tain t%e a&-antages o( in+orporation/
*Chapter 38: Corporation ! %irector& 'fficer& and (hareholder "#et$
' 1ire+tors: T%e, (orm t%e go-ernment organ o( a +orporation/ T%e, are sometimes inappropriate#,
+%ara+terize& as agents )e+ause t%e, a+t on )e%a#( o( t%e +orporation/ Eo in&i-i&ua# &ire+tor4 %o*e-er4 +an a+t
as an agent to )in& t%e +orporation0 an& as a group4 &ire+tors +o##e+ti-e#, +ontro# t%e +orporation in a *a, t%at
no agent is a)#e to +ontro# a prin+ipa#/
' T%e num)er o( &ire+tors is set (ort% in t%e +orporation;s arti+#es or ),#a*s/ T%e (irst )oar& o(
&ire+tors is norma##, appointe& ), t%e in+orporators on t%e +reation o( t%e +orporation4 or e#se t%e, are name&
), t%e +orporation in t%e arti+#es/ Su)se.uent &ire+tors are e#e+te& ), a ma<orit, -ote o( t%e s%are%o#&ers/
T%e, norma##, %o#& o((i+e (or a term o( one ,ear/
' &ire+tor +an )e remo-e& (or +ause/ Ha+an+ies (or &eat%4 resignation4 or in+apa+it, ma, )e (i##e& ),
t%e )oar& or ), s%are%o#&ers/
' T%e )oar& o( &ire+tors +on&u+ts )usiness ), %o#&ing (orma# meetings *it% re+or&e& minutes/
Duorum re.uirements ma, -ar, among state/ Hoting is norma##, &one in person: t%e ru#e is one -ote per
&ire+tor/ Or&inar, matters genera##, re.uire a simp#e ma<orit, -ote0 +ertain extraor&inar, issues ma, re.uire a
greater-t%an-ma<orit, -ote/
' 5ig%ts o( &ire+tors:
- $arti+ipation: T%e &ire+tors must )e noti(ie& o( )oar& o( &ire+tors; meetings so as to parti+ipate in
t%em/ Eo noti+e o( regu#ar meetings is re.uire&/
- Inspe+tion: &ire+tor must %a-e a++ess to a## o( t%e +orporate )ooks an& re+or&s to make &e+isions
an& to exer+ise ne+essar, super-ision/
- 9ompensation: 1ire+tors are o(ten pai& nomina# sums as %onorariums/
- In&emni(i+ation: Most states permit a +orporation to in&emni(, a &ire+tor (or #ega# +osts4 (ees4 an&
<u&gment in-o#-e& in &e(en&ing +orporation re#ate& suits/
' 1uties o( &ire+tors:
- ut%orization (or ma<or +orporate po#i+, &e+isions/
- ppointment4 super-ision4 an& remo-a# o( +orporate o((i+ers an& ot%er manageria# emp#o,ees an&
&etermination o( t%eir +ompensation/
- Finan+ia# &e+isions4 su+% as t%e &e+#aration an& pa,ment o( &i-i&en&s to s%are%o#&ers an& t%e
issuan+e o( aut%orize& s%ares an& )on&s/
' O((i+ers: 9orporate an& manageria# o((i+ers appointe& ), t%e )oar& o( &ire+tors a+t as agents o( t%e
+orporation4 an& t%e or&inar, ru#es o( agen+, norma##, app#, to t%eir emp#o,ment/ 9orporate o((i+ers an&
ot%er %ig%-#e-e# managers are emp#o,ees o( t%e +ompan, so t%eir rig%ts are &e(ine& ), emp#o,ment +ontra+ts/
' Fi&u+iar, &uties: T%e re#ation )et*een o((i+ers an& &ire+tors4 an& s%are%o#&ers an& t%e +ompan, is
one o( trust an& +on(i&en+e an& t%at is *%, t%e, are +a##e& (i&u+iaries/ Fi&u+iaries o*e et%i+a# &uties to t%e
+orporation an& t%e s%are%o#&ers/ T%e, must exer+ise &ue +are (t%e one t%at an or&inar, person *ou#&
exer+ise) in per(orming t%eir &uties (t%is imp#ies goo& (ait%)0 &o *%at is ne+essar, to )e+ome in(orme& to %a-e
t%e ne+essar, in(ormation to make rig%t &e+isions4 *%i+% must )e reasona)#e4 as *e## as t%eir &ut, to
super-ise/ T%ere is a#so a &ut, o( #o,a#t,: persona# interests must )e su)or&inate& to t%e *e#(are o( t%e
+orporation/ O((i+ers an& &ire+tors +annot +ompete *it% t%e +orporation4 usurp its opportunit,4 %a-e an interest
t%at +on(#i+ts *it% t%e interest o( t%e +orporation4 engage in insi&er training4 aut%orize a +orporate transa+tion
t%at is &etrimenta# to minorit, s%are%o#&ers4 or se## +ontro# o-er t%e +orporation/
' Lia)i#it, o( 1ire+tors an& O((i+ers: Un&er t%e )usiness <u&gment ru#e4 a +orporate &ire+tor or o((i+er
ma, )e a)#e to a-oi& #ia)i#it, (or exer+ising poor )usiness <u&gment4 as #ong as t%eir &e+isions +omp#, *it%
management;s (i&u+iar, &uties (t%is re.uires an in(orme& an& #o,a# &e+ision)/
' S%are%o#&ers: T%e, %a-e an e.uita)#e interest in t%e (irm/ S%are%o#&ers must appro-e (un&amenta#
+%anges a((e+ting t%e +orporation )e(ore t%e +%anges +an )e imp#emente&: t%e, are empo*ere& to amen& t%e
arti+#es o( in+orporation an& ),#a*s4 appro-e a merger or t%e &isso#ution o( t%e +orporation4 an& appro-e t%e
sa#e o( a## or su)stantia##, a## o( t%e +orporation;s assets0 e#e+t an& remo-e &ire+tors/
' S%are%o#&ers; Meetings: T%ese must o++ur at #east annua##,/ Spe+ia# meetings +an )e +a##e& to &ea#
*it% urgent matters/ S%are%o#&ers must )e noti(ie& o( su+% meetings/
' S%are%o#&ers; Hoting: 9ommon s%are%o#&ers are entit#e& to one -ote per s%are/ T%e arti+#es o(
in+orporation +an ex+#u&e or #imit -oting rig%ts4 parti+u#ar#, to +ertain +#asses o( s%ares/
.uorum must )e present (or s%are%o#&ers &uring a meeting/ T%is +on&ition is present *%en
s%are%o#&ers %o#&ing more t%an K7L o( t%e outstan&ing s%ares are present/ 9orporate matters are presente& in
t%e (orm o( reso#utions t%at must )e appro-e& or &isappro-e& ), s%are%o#&ers/ ma<orit, -ote o( t%e s%ares
represente& at t%e meeting is usua##, re.uire& to pass reso#utions4 )ut sometimes more t%an a simp#e ma<orit,
-ote is re.uire&/
' S%are%o#&ers; rig%ts:
- Sto+k +erti(i+ates: In <uris&i+tions t%at re.uire t%e issuan+e o( sto+k +erti(i+ates4 s%are%o#&ers %a-e
t%e rig%t to &eman& t%at t%e +orporation issue +erti(i+ates an& re+or& t%eir names an& a&&resses in t%e
+orporate sto+k re+or& )ooks/
