Chapter 42 provides knowledge of organization and financial structure of corporations. This chapter appreciate the risk of liability for corporate promoters, understand the process for incorporating a business, know the appropriate sources for financing a business, explain share-transfer restrictions. | Corporations History & Nature of Corporations Organizational and Financial Structure of Corporations Management of Corporations 10 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Corporations Shareholders’ Rights & Liabilities Securities Regulation Legal & Professional Responsibilities of Auditors, Consultants, and Securities Professionals 10 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Organization and Financial Structure of Corporations P A E T R H C 42 “Our business is company creation.” Ann Winblad, venture capitalist, quoted in Fortune (Sellen and Daniels, Oct. 1999) Learning Objectives Promoters and preincorporation transactions Incorporation and defective attempts Financing for-profit and nonprofit corporations The nature and operation of shares 42 - As a fiduciary, a promoter incorporates the business, organizes the initial management team, and raises the initial capital . | Corporations History & Nature of Corporations Organizational and Financial Structure of Corporations Management of Corporations 10 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Corporations Shareholders’ Rights & Liabilities Securities Regulation Legal & Professional Responsibilities of Auditors, Consultants, and Securities Professionals 10 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Organization and Financial Structure of Corporations P A E T R H C 42 “Our business is company creation.” Ann Winblad, venture capitalist, quoted in Fortune (Sellen and Daniels, Oct. 1999) Learning Objectives Promoters and preincorporation transactions Incorporation and defective attempts Financing for-profit and nonprofit corporations The nature and operation of shares 42 - As a fiduciary, a promoter incorporates the business, organizes the initial management team, and raises the initial capital Promoter is liable for contracts made during preincorporation period unless corporation adopts preincorporation contracts made by promoter (adoption) and third party agrees to replace promoter with corporation (novation) See Crye-Leike Realtors v. WDM, Inc. Promoter Activities 42 - Promoter Duties: A promoter is not an agent of the proposed corporation or investors since they did not appoint the promoter, but a promoter owes a fiduciary duty to the corporation and to its prospective investors No self-dealing, duty of loyalty, etc. A corporation may compensate a promoter with shares Promoter Liability: Like agency ratification, may be express or implied Contracts adopted typically: employment and real property lease or purchase The adoption and novation of preincorporation contracts for employment and commercial lease or purchase contracts is standard operating practice. However, the wise promoter will draft a contract has an automatic novation clause: “the promoter’s liability on .
