Chapter 17: Corporation law

• Type of legal entity created by the state

  Corporation
• Person who holds a share interest in a corporation: a part owner

  Shareholder
• Shareholders elect directors and directors appoint officers
• Under corporation law, a person elected by the shareholders to manage its affairs

  Directors
• Person elected or appointed by the directors to fill a particular office

  officer
• What are the five methods of incorporation

  Royal charter, letters patent, special-act, general act, relations with third party
• A government document that creates a corporation as a legal entity

  Letters patent
• Corporation created by an act of parliament or a legislature for a specific purpose

  Special-act
• Form of incorporation whereby a corporation may be created by filing specific information required by statute

  General-act
• Presumption at law that everyone has knowledge of the content of all statutes

  Doctrine of constructive notice
• Party dealing with a corporation may assume that officers have the valid and express authority to bind corporation.

  Indoor management rule
• The relationship between a director and a corporation is fiduciary.
• Relationship of utmost good faith in which a person, indexing with property, must act in the best interest of the person for whom they act, rather than in their own best interest.

  Fiduciary
• Use of corporate information for personal benefit to the harm of the corporation

  Doctrine of corporate opportunity
• Obligation on the directors to ensure that effective systems are in place to comply with the law, and to monitor the systems to ensure compliance.

  Due diligence
• Director who is not an officer or employee of the corporation

  Outside director
• Unwillingness of the court to interfere with decisions of the board

  Business judgement rule
• •Dissolution of corporations: Events occur that limit existence of corporation:

  -Most common is inability of a corporation to make a profit

  -Corporation is solvent and may wind up its business or if insolvent, may be involuntarily dissolved

  -Corporation ceases to exist when process complete

  -Procedure dictated by statute
• Reorganization, often intergenerational, with redeemable preference shares distributed to departing shareholders as payment

  Estate freeze
• Transfer of ownership in a corporation to existing managers or employees.

  Management buy-out