- $reempti-e rig%ts: s%are%o#&er is gi-en a pre(eren+e o-er a## ot%er pur+%asers to su)s+ri)e to or
pur+%ase a prorate& s%are o( a ne* issue o( sto+k/ T%ese rig%ts a##o* s%are%o#&ers to maintain t%eir portion o(
+ontro#4 -oting po*er4 or (inan+ia# interest in t%e +orporation/
- Sto+k *arrants: Trans(era)#e options to a+.uire a gi-en num)er o( s%ares (rom t%e +orporation at a
state& pri+e/
- 1i-i&en&s: 1istri)ution o( +orporate pro(it or in+ome or&ere& ), t%e &ire+tors an& pai& to t%e
s%are%o#&ers in proportion to t%eir respe+ti-e s%ares in t%e +orporation0 t%e, +an )e pai& in +as%4 propert,4 or
sto+k o( ot%er +orporations/ 1epen&ing on state #a*4 t%ese ma, )e pai& (rom t%e (o##o*ing sour+es: retaine&
earnings (un&istri)ute& net pro(its earne& ), t%e +orporation)0 net pro(its0 surp#us/ F%en &ire+tors (ai# to
&e+#are a &i-i&en&4 s%are%o#&ers +an ask a +ourt o( e.uit, (or an in<un+tion to +ompe# t%e &ire+tors to meet an&
&e+#are a &i-i&en&/ T%e s%are%o#&ers must s%o* t%at t%e &ire+tors %a-e a+te& so unreasona)#, in *it%%o#&ing
t%e &i-i&en& t%at t%eir +on&u+t is an a)use o( t%eir &is+retion/
- Inspe+tion rig%ts: Limite& to inspe+tion an& +op,ing o( +orporate )ooks an& re+or&s (or a proper
purpose/
- Trans(er o( s%ares (), in&orsement an& &e#i-er,)/
- 5ig%ts on &isso#ution: S%are%o#&ers %a-e t%e rig%t to petition to +ourt to &isso#-e t%e +orporation/
- S%are%o#&ers; &eri-ati-e suit: S%are%o#&ers are permitte& to sue in t%e +orporate name/ *rong must
%a-e )een &one to t%e +orporation an& t%e s%are%o#&ers must %a-e state& t%eir +omp#aint to t%e )oar& o(
&ire+tors: on#, i( t%e &ire+tors (ai# to so#-e t%e pro)#em or to take appropriate a+tion +an t%e &eri-ati-e suit go
(or*ar&/
' S%are%o#&ers; #ia)i#it,: S%are%o#&ers are norma##, not persona##, #ia)#e/ But a +ourt ma, pier+e t%e
+orporate -ei# an& %o#& s%are%o#&ers in&i-i&ua##, #ia)#e (or (rau&4 un&er+apita#ization4 or +are#ess o)ser-an+e
o( t%e +orporate )usiness/ In +ertain ot%er instan+es4 a s%are%o#&er +an )e persona##, #ia)#e:
- I##ega# 1i-i&en&s: T%ose pai& inappropriate#, in or&er to +ause t%e +orporation to )e+ome inso#-ent/
- Sto+k-su)s+ription greement: s%are%o#&er +an )e %e#& persona##, #ia)#e *%en %e )rea+%es %is
+ontra+ts to se## %is s%ares o( sto+k/
- Fatere& Sto+k: T%at +on(orme& o( s%ares t%at are issue& ), t%e +orporation (or #ess t%an t%eir (air
market -a#ue/
' Ma<orit, S%are%o#&ers; 1uties: F%en ma<orit, s%are%o#&ers o*n a su((i+ient num)er o( s%ares to
exer+ise &e (a+to +ontro# o-er t%e +orporation4 t%e, %a-e a (i&u+iar, &ut, to t%e +orporation an& t%e minorit,
s%are%o#&ers/
*Chapter 39: Corporation ! Merger& Conolidation& and )ermination "#et$
' Merger: It in-o#-es t%e #ega# +om)ination o( t*o or more +orporations/ (ter t%e merger4 on#, one
+orporation +ontinues to exist/ (ter t%e merger4 one o( t%e +orporations is re+ognize& as a sing#e +orporation
possessing a## t%e rig%ts4 pri-i#eges4 an& po*ers o( itse#( an& t%e rest o( t%e +orporations/ It )e+omes #ia)#e (or
a## its &e)ts an& o)#igations/
' 9onso#i&ation: T*o or more +orporations +om)ine so t%at ea+% +orporation +eases to exist an& a ne*
one emerges/ In t%e pro+ess4 t%e origina# +orporations +ease to exist an& t%e ne* one a++e&es to a## t%e rig%ts4
pri-i#eges4 an& po*ers pre-ious#, %e#& ), t%e origina# +orporations/ T%e arti+#es o( +onso#i&ation take t%e
p#a+e o( t%e origina# +orporations; origina# +orporate arti+#es an& are t%erea(ter regar&e& as t%e ne*
+orporation;s +orporate arti+#es/
' Merger an& 9onso#i&ation $ro+e&ures: T%e )asi+ re.uirements (or mergers an& +onso#i&ations are set
(ort% in t%e 5e-ise& Mo&e# Business 9orporation +t:
(i) T%e )oar& o( &ire+tors o( ea+% +orporation in-o#-e& must appro-e a merger or +onso#i&ation
p#an/
(ii) T%e s%are%o#&ers o( ea+% +orporation must -ote to appro-e o( t%e p#an at a s%are%o#&ers;
meeting/
(iii) T%e p#an is (i#e&4 usua##, *it% t%e se+retar, o( state/
(i-) T%e state issues a +erti(i+ate o( merger to t%e sur-i-ing +orporation or a +erti(i+ate o(
+onso#i&ation to t%e ne*#, +onso#i&ate& +orporation/
- S%ort-(orm mergers: 5MB9 pro-i&es a simp#i(ie& pro+e&ure (or t%e merger o( a su)stantia##,
o*ne& su)si&iar, +orporation (I7L or more) into its parent +orporation/ s%ort-(orm merger +an )e
a++omp#is%e& *it%out t%e appro-a# o( t%e s%are%o#&ers o( eit%er +orporation/ T%e )oar& o( &ire+tors must
appro-e o( a p#an (or t%e merger an& t%en sen& +opies to s%are%o#&ers/
- ppraisa# 5ig%ts: s%are%o#&er %as t%e rig%t to &issent (rom a merger or +onso#i&ation &e+ision (),
presenting a *ritten noti+e o( &issent) an& )e entit#e& to )e pai& t%e (air -a#ue (or t%e num)er o( s%ares %e#& on
t%e &ate o( t%e merger or +onso#i&ation (), making a *ritten &eman& (or pa,ment an& (or t%e (air -a#ue o( %is
s%ares)/
' $ur+%ase o( assets or assets a+.uisition: F%en a +orporation a+.uires a## or su)stantia##, a## o( t%e
assets o( anot%er +orporation ), &ire+t pur+%ase4 t%e pur+%asing +orporation simp#, exten&s its o*ners%ip an&
+ontro# o-er more p%,si+a# assets/ T%e +orporation *%ose assets are a+.uire& must o)tain appro-a# (rom )ot%
its )oar& o( &ire+tors an& its s%are%o#&ers/ T%e pur+%asing +orporation is not #ia)#e (or t%e #ia)i#ities o( t%e
se##ing +orporation un#ess t%is is *%at it imp#ie&#, or express#, un&ertakes0 t%e sa#e amounts to *%at in (a+t is
