BUSA+Corporate+Directors++Officers+and+Shareholders+(17) -...

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Corporate Directors, Officers, Shareholders, and Corporate Liability CORPORATE DIRECTORS, OFFICERS, SHAREHOLDERS, AND CORPORTE LIABILITY Who is in Charge? I. Overview Corporations can provide many advantages for business including perpetual existence, limited liability, and numerous tax and other legal opportunities to massage the system. These advantages are not free, nor are they always easily obtained. Corporate law has always been technically intricate and demanding of legal practitioners. Corporations can also be more unforgiving to its users than sole proprietorships or partnerships if mistakes are made in its formation and financing. The stakes are simply greater because over eighty-five percent of business done in the U.S. uses the corporate format. This chapter has several objectives: to illustrate how the corporate form is established legally and to see how it is infused with its financial lifeblood, i.e., money. In addition, the process of establishing the basic ground rules for the key players will be examined. The formation of a corporation starts with a contracting process initiated by a person called a promoter. A promoter of a new corporation is really the catalyst that brings together the diverse elements of law, finance, entrepreneurial talent, and technical competence that will eventually drive the fortunes of the new business entity. The role of promoter is also tied to the laws of contract, fiduciaries, and agency. He or she is expected to act for the benefit of the eventual corporation and can be expected to be personally liable for contracts entered into on its behalf in the interim. The promoter's main duties are bifurcated towards two main audiences--the state and potential investors. He or she will be involved in contracts with both of these constituencies. With regard to the state, the actual creation of the new corporate entity is the outgrowth of a document called the charter. This document is the foundation contract between the promoter and the state. The charter takes the form of a certificate of incorporation. This certificate provides the official state-sanctioned ground rules under which the new corporate entity will be allowed to do business. Violation of these ground rules can lead to an eventual corporate death penalty, the revocation of the charter. The second critical task of the promoter is to find legal methods so that the start up of the corporation may be infused with financial lifeblood. The corporate form is unparalleled in its ability to be a fundraiser. These funds are generated by two basic methods--debt and equity financing. Once the proper procedures for the establishment of the corporation have been complied with and adequate financing has been secured, the next step is to see what the basic ground rules will be for key players in this arena. The leading protagonists will be the board of directors, shareholders, and managers of the corporation. The distinctions between these roles are sometimes blurred when it comes to the
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This note was uploaded on 03/19/2008 for the course BUSA 2106 taught by Professor Lee during the Summer '07 term at University of Georgia Athens.

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BUSA+Corporate+Directors++Officers+and+Shareholders+(17) -...

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