Chapter 41 - History and Nature of Corporations

CHAPTER 41

HISTORY AND NATURE OF CORPORATIONS

LEARNING HINTS

1. Corporations have existed for over two hundred years. They are separate persons in the eyes of the law, and corporations are created (“incorporated”) by following the requirements of the incorporation statutes found in the particular state in which the entity is to be incorporated.

2. Corporations can be formed for the purpose of making money (“for-profit” corporations). They also can be formed for motives other than profit such as charitable, religious or educational purposes, and those corporations are referred to as “not-for-profit corporations.” There is a third classification of corporations – government-owned corporations – such as municipalities. Most of the corporation law discussed in the textbook deals with for-profit corporations.

3. State statutes set out the basic rules regarding the corporation, shareholders and managers. Many corporations are incorporated in the state of Delaware, because the laws in that state are favorable to the corporation, and the courts of that state have strong experience dealing with corporation law.

4. Under long-arm statutes, courts can exercise jurisdiction over foreign corporations in some instances. What kinds of actions by a foreign corporation will subject it to a lawsuit within the state under such statutes? What constitutional standards must be met before a corporation will be made subject to a lawsuit in a different state?

5. Describe the requirements for a court to pierce the corporate veil. Provide several examples of when a court would be more likely pierce the corporate veil.

CHAPTER OUTLINE AND KEY CONCEPTS

I. Learning Objectives

II. History of Corporations

A. American Corporation Law

III. Classifications of Corporations

A. Corporations for profit

  1. Most are incorporated under state general incorporation law; some are incorporated under professional corporation acts.
  2. Publicly held v. close corporations
  3. Subchapter S corporations

B. Not-for–profit corporations

C. Government-owned corporations

IV. Regulation of For-Profit Corporations

  1. State Incorporation Statutes
  2. State Common Law of Corporations

V. Regulation of Nonprofit Corporations

VI. Regulation of Foreign and Alien Corporations

A.Domestic corporations, foreign corporations, alien corporations

B.Due Process Clause

C. Commerce Clause

1. Doing business

D.Subjecting Foreign Corporations to Suit

1. Example: Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (U.S. Sup. Ct. 2011) (The Global Business Environment)

E. Taxation

F. Qualifying to Do Business

1. A state may require that foreign corporations “qualify” to do business intrastate.

2. Qualification requirements

3. Example: Ryan v. Cerullo, 918 A.2d 867 (Conn. S. Ct. 2007)

G. Regulation of a Corporation’s Internal Affairs

VII. Regulation of Foreign Nonprofit Corporations

VIII. Piercing the Corporate Veil

  1. ”Corporate veil” – shield from liability for shareholders
  2. Two requirements to “pierce:” domination of corporation by shareholders, for improper purpose
  3. Defrauding Creditors
  4. Circumventing a Statute
  5. Evading an Existing Obligation
  6. Nonprofit Corporations

D. Example: Hildreth v. Tidewater Equipment Co., 838 A.2d 1204 (Md. Ct. App. 2003)

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