a merger or a +onso#i&ation0 t%e sa#e is (rau&u#ent#, exe+ute& to es+ape #ia)i#it,0 or *%en t%e pur+%aser retains
t%e same )usiness an& personne#/
' $ur+%ase o( sto+ks: $ur+%ase o( a su)stantia# num)er o( t%e -oting s%ares o( its sto+k (+orporate
takeo-er) ena)#es t%e a+.uiring +orporation to gain +ontro# o( t%e a+.uire& +orporation (target +orporation)/
- Ten&er o((er: F%en t%e a+.uiring +orporation makes a pu)#i+ o((er to a## s%are%o#&ers o( t%e target
+orporation4 it is +a##e& a ten&er o((er/ T%e pri+e o((ere& is genera##, %ig%er t%an t%e market pri+e o( t%e target
sto+k prior to t%e announ+ement o( t%e ten&er o((er/
BU(*+,(( 'RG-+*.-)*'+(: U/
*Compan0 1a2 "Cavendih)
' 9ompan,: It is a separate person in #a* (Salomon v Salomon & Co Ltd)0 it +an o*n propert,4
+ommit +rimes an& +on+#u&e +ontra+ts/ It pa,s +orporation tax as a separate entit,/
' $artners%ip: It is +onsi&ere& t%e sum tota# o( t%e partners *%o make up t%e partners%ip or (irm/ T%e
tax is pai& un&er t%e s+%e&u#er in+ome tax s,stem ), t%e in&i-i&ua# partners in t%e (irm (sing#e taxation)/
9ompanies (regu#ate& ), t%e 9ompanies +t 677") o++up, a spe+ia# p#a+e in #a*4 as t%e, are &eeme&
to %a-e a #ega# persona#it, separate (rom t%ose *%o in-est t%eir +apita# an& #a)or to run t%e )usiness/ T%e
genera# ru#es o( +ontra+t4 tort an& un<ust enri+%ment operate in t%e (irst p#a+e against t%e +ompan, as a &istin+t
entit,/ T%is &i((ers (un&amenta##, (rom ot%er (orms o( )usiness asso+iation/ so#e tra&er a+.uires rig%ts an&
&uties as norma# un&er t%e genera# #a* o( o)#igations/ I( peop#e +arr, on )usiness toget%er *it% a -ie* to
pro(it4 t%e, are &eeme& to %a-e (orme& a partners%ip un&er t%e $artners%ip +t 8NI7 se+tion 8/ Like a so#e
tra&er is4 partners *i## )e #ia)#e on an, +ontra+t or tort o)#igation <oint#, an& se-era##, in s%ares e.ua# to t%eir
monetar, +ontri)ution4 or a++or&ing to t%eir +u#pa)i#it,/
' &-antages o( in+orporation: T%e registere& +ompan, %as a++ess to #imite& #ia)i#it,4 a#t%oug% t%ere
are in&ee& +ompanies *it% un#imite& #ia)i#it, t%at &o not nee& to (i#e annua# a++ounts/ In +ontrast4 partners%ips
are una)#e to #imit t%e #ia)i#it, o( a## partners/
T%e +ompan, +an separate o*ners%ip (rom +ontro#/ s it is a separate entit,4 it ma, go on (ore-er/
+ompan, is a)#e to mortgage a## o( its assets ), *a, o( a (#oating +%arge to se+ure a )orro*ing (e/g/
(rom a )ank)0 t%is me+%anism is not a-ai#a)#e (or a partners%ip/
9osts o( in+orporation are minima#/ But t%ere are %i&&en +osts in-o#-e&: t%ose o( setting t%e +ompan,
up an& t%e annua# on-going +osts o( preparing +ompan, a++ounts/ T%ere are -arious +ompan, (orms to )e (i#e&
regar&ing management4 issue o( s%ares4 &e)entures4 et+etera/ T%e annua# return %as to )e (i#e& e-er, ,ear/ T%e
+ompan, is o)#ige& to keep a register o( &ire+tors4 a register o( mem)ers4 an& one (or +%arges/
++or&ing to t%e 9ompanies +t 8INK4 partners%ips ma, )e (orme& ), up to 67 mem)ers/ I( more are
*i##ing to asso+iate4 t%e, ma, &o it in a +ompan,/
9ompanies must pa, &ou)#e taxation/
3artnerhip Compan0
Sum tota# o( partners Separate person (Sa#omon - Sa#omon O 9o Lt&)
Sing#e taxation 1ou)#e taxation
Un#imite& #ia)i#it, Limite& #ia)i#it,
Up to 67 mem)ers Eo #imit
9annot 9an separate o*ners%ip (rom +ontro#
9annot 9an mortgage assets *it% a (#oating +%arge
' Salomon v Salomon & Co Lt&: Sa#omon so#& %is s%oes )usiness to a +ompan, o*ne& ), %im an& %is
(ami#,/ Fa+ing an e+onomi+ +risis4 %e so#& a &e)enture to Bro&erip4 se+ure& ), a (#oating +%arge/ F%en t%e
)usiness (ai#e&4 Bro&erip sue& to en(or+e %is se+urit, an& *as pai& *it% #i.ui&ation/ T%e #i.ui&ator +ounter-
+#aime& t%at t%e &e)entures *ere in-a#i& (or )eing issue& as (rau&: t%e #i.ui&ator +#aime& a## t%e mone, )a+k
t%at *as trans(erre& *%en t%e +ompan, *as starte&: res+ission o( t%e agreement (or t%e )usiness trans(er itse#(4
+an+e##ation o( t%e &e)entures an& repa,ment o( t%e )a#an+e o( t%e pur+%ase mone,/
In Broderip v Salomon4 Fi##iams Gusti+e sai& Bro&erip:s +#aim *as -a#i&/ T%e +ompan, %a& a rig%t to
in&emnit, against Sa#omon4 as %is agent/ T%e 9ourt o( ppea# +on(irme& Fi##iams G:s &e+ision against
Sa#omon4 t%oug% on t%e groun&s t%at %e %a& a)use& t%e pri-i#eges o( in+orporation an& #imite& #ia)i#it,4 *%i+%
$ar#iament %a& inten&e& on#, to +on(er on Ain&epen&ent )ona (i&e s%are%o#&ers4 *%o %a& a min& an& *i## o(
t%eir o*n an& *ere not mere puppetsA/ Lin&#e, LG %e#& t%at t%e +ompan, *as a trustee (or Sa#omon4 an& as
su+% *as )oun& to in&emni(, t%e +ompan,:s &e)ts/
T%e @ouse o( Lor&s unanimous#, o-erturne& t%is &e+ision4 re<e+ting t%e arguments (rom agen+, an&
(rau&/ Lor& @a#s)ur, L9 state& t%at t%e statute Aena+ts not%ing as to t%e extent or &egree o( interest *%i+% ma,
)e %e#& ), ea+% o( t%e se-en =s%are%o#&ers> or as to t%e proportion o( interest or in(#uen+e possesse& ), one or
t%e ma<orit, o-er t%e ot%ers/A Lor& @ers+%e## note& t%at in re+ent ,ears man, +ompanies %a& )een set up in
*%i+% one or more o( t%e se-en s%are%o#&ers *ere A&isintereste& personsA *%o &i& not *ie#& an, in(#uen+e
o-er t%e management o( t%e +ompan,/ n,one &ea#ing *it% su+% a +ompan, *as a*are o( its nature as su+%/
' T,pes o( +ompanies:
- 9orporations aggregate:
' 9%artere& +ompanies: T%e, are a t,pe o( +orporation t%at e-o#-e& in t%e ear#, mo&ern era in
