Business Law Final Exam Review Chapter 18

Business Law Final Exam Review Chapter 18 - Business Law...

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Business Law Final Exam Review (Chapters 18, 19, 20) Chapter 18 (Corporations) 1)Promoters Liability a) Someone who organizes a corporation is called a Promoter b) A promoter is personally liable on any contract he signs before the corporation is formed c) After formation, the corporation can adopt the contract, in which case, the corporation and promoter are liable d) Promoter can get off the hook personally only if the landlord agrees to a novation i) Novation is a new contract with the corporation alone e) Hardy vs. Southwestern Bell Yellow Pages (2001) i) Deals with the entrepreneur not understanding the rules of promoter liability ii) Hardy signed a contract on behalf of A-Z business products agreeing to pay Southwestern Bell $23,240 for an advertisement in yellow pages. Hardy signed the contract as president of the company before the company was actually formed, then didn’t make any payments on the contract, resulting in him, individually, being sued by Southwestern. Trial court ruled in favor of Southwestern, Hardy Appealed iii) Issue: is Hardy personally liable on the contract with Southwestern Bell? iv) Excerpts for Decision: The evidence is legally and factually sufficient to support the trial court’s verdict that Hardy is personally liable on the contract. 2)Incorporation Process a) Fill out the incorporation form online or mail or fax it to the Secretary of State for your state. Corporate character defines the corporation, including everything from the companies name to the number of shares it will issue. b) There is no federal corporation code, which means that a company can incorporate only under state, not federal, law. No matter where a company actually does business, it may incorporate in any state. c) Model Business Corporation Act (The Model Act) was a guide for similarity among state corporation statutes, drafted by the American Bar Association d) Delaware: does not use Model Act as a guide i) Despite its small size, it has a disproportionate influence on corporate law ii) Although only 1% of US Population lives in Delaware, more than half of all public companies have incorporated there, including 58% of Fortune 500 Companies e) Where to Incorporate i) A company is called a Domestic corporation in the state where it incorporates and a foreign corporation everywhere else. ii) Companies generally corporate in the state they conduct most of their business, or in Delaware iii) Typically must pay filing fees and franchise taxes in their state of incorporation as well as in any state they do business (1) To avoid double fees, a business operating primarily in one state would select that state for incorporation, but if a company were going to do business in several states it would choose Delaware or another state with sophisticated corporate laws.
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