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Chapter 43

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New York University
BUSN1-UC 544
Eric Dies

Business Law II - Wednesday.August 7th notes Chapter 43 - Management of Corporations Powers of Corporations Express: - Expressed by state statutes -Articles of incorporation - By Laws (drawn up by the board of directors). Implied: 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 value. Derivative Suit * 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
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