Europe/ T%e, en<o,e& +ertain rig%ts an& pri-i#eges an& *ere )oun& ), +ertain o)#igations4 un&er a spe+ia#
+%arter grante& to it ), t%e so-ereign aut%orit, o( t%e state4 su+% +%arter &e(ining an& #imiting t%ose rig%ts4
pri-i#eges4 an& o)#igations an& t%e #o+a#ities in *%i+% t%e, *ere to )e exer+ise&/ T%e, are +reate& ), grant o( a
ro,a# +%art4 *%i+% +reates t%e +ompan, an& sets out its purposes4 (or non-tra&ing matters/ 9re&itors must re#,
on t%e +ompan,;s assets/
' Statutor, +ompanies: T%e, are +reate& ), spe+ia# +ts o( Co-ernment to pro-i&e a pu)#i+
ser-i+e su+% as supp#,ing gas or *ater/ T%e, are +urrent#, )eing nationa#ize&/ T%e, norma##, pro-i&e pu)#i+
uti#ities un&er aut%orize& monopo#ies/
' 5egistere& +ompanies: T%e, are in+orporate& mere#, ), regu#ation in t%e manner #ai& &o*n
), t%e 9ompanies +t/ 5egistere& +ompanies are +#assi(ie& into:
(i) Limite& ), s%ares: #ia)i#it, is #imite& to t%e amount unpai& o( t%e s%are%o#&ers; s%ares/
(ii) Limite& ), guarantee: #ia)i#it, is #imite& to t%e amount guarantee& ), t%e mem)ers as t%eir
+ontri)ution to t%e 9ompan,;s &e)ts an& pa,a)#e i( t%e +ompan, is *oun& up/
(iii) Un#imite&: #ia)i#it, is un#imite&/
- not%er +#assi(i+ation o( registere& +ompanies:
' $u)#i+ +ompanies: T%e, are #imite& ), guarantee or s%ares/
' $ri-ate +ompanies:
$ri-ate +ompanies +an )e sma## or me&ium-size&/ T%e, preser-e t%e +on(i&entia#it, o( t%eir
a++ounts to +ompete *it% )igger +ompanies/ T%e in(ormation presente& is o( an a))re-iate& t,pe/ T*o sets o(
a++ounts must )e su)mitte&: one (or mem)ers an& t%e ot%er one (or t%e 5egistrar o( 9ompanies/ n
a))re-iate& )a#an+e s%eet s%ou#& )e su)mitte& a#ong *it% t%e (i#ing o( t%e &ire+tors; report an& pro(it an& #oss
a++ount/
(i) Sma## +ompan,: It must )e *it%in t%e #imits o( an, o( t%e t*o (o##o*ing
t%res%o#&s (or t%e +urrent (inan+ia# ,ear an& one ,ear )e(ore: t%e turno-er must )e o( up to P6477747770 t%e
)a#an+e s%eet must s%o* up to PIQK47770 t%e emp#o,ees must )e up to K7/
(ii) Me&ium-size& +ompan,: It %as to %a-e )een *it%in t%e #imits o( an, o( t%e t*o
(o##o*ing t%res%o#&s (or t%e +urrent (inan+ia# ,ear an& one ,ear )e(ore: t%e turno-er o( up to PN477747770 t%e
)a#an+e s%eet must )e o( up to PI477747770 emp#o,ees must )e aroun& 677/
(iii) T%ere;s a t%ir& t,pe: 1ormant +ompanies: T%ose t%at remain ina+ti-e )e+ause
some ot%er +ompan, +ontro#s )usiness/ T%e, are in t%e market )ut &o not &o mu+%0 t%e, on#, tr, to preser-e
t%eir names/
R$arent +ompan,: It o*ns more t%an %a#( t%e -oting s%are o( anot%er +ompan, t%at is +a##e& a su)si&iar,
+ompan,/ T%e t*o +ompanies must prepare in&i-i&ua# a++ounts0 )ut t%e parent +ompan, must a#so prepare a
+onso#i&ate& a++ount (or outsi&ers to inspe+t %o* )usiness is going on an& t%e (inan+ia# position o( )ot%
s%ou#& )e toget%er in one (inan+ia# statement/'
$ri-ate 9ompanies $u)#i+ 9ompanies
9ompanies are norma##, pri-ate -
$roxies speak at meetings: t%e, -ote on a po##
)ut not on a s%o* o( %an&s
$roxies ma, not speak at meetings
T%ere is no age #imit (or &ire+tors ge #imit (or &ire+tors is Q7/ Spe+ia# noti+e is
re.uire& *%en it is propose& to e#e+t a &ire+tor
age& Q7 or a)o-e4 or to ree#e+t %im
Lt&/ Must a++ompan, t%e name $L9 must a++ompan, t%e name
T%e memoran&um must state t%at it is su+% a
(orm
It +an +ommen+e )usiness on in+orporation It +an +ommen+e )usiness on t%e issue o( 88Q
o( +erti(i+ate ), t%e registrar o( +ompanies
T%ree s%are%o#&ers minimum Fi-e s%are%o#&ers minimum
T%e, nee& to %a-e on#, one &ire+tor T%e, must %a-e at #east t*o &ire+tors
T%e, nee& to %a-e on#, one mem)er T%e, must %a-e at #east t*o mem)ers
T%eir +ompan, se+retar, nee& not %a-e a
re+ognize& pro(essiona# .ua#i(i+ation
T%eir +ompan, se+retar, must %a-e a
re+ognize& pro(essiona# .ua#i(i+ation
T%ere is not a minimum +apita# re.uirement T%e minimum +apita# re.uire& is K74777
poun&s4 o( *%i+% 6KL must )e pai& )e(ore it
+an )e in+orporate& an& +ommen+e its
)usiness
T%e, +annot seek (inan+e (rom t%e pu)#i+: to
o((er s%ares or &e)entures to t%e pu)#i+ is
pro%i)ite&
T%e, ma, seek (inan+e (rom t%e pu)#i+:
unrestri+te& rig%ts to o((er s%ares or
&e)entures to t%e pu)#i+
$reempti-e rig%ts (8INN +t) $reempti-e rig%ts (8INN +t)
Extraor&inar, genera# meetings are not
app#i+a)#e
Extraor&inar, genera# meetings are to )e
+a##e&
T%ere is no su+% a re.uirement (or pri-ate
+ompanies
Be(ore t%e, +an pa, a &i-i&en&4 t%e, must
ensure t%at t%e, %a-e tra&ing pro(its an& t%at
t%eir +apita# assets are maintaine& in -a#ue to
at #east t%e -a#ue o( t%e su)s+ri)e& s%are
+apita# p#us un-&istri)uta)#e reser-e
T%ere is no su+% a re.uirement (or pri-ate
+ompanies
T%e, must o)tain an in&epen&ent expert;s
-a#uation o( a propert, )e(ore t%e, +an issue
s%ares in ex+%anges (or it
T%ere is no su+% a restri+tion (or pri-ate
+ompanies
T%e, ma, not issue s%ares in ex+%ange o(
ser-i+es
T%ere is no su+% a restri+tion (or pri-ate
+ompanies
T%e, ma, not a##ot s%ares in ex+%ange (or a
+onsi&eration *%i+% in+#u&es an un&ertaking
*%i+% ma, )e per(orme& ), more t%an (i-e
,ears a(ter t%e &ate o( a##otment
$a,ment ), su)s+ri)ers ma, )e ma&e in +as%
or in some ot%er +onsi&eration
Su)s+ri)ers to memoran&ums o( pu)#i+
+ompanies must pa, t%eir s%ares in +as%
T%e, must %a-e an in&epen&ent a++ountants
