Lecture 3 of 5: Agency, Partnership and Business Associations: Corporation Formation and Governance

Corporation Formation and Governance

This document summarizes key points on corporation formation and governance.

I. Corporation Formation

• Incorporation Process:

• File Articles of Incorporation with the state.

• Adopt Bylaws (internal rules).

• Hold Organizational Meeting to formalize operations.

• Corporate Formalities:

• Maintain formalities (meetings, records, etc.) to preserve limited liability.

II. Piercing the Corporate Veil

• Courts can hold shareholders personally liable for corporate debts in cases of abuse or misconduct (ignoring formalities, undercapitalization, fraud).

III. Shareholder Rights

• Shareholders have rights like voting, inspecting records, and filing derivative suits.

• Minority shareholders have protections against oppressive actions.

IV. Director and Officer Duties

• Directors and officers owe duties of care and loyalty to the corporation.

• Business Judgment Rule protects them from liability for honest mistakes.

• Exculpation and indemnification provisions may limit their liability.

V. Conclusion

• Understanding these principles is crucial for legal compliance and protecting stakeholder interests.