Chapter 18 - Corporation Law

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University of Toronto Scarborough
Management (MGS)
Professor Rybak

Chapter 18Corporation LawIntroductionCorporationa type of legal entity created by the stateIt is also separate from those who from time to time possess shares in it or who are responsible for its direction and controlprincipal uses is as a vehicle by which large amounts of capital may be accumulated for business purposesHistorical Development of the CorporationMost of the early corporations were formed for the purpose of carrying out public or quasipublic functions or to provide essential services or goods to the communitylegislation at both the federal and provincial levels was introduced to provide for the incorporation and control of corporationslegislation unfortunately was not uniform and so considerable variation existed from province to provinceThe Nature of a Corporationpossess attributes ofa natural person but it is artificially created and never dies in the natural senseimportant characteristics of a corporationoa a corporation is separate and distinct from its shareholdersA person who holds a share interest in a corporation a part owner of the corporation and it acts not through them but through its authorized agentsob a properly authorized agent may bind the corporation in contract with third partiesoc the shareholders of a corporation possess limited liability for the debts of the corporation and the creditors may look only to the assets of the corporation to satisfy their claimsdirectorunder the corporation law a person elected by the shareholders of a corporation to manage its affairsofficera person elected or appointed by the directors of a corporation to fill a particular office directors are obliged to report to shareholders to keep them informedshareholders normally do not participate in the management of the corporation except when major changes in the corporation are proposedShareholders liability is limited to the amount that they paid or agreed to pay for the shares that they purchased from the corporationControlIn a partnership every partner is an agent of the partnership partners have input into how the business may be operated and on important matters all parties must agree before a change can be madeIn a large partnership these particular rights of each partner often render decisionmaking awkward and time consuming and make general control difficultIn a corporation management is delegated by the shareholders to an elected group of directors directors have the authority to make all decisions for the corporationLimited LiabilityIn a partnership every partner has unlimited liability careless act of one partner may affect allCorporate form eliminates this risk for shareholders their losses limited to their investment Creditors only have claim on the corporations assetsTransfer of InterestsPartnership right to transfer their interests is difficult if one wants to retire or death of a partner other partners must acquire the retiring partners share or wind up the business1
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