report on t%e -a#ue o( non-+as% assets use& as
a +onsi&eration (or an issue o( s%ares
T%e +omp#etion o( an in&epen&ent a++ountants
report on t%e -a#ue o( non-+as% assets use& as
a +onsi&eration (or an issue o( s%ares &oes not
app#,
- T%e, +annot -a#i&#, a+.uire non-+as% assets
(rom su)s+ri)ers to t%e memoran&um in t%e
(irst ,ears o( its existen+e un#ess an
in&epen&ent a++ountants report is re+ei-e&
F%ere interim a++ounts (2)a#an+es
pro-i&en+e3) are use& to support a propose&
&istri)ution t%ese a++ounts must )e (i#e& *it%
t%e registrar o( +ompanies
-
It must +omp#, *it% t%e +apita# maintenan+e
ru#e
T%e, nee& on#, (u#(i## t%e )asi+ re.uirement o(
pro(its a-ai#a)#e (or &istri)ution
9annot o((er se+urities to t%e pu)#i+ 9an o((er se+urities to t%e pu)#i+
' Unin+orporate& asso+iations: T%e, &o not %a-e a #ega# persona#it, &istin+t (rom t%e mem)ers o( t%e
asso+iation/ T%e, in+#u&e tra&e unions an& most so+ieties an& +#u)s/ sso+iations are norma##, treate& as
groups o( persons *%o are t%us in&i-i&ua##, responsi)#e (or t%e asso+iation;s a+tions/ Ex+eptions to t%is ru#e
in+#u&e: *%en t%e asso+iation must )e represente& in +ourt0 *%en t%e asso+iation *ants to o*n #an& (un&er t%e
La* o( $ropert, +t 8I6K no more t%an (our peop#e +an o*n #an& toget%er)0 *%en t%e asso+iation *ants to
&e#egate po*ers to a +ommittee/
' $ier+ing t%e -ei#: Statutor, pro-isions remo-ing t%e a&-antages o( (orming a +ompan, (or its #imite&
#ia)i#it, o((ering +o-er t%e (o##o*ing situations:
(i) I( t%e mem)ers%ip o( a +ompan, (a##s )e#o* t*o4 t%en t%e remaining mem)er s%ou#& a(ter a
gra+e perio& o( six mont%s )e #ia)#e (or t%e +ompan,;s &e)ts an& o)#igations *%ere t%e, kno* o( t%e situation/
(ii) F%ere a pu)#i+ +ompan, (ai#s to o)tain a tra&ing +erti(i+ate in a&&ition to its +erti(i+ate o(
in+orporation )e(ore tra&ing an& )orro*ing mone,4 t%en4 t%e +ompan,;s &ire+tors are #ia)#e (or an, o)#igations
in+urre&/
(iii) F%ere a group o( situation exists4 group a++ounts s%ou#& )e prepare&/ In assessing
*%et%er t%is is t%e +ase4 t%e -ei# is +#ear#, )eing #i(te& to &etermine i( t%e %o#&ing +ompan,-su)si&iar,
+ompan, re#ations%ip exists/
(i-) I( a +ompan, o((i+er (ai#s to &es+ri)e +orre+t#, t%e +ompan, in a #etter4 )i##4 in-oi+e4 or&er4
re+eipt4 or ot%er &o+ument4 t%en t%e o((i+er is #ia)#e in t%e e-ent o( t%e +ompan, not %onoring t%e o)#igation
+on+erne&/
(-) I( a &ire+tor *%o is &is.ua#i(ie& +ontinues to a+t4 %e *i## )e persona##, #ia)#e (or t%e &e)ts
an& o)#igations o( t%e +ompan,/
(-i) I( a &ire+tor or s%a&o* &ire+tor oug%t to kno* t%at t%e +ompan, is una)#e to pa, its &e)ts
as t%e, (a## &ue4 %e ma, )e %e#& #ia)#e to make a +ontri)ution to t%e +ompan,;s assets *%ere t%e +ompan, is
)eing *oun& up/
(-ii) For +om)ating (rau&: *%ene-er a +ompan, is use& to a-oi& an existing +ontra+tua#
o)#igation/
(-iii) gen+,: i( t%e +ompan, is mere#, an agent o( t%e s%are%o#&er4 t%e +ourts ma, %o#& t%em
persona##, #ia)#e (or t%e +orporate &e)ts/
(ix) Croups: t%e (a+t t%at a +ompan, is *it%in a group ma, )e seen as a reason (or i&enti(,ing
it *it% anot%er +ompan, in a&&ition to t%e statutor, situations *%ere t%e -ei# is #i(te& on t%is )asis/
(x) Trusts/
' 9ompan,;s +onstitution: 9ompu#sor, +#auses o( t%e memoran&um o( in+orporation are:
- Eame/
- $u)#i+ status (i( app#i+a)#e)/
- O)<e+t/
- Limitation o( #ia)i#it,/
- S%are +apita#/
C'M3-+4 1-# *+ - +U)(5,11
Method of )rading:
(ole trader (Britis% so#e proprietor)/
3artnerhip (in&i-i&ua#s )oun& ), mutua# trust an& +on(i&en+e an& genera##, not ex+ee&ing 67 S
9ompanies +t 8INK) S $artners are un#imite&#,4 <oint#, an& se-era##, #ia)#e (or ea+% ot%er;s a+tion/
1imited 3artnerhip: T%is is an entit, in *%i+% one or more genera# partners4 *it% un#imite&
#ia)i#it,4 manage t%e partners%ip4 *%i#e one or more ot%er persons +ontri)ute on#, +apita#/
T%is #atter group o( partners4 +a##e& #imite& partners4 %as no rig%t to parti+ipate in t%e
management an& operation o( t%e )usiness an& assume no #ia)i#it, )e,on& t%e +apita#
+ontri)ute&/
Compan0: It e-o#-e& (rom t%e unin+orporate& asso+iation/ 9ompanies %a-e )een (orme& ), +%arter or
), statute/ )he uual method no2 i 60 regitration under the companie act7
3u6lic and 3rivate 1imited Companie
S%are%o#&ers o( an un#imite& +ompan, a+.uire t%e a&-antage o( in+orporation )ut t%eir persona# #ia)i#it, to
+re&itors o( t%e +ompan, is un#imite&/ T%ere(ore most +ompanies are #imite& +ompanies4 *it% the lia6ilit0 of
hareholder limited to the nominal value of the hare the0 hold or & le commonl0& the amount the0
guarantee to contri6ute to the compan0 on li8uidation/
- regitered compan0 i a pu6lic limited compan0 (31C must (o##o* its name) if it i limited 60 hare or
"having a hare capital$ 60 guarantee9 it memorandum of aociation tate it i a pu6lic compan0 and
it i o regitered7 5emaining registere& +ompanies are pri-ate +ompanies (#t&)4 *%i+% +annot o((er se+urities
(s%ares or &e)entures) to t%e pu)#i+/ ($u)#i+ +ompanies4 aut%orize& minimum nomina# s%are +apita#: K7/777
poun&s an& at #east T o( t%e nomina# -a#ue o( ea+% s%are a##otte& %as )een re+ei-e&/)
Regitration
B, deliver0 of certain document to the Regitrar of Companie:
)he memorandum of aociation: stating name4 #o+ation o( registere& o((i+e4 o)<e+ts4 *%et%er it is
#imite& or not4 an& its initia# s%are +apita#/
