Business Law II - Wednesday.August 7th notes
Chapter 43 - Management of Corporations
Powers of Corporations
- Expressed by state statutes
-Articles of incorporation
- By Laws (drawn up by the board of directors).
whatever’s reasonably necessary to do the job
Articles of Incorporation
What type of business it will conduct -> operate an airline
* This means the company can only conduct business in operating an airline and whatever’s reasonably necessary to
do its job (implied) … buying a fleet of cabs for example, is not part of its job … if company does this then it’s a
ultra vires act (violation).
-> The directors, employees, officers acted beyond the corporation’s express/implied powers.
Company can be held accountable; can be sued by shareholders or others.
Note: the sole-power to do / authority of a corporation like operating an airline can’t be used as a defense to get out
of a contract -> stuck with the fleet of cabs.
Investors who buy shares = original shareholders , though philosophically original shareholders should have more
* Lawsuit brought to the corporation by a shareholder b/c of violations
Articles of incorporation -> “Any lawful business”
negates ultra vires act … b/c you can conduct any business. You’re covered.
BOD (makes main decisions) -> establishes policies
Centralized management: S/H (appoints) -> BOD -> Officers -> Employees
Committee (in board) - group in board that specializes in an expertise (finance, accounting, etc.)
Inside bod Member - people in the company (president, vice president)
Outside bod member - not in company, but hired b/c of expertise
(all of these members get paid)
Audit Committee - select the auditors / replace the auditors
* review work that auditors have done (CPAfirm)
* Make selection / recommend replacement
Compensation committee - review salaries of highest employees
Finance Committeee - decide equity / debt route
Note: everything must be documented in board meetings, to refer back to when they meet again. (usually bi-annually or anually)
Officers (Agents) corporation (principal)
* have express/ implied authorities
* also has apparent authority … fiduciary position
Officers have duty of care, duty of loyalty -> corp
- good faith
- act in best interest of corporation
- CARE ordinary person in same position would present
-> compared to the standard, standard of care.
* If breached, officers/directors (agents) can be held accountable.
Loyalty -> no secret profits, kickbacks, seizing of corporate opportunities.
The Business Judgement Rule