Corporate Basics
What is a corporation?
A separate legal entity formed under state law.
Who owns shares of a corporation?
Shareholders.
What is a fiduciary duty?
A legal obligation to act in another party’s best interests.
What does limited liability mean?
Shareholders generally risk only what they invested.
What is equity financing?
Raising money by selling ownership shares.
What state-level process legally creates a corporation?
Filing the required formation documents with the state.
Who elects the board of directors?
Shareholders.
What are the two main fiduciary duties covered in this presentation?
Duty of care and duty of loyalty.
Can shareholders generally lose their personal homes because the corporation owes money?
Generally no, because their personal assets are usually protected.
What is debt financing?
Borrowing money that must be repaid.
What is the main difference between a corporation and a sole proprietorship?
A corporation is legally separate from its owners, unlike a sole proprietorship.
What is the main job of the board of directors?
Set company strategy and oversee management.
What does the duty of care require?
Making informed decisions with reasonable care.
What does it mean to pierce the corporate veil?
A court disregards the corporation’s separate legal identity in certain circumstances.
What does a shareholder receive when buying stock?
An ownership interest in the corporation.
What document is generally filed to form a corporation?
Articles of incorporation.
What do corporate officers, such as the CEO, do?
Manage the corporation’s daily operations.
What does the duty of loyalty require?
Acting in the corporation’s interests rather than improperly putting personal gain first.
When can a corporation be responsible for an employee’s actions?
When the employee acts within the scope of their employment.
What is collateral in a secured loan?
Property or another asset pledged to secure repayment.
Why is a corporation considered a separate legal entity from its owners?
It has its own legal identity and can own property, enter contracts, and be sued.
What is the legal relationship between a corporation and its officers?
They generally act as agents of the corporation.
If a director secretly uses a company opportunity for personal profit, which duty might they violate?
The duty of loyalty.
A delivery driver causes a crash while doing their job. Who might be legally responsible?
The corporation may be liable, depending on the circumstances.
What may happen if a corporation defaults on a secured loan?
The lender may be able to seize or sell the collateral under the loan agreement and applicable law.