-rticle of aociation: terms regu#ating t%e asso+iation o( t%e mem)ers/
T%e memoran&um o( a pu)#i+ +ompan, must4 as near as possi)#e4 (o##o* t%e (orm pres+ri)e& ), statutor,
instrument an& its initia# s%are +apita# must not )e #ess t%an t%e aut%orize& minimum/
T%e 5egistrar must satis(, %imse#( t%at t%e statutor, re.uirements %a-e )een (u#(i##e& an& t%en register t%e
+ompan, an& issue a +erti(i+ate o( in+orporation/
3romoter ! Remuneration and e:pene
- promoter i a peron 2ho underta;e to form a compan0 2ith reference to a given pro<ect and to et it
going& and 2ho ta;e the necear0 tep for that purpoe7 T%e promoters are o(ten t%e +ompan,;s (irst
&ire+tors/
T%e importan+e o( esta)#is%ing *%et%er a person is a promoter #ies part#, in #o+ating #ia)i#it, (or a+ts &one on
)e%a#( o( or in +onne+tion *it% t%e +ompan, to )e (orme&/
1ia6ilit0 of promoter
promoter ma, )e+ome #ia)#e to t%ir& parties (or misrepresentation o( per%aps as t%e partner o( anot%er
promoter4 un&er agen+, prin+ip#es in partners%ip #a*/ $ossi)#e4 %e *i## )e #ia)#e to t%e ne* +ompan, un&er
+ontra+t or +on+ei-a)#e (or &e+eit or neg#igen+e/ T%e tra&itiona# area o( #ia)i#it, to t%e +ompan, is (or )rea+%
o( t%e (i&u+iar, &uties %e o*es/
Remuneration and e:pene
T%e promoter &oes %is *ork an& in+urs expenses at a time )e(ore t%e +ompan, %as )e+ome #ega##, +apa)#e o(
a+ting/ @en+e4 it +annot enter into a )in&ing agreement *it% %im to remunerate %im nor +an t%e +ompan,4
*%en (orme&4 retrospe+ti-e#, -a#i&ate an, su+% agreement ma&e *%en it &i& not exist/
T%e pra+ti+a# so#ution is (or promoters to se+ure t%e insertion in t%e arti+#es o( a pro-ision ena)#ing &ire+tors to
pa, promoters expenses p#us reasona)#e remuneration4 *%i+% pro-ision *i## )e -a#i& i( (u## &is+#osure is ma&e/
)rading certificate
- certificate iued 60 the Regitrar after he receive from a pu6lic compan0 initiall0 regitered a uch
a declaration that the nominal value of the allotted hare capital meet the authori=ed minimum7
(hare iue and tranfer
+ompan, ma, issue s%ares ), -arious met%o&s:
8) In-ite ten&ers or su)s+riptions &ire+t#, (rom t%e pu)#i+ (usua##, t%roug% t%e agen+, o( an issuing %ouse
o( a *e##-kno*n stan&ing)/
6) It mig%t se## t%em to t%e issuing %ouse4 (or it to rese## t%em to t%e pu)#i+/
Raiing and maintenance of capital
+ompan, ma, (inan+e its a+ti-ities in a num)er o( *a,s/ It +ou#& simp#, o)tain an o-er&ra(t (rom its )ank/
It +ou#& )u, e.uipment on %ire-pur+%ase terms or #ease it/ For )orro*ing o( su)stantia# sums an&Jor (or #ong-
term )orro*ing4 it *i## o(ten issue &e)entures at a (ixe& rate o( interest/ S%ares pro-i&e t%e initia# (inan+e (or
most +ompanies/
Capital
+ominal capital: T%e amount o( mone, t%e +ompan,Us memoran&um entit#es it to raise/
*ued hare capital: T%e s%ares a+tua##, issue&
Uniued hare capital7
3aid up capital: T%e mone, a+tua##, re+ei-e& (rom s%are issues/
Uncalled capital: T%e amount sti## o*e&/
Reerve capital: Un+a##e& +apita# *%i+% t%e +ompan, %as reso#-e& on#, to +a## upon #i.ui&ation/
- $ro(its un&istri)ute& as in+ome are kept in a reser-e (un&/
Raiing capital
T%e #ia)i#it, o( mem)ers o( #imite& +ompanies is #imite& to t%e nomina# -a#ue o( t%eir s%ares/ 9ertain ru#es
%e#p to ensure t%at 2+re&itor; guarantee (un&3 is not i##usor,/
Rule
ut%orise& minimum
T o( t%e nomina# -a#ue o( a## issue& s%ares must )e pai& up
S%ares must not )e issue& at a &is+ount/
+ommission ma, )e pai& to un&er*riters/
S%ares ma, )e a##otte& (or mone, or mone,;s *ort%
I( a pu)#i+ +ompan,;s s%ares are a##otte& (or mone,;s *ort%4 t%e +onsi&eration must )e -a#ue& ), an
expert4 *%ose report must )e ma&e to t%e +ompan, an& ma&e a-ai#a)#e to t%e a##ottee/
%ividend
1i-i&en&s ma, )e &e+#are& as pro-i&e& ), t%e arti+#es4 *%i+% genera##, aut%orize t%e &ire+tors to make or
re+ommen& &e+#arations/ T%e &ire+tors s%ou#& retain su((i+ient pro(its to ensure t%at t%e +ompan, &oes not
tra&e in a risk, (as%ion an& %as a&e.uate reser-es (or )usiness/
(hare
person ma, )e+ome a s%are%o#&er 60 u6cri6ing to the memorandum and having one or more hare
allotted to him4 or 60 having hare tranferred to %im ), an existing s%are%o#&er4 or 60 appl0ing for
hare and having them allotted to him (genera##, in response to a prospe+tus)/
Companie mut ;eep a regiter o( t%e +#ass an& extent o( mem)ers; s%are%o#&ings *%i+% is open to
inspe+tion/
- hare i an item of propert0 an& norma##, freel0 tranfera6le/ *t give it holder an interet in the
compan0 and entitle him to the right contained in the article7 )he holding repreent the e:tent of hi
lia6ilit0 to creditor7
3reference hare: +ompan, +an issue a +#ass o( hare carr0ing preferential right4 in *%i+% +ase a
presumption o( e.ua#it, app#ies to t%ose aspe+ts *%ere t%ere is no pre(eren+e (e/g/ a rig%t to pre(erentia#
&i-i&en& &oes not ex+#u&e t%e rig%t to e.ua# parti+ipation in +apita# on #i.ui&ation/)
(hare certificate
Un&er 9 8INK4 a +ompan, must *it%in t*o mont%s o( t%e a##otment o( s%ares or &e)entures (or trans(er o(
su+% se+urities) +omp#ete +erti(i+ates un#ess a) Ot%er*ise pro-i&e& in t%e origina# issue )) is not entit#e& to a
+erti(i+ate ), -irtue o( t%e Sto+k Trans(er +t 8IN6/
*nider dealing: ">er del apunte$
%e6enture
+ompan, ma, raise (inan+e ), )orro*ing as *e## as ), issuing s%ares/ T%is is +ommon#, &one on a #ong-
term )asis ), means o( &e)entures4 &o+uments e-i&en+ing t%e amount o( t%e &e)ts/ Instea& o( a series o(
&e)entures (or a num)er o( separate &e)ts4 it ma, +reate one (un& o( &e)enture sto+k an& issue +erti(i+ates (or
parti+u#ar &i-isions o( t%e (un&/ In man, *a,s4 a &e)enture-%o#&er is as mu+% an in-estor as a s%are%o#&er/ But
a s%are%o#&er is a mem)er o( t%e +ompan, *%ereas a &e)enture-%o#&er is a +re&itor/
Compan0 1a2 in a +uthell
' Intro&u+tion
Met%o&s o( tra&ing in+#u&e t%e so#e proprietors%ip ()eing a so#e tra&er)0 genera# partners%ips0
#imite& partners%ips0 an& +ompanies4 *%i+% ma, )e (orme& ), statute4 +%arter4 or registration/
' $u)#i+ an& $ri-ate Limite& 9ompanies
9ompanies are +#assi(ie& into: un#imite& +ompanies4 *%i+% a+.uire t%e a&-antage o(
in+orporation )ut *%ose mem)ers ma, )e %e#& un#imite&#, #ia)#e0 an& #imite& +ompanies4 *%i+% are
#imite& in #ia)i#it,/ Limite& +ompanies are &i-i&e& into pu)#i+ +ompanies4 *%i+% ma, )e registere&
+ompanies or +ompanies #imite& ), s%ares or guarantee0 an& pri-ate #imite& +ompanies/
n un#imite& +ompan, ma, re-register as a #imite& +ompan, (an& -i+e -ersa) an& a pu)#i+
+ompan, ma, re-register as a pri-ate +ompan,/ mem)er ma, in+ur un#imite& #ia)i#it, i( %is
+ompan, mem)ers%ip (a##s )e#o* t*o/
' 5egistration
For t%e registration to )e +arrie& out4 &e#i-er, o( +ertain &o+uments to t%e 5egistrar o(
9ompanies is re.uire&0 t%ese in+#u&e: t%e memoran&um o( asso+iation (*%i+% must in+#u&e t%e name
o( t%e +ompan,4 t%e situation o( t%e registere& o((i+e4 t%e o)<e+ts4 an& stru+ture o( s%ares) (or t%e
+ompan,:s +onstitution4 an& t%e arti+#es o( asso+iation (*%i+% are t%e terms regu#ating t%e asso+iation
(o mem)ers)/ T%e 5egistrar o( 9ompanies must t%en register t%e +ompan, an& issue a +erti(i+ate o(
in+orporation/
' $romotion
promoter is one *%o un&ertakes to (orm a +ompan, *it% re(eren+e to a gi-en pro<e+t an& to
set it going4 taking ne+essar, steps to a++omp#is% it/
-Lia)i#it, o( promoters: s t%e +ompan,4 %as not ,et +ome to existen+e4 it +annot )e %e#&
#ia)#e0 promoters ma, )e %e#& un#imite&#, #ia)#e instea&/ $romoters ma, )e %e#& #ia)#e (or
misrepresentation4 &e+eit4 neg#igen+e4 as t%e partner o( anot%er promoter (un&er agen+, prin+ip#es)4
or (or )rea+% o( t%eir (i&u+iar, &uties: t%is is *%, a promoter must &is+#ose (u##, t%e nature an& extent
o( %is interest an& pro(it/
-5emuneration an& expenses: B, inserting in t%e arti+#es o( in+orporation a pro-ision ena)#ing
t%e )oar& o( &ire+tors to pa, promoters promotion expenses p#us reasona)#e remuneration/
-$re-in+orporation +ontra+ts: $re#iminar, +ontra+ts &o not )in& t%e +ompan,: un&er 9 8INK4
s/ !"9 a pre-in+orporation +ontra+t A%as e((e+t as one ma&e *it% t%e person purporting to a+t (or t%e
+ompan, or as agent (or it4 an& %e is persona##, #ia)#e on t%e +ontra+t/
-Tra&ing +erti(i+ate: It is issue& ), t%e 5egistrar on+e %e re+ei-es a &e+#aration t%at t%e
nomina# -a#ue o( t%e a##otte& s%are +apita# meets t%e aut%orize& minimum/
' ttra+ting In-estments: F#otations
8/ Issuan+e o( s%ares t%roug% in-itations to ten&ers or su)s+riptions &ire+t#, (rom t%e pu)#i+
(t%roug% t%e *ork o( an issuing %ouse4 ), means o( p#a+ement or sa#e o( s%ares to su+% %ouses4 *%i+%
*i## rese## t%em)/
-In-estment super-ision an& +ontro#: T%e Finan+ia# Ser-i+es +t 8IN" (FS 8IN") pro-i&es
(or t%e super-ision o( in-estment ), t%e Se+retar, o( State4 *%i+% &e#egates po*ers to t%e Se+urities
an& In-estment Boar& (SIB)/
On#, aut%orize& persons (), t%e Se+retar, o( State or ), mem)ers%ip o( a re+ognize&
pro(essiona# )o&,) an& exempte& persons (t%e Bank o( Eng#an&4 9#earing @ouses4 5e+ognize&
In-estment Ex+%anges) +an +arr, on an in-estment )usiness/
-9on&u+t o( in-estment )usiness: In or&er to enter into an in-estment agreement4 an
aut%orize& person nee&s to issue an in-estment a&-ertisement/ T%e #isting parti+u#ar issuing an
a&-ertisement nee&s to register a prope+tus (i/e/ a &o+ument o((ering se+urities to t%e pu)#i+ (or
su)s+ription or pur+%ase) *it% t%e 5egistrar/
' T%e Se+urities Market
-T%e O((i+ia# Market: Se+urities nee& to (u#(i## +ertain re.uirements un&er t%e FS 8IN" in
or&er to )e #iste& se+urities4 su+% re.uirements )eing &is+#osure re.uirements0 #isting parti+u#ars must
+ontain su+% in(ormation as in-estors an& t%eir a&-isers *ou#& reasona)#, expe+t to make an
in(orme& assessment o( t%e present an& anti+ipate& (uture rig%ts an& (inan+ia# status o( t%e se+urities0
an& +opies must )e sent to t%e 5egistrar/
-Un#iste& Se+urities: 9ompanies t%at are ina&missi)#e to t%e O((i+ia# Liste& Market )e+ause
t%e, %a-e tra&e& (or #ess t%an (i-e ,ears ma, app#, (or a&mission to t%e Un#iste& Se+urities Market (i(
%a-ing tra&e& (or o-er t%ree ,ears)4 or to t%e T%ir& Market (i( )eing sponsore& ), a mem)er o( t%e
Sto+k Ex+%ange)/
' 5aising an& Maintenan+e o( 9apita#
-5aising (inan+e: +ompan, ma, (inan+e its a+ti-ities ), means o(: an o-er&ra(t (rom its
)ank0 a pur+%ase or #ease o( e.uipment on %ire-pur+%ase terms0 issuan+e o( &e)entures (or #ong-term
)orro*ing an& )orro*ing o( su)stantia# sums0 issuan+e o( s%ares (i/e/ issuan+e o( +erti(i+ates o(
o*ners%ip)/
-9#asses o( s%ares: (a) or&inar, s%ares0 ()) pre(eren+e s%ares/ Existing s%are%o#&ers %a-e pre-
emption rig%ts on t%e issue o( ne* s%ares )e#onging to t%eir +#ass o( s%are/
-9apita#: T,pes o( s%are& +apita# are:
(a) Eomina# +apita#: t%e amount o( mone, its memoran&um entit#es a +ompan, to raise
-Issue& s%are +apita#: s%ares a+tua##, pai&/
-$ai& up +apita#: t%e mone, a+tua##, re+ei-e& (rom s%are issues/
-Un+a##e& +apita#: t%e amount sti## o*e&/
-5eser-e +apita#: un+a##e& +apita# *%i+% t%e +ompan, %as reso#-e& on#, to +a## up on
#i.ui&ation/
*S%ares are issue& at a premium *%en t%e, are *ort% more t%an t%eir nomina# -a#ue/
T%e extra -a#ue must )e trans(erre& to a s%are premium a++ount/
*5ationa#ization o( t%e +ompan,:s s%are stru+ture ma, )e &one eit%er t%roug% (a)
+apita#ization o( t%e s%are premium a++ount an& issuan+e o( )onus s%ares0 or ()) a re&u+tion o(
+apita#/
-5aising 9apita#: T%e #ia)i#it, o( mem)ers o( #imite& +ompanies is #imite& to t%e nomina#
-a#ue o( t%eir s%ares/ 9ertain ru#es %e#p to ensure t%at t%at A+re&itor;s guarantee (un&A is not i##usor,/
V ut%orize& minimum (+urrent#, K74777 poun&s)/
V 8J? o( t%e nomina# -a#ue o( a## issue& s%ares must )e pai& up/
V S%ares must not )e issue& at a &is+ount/
V +ommission ma, )e pai& to un&er*riters/
V S%ares ma, )e a##otte& (or mone, or mone,;s *ort%/
V I( a pu)#i+ +ompan,;s s%ares are a##otte& (or mone,;s *ort%4 t%e
+onsi&eration must )e -a#ue& ), an expert4 *%ose report must )e ma&e to t%e +ompan, an& ma&e
a-ai#a)#e to t%e a##ottee/
-Maintenan+e o( +apita#: $rima (a+ie4 +apita# +annot )e returne& to mem)ers ), t%e +ompan,/
+ompan, +annot a+.uire its o*n s%ares0 %o*e-er4 it ma, &o so i( a##o*e& ), t%e
arti+#es4 or e#se it +an issue re&eema)#e s%ares/
-1i-i&en&s: 1i-i&en&s ma, )e &istri)ute& as pro-i&e& ), t%e arti+#es (*%ene-er a +ompan, is
tra&ing pro(ita)#,)4 *%i+% genera##, aut%orize t%e &ire+tors to make or re+ommen& &e+#arations/
1ire+tors s%ou#& retrain su((i+ient pro(its as reser-es/
' S%ares:
-Be+oming a s%are%o#&er: person ma, )e+ome a s%are%o#&er ),:
(a) su)s+ri)ing to t%e memoran&um an& %a-ing s%ares a##otte& to %im0
()) %a-ing s%ares trans(erre& to %im ), an existing s%are%o#&er0 O5
(+) app#,ing (or s%ares (in response to a prope+tus)
n a##ottee %as t%e rig%t to )e registere& as su+%/
-5egistration: 9ompanies must keep a register o( t%e +#ass an& extent o( mem)ers:
s%are%o#&ings4 *%i+% register &oes not in+#u&e %o#&ings o( s%are *arrants/
-E((e+ts o( s%are%o#&ing: s%are gi-es its s%are%o#&er an interest in t%e +ompan, measure& ),
a sum o( mone,/ Its -a#ue is genera##, its market pri+e/
- +ompan, +an issue a +#ass o( s%ares +arr,ing pre(erentia# rig%ts4 in *%i+% +ase a
presumption o( e.ua#it, app#ies to t%ose aspe+ts *%ere t%ere is no pre(eren+e (e/g/ a rig%t to
pre(erentia# &i-i&en& &oes not ex+#u&e t%e rig%t to e.ua# parti+ipation in +apita# on #i.ui&ation)/
-S%are +erti(i+ates: Un&er 9 8INK4 a +ompan, must4 *it%in t*o mont%s o( t%e a##otment o(
s%ares or &e)entures (or trans(er o( su+% se+urities)4 +omp#ete +erti(i+ates un#ess ot%er*ise pro-i&e&
in t%e origina# issue4 or un#ess it is not entit#e& to a +erti(i+ate ), -irtue o( t%e Sto+k Trans(er +t
8IN6/
s%are +erti(i+ate is prima (a+ie e-i&en+e t%at t%e person t%erein name& is a s%are%o#&er an&
is registere& as su+% an& t%e +ompan, is estoppe& (rom &en,ing its statement as against a person
re#,ing on it (A5e Ba%ia 5ai#*a,3)/
' Insi&er 1ea#ing:
-T%e pro)#em: Eorma##, i##ega# s%are &ea#ings ), emp#o,ees o( a +ompan, *%ere t%e, %a-e
use& +on(i&entia# pri+e-sensiti-e in(ormation (or t%eir o*n gain or t%e gain o( t%eir asso+iates/ T%e
insi&e &ea#er &oes not %a-e to *ork (or t%e +ompan, (or %is &ea#ing to )e an o((en+e/ So a
sto+k)roker4 or mer+%ant )anker4 *%o kno*s a)out an impen&ing takeo-er o((er *%o )u,s s%ares in
t%e target +ompan, *it% t%e intention o( making a pro(it4 is gui#t,/ I( %e gets a (rien& to )u, t%e
s%ares4 %e is sti## gui#t,/
' Borro*ing: 1e)entures an& 9%arges:
-1e)entures: &e)enture is a &o+ument e-i&en+ing t%e amount o( a &e)t ), means o( *%i+% a
+ompan, ma, (inan+e itse#(/ &e)enture-%o#&er is a +re&itor o( t%e +ompan,/ 1e)entures ma, )e
trans(erre& as a *%o#e an& are genera##, trans(era)#e *it%out #imitations/
-5ig%ts o( &e)enture-%o#&ers: T%ese are (ixe& ), t%e +ontra+t o( #oan/ I( t%e +ompan, a#ters
t%e +ontra+t4 it is in )rea+% o( +ontra+t/
' 9orporate persona#it,:
-Separate #ega# persona#it,: registere& #imite& #ia)i#it, +ompan, is re+ognize& in #a* as a
person/ T%e #ea&ing +ase in t%is matter is ASa#omon - Sa#omonA/
-&-antages: -ei# ma, )e sai& to )e &ra*n )et*een persons &ea#ing *it% a +ompan, an& its
mem)ers4 so t%at &ire+t pro+ee&ings ma, not genera##, )e taken against t%e mem)ers t%emse#-es/
-1isa&-antages: mem)er +annot insure t%e +ompan,:s propert, against &estru+tion as it is
not %is propert,4 )ut %e ma, %a-e an insura)#e interest in t%e -enture in *%i+% t%e +ompan, is
engage&/
-Ma<orit, ru#e:
-Li(ting t%e -ei#: I( t%e +orporate -ei# is #i(te&4 t%e i&entit, o( t%e +ompan,:s mem)ers or
o((i+ers is expose& so as to )e %e#& persona##, #ia)#e/
-9ompanies #egis#ation: T%ere are +ertain +ases in *%i+% mem)ers o( a +ompan, or its
&ire+tors ma, )e %e#& persona##, #ia)#e4 su+% as (a) *%en mem)ers (a## )e#o* t%e statutor, minimum0
()) persons gui#t, o( (rau&u#ent tra&ing0 an& (+) &ire+tors *rong(u##, tra&ing &uring impen&ing
inso#-en+,/