Business law 1 part two Flashcards
(14 cards)
What are the conflicting interests in a corporation?
Owners, creditors, employees, investors, managers, consumers, and public authorities
Conflicting interests arise due to varying goals and priorities among different stakeholders within a corporation.
What are the five core attributes of corporations?
- Legal personality
- Limited liability
- Transferable shares
- Delegated management
- Investor ownership
These attributes help manage conflicts and provide a structured approach to corporate governance.
Define legal personality in the context of corporations.
Separate legal entity status with rights and responsibilities
Legal personality allows corporations to own assets, enter contracts, and be liable in their own name.
What is the ‘nexus of contracts’ concept in corporations?
Corporations function as a nexus of contracts, where relationships are contractually based
This concept emphasizes that the corporation is a network of agreements between various parties.
What is separate patrimony in a corporation?
A corporation has its own pool of assets, separate from shareholders’ personal assets
This separation protects corporate assets from personal creditors of shareholders.
What priority do creditors have in a corporation?
Creditors have a priority right to claim assets before shareholders’ creditors
This ensures security for the corporation’s obligations and protects creditor interests.
What is liquidation protection in a corporation?
Shareholders cannot freely claim their portion of the corporation’s assets
This protection preserves the corporation’s value and mitigates risks from individual shareholders or their creditors.
How do creditor priority and liquidation protection benefit a corporation?
They reinforce each other, protecting the value created by the corporation’s contracts and assets
These rules are designed to stabilize the corporation’s financial standing.
What is limited liability in the context of corporations?
Owners are not personally liable for the corporation’s debts
Creditors can only make claims against the corporation’s assets, not personal assets of the owners.
How does limited liability benefit shareholders?
- Allows diversification of holdings
- Reduces aggregate risk
- Lowers corporation’s cost of equity capital
This feature encourages investment as it mitigates personal financial risk.
What are transferable shares?
Shares that allow investors to buy/sell without affecting business activities
The market price determines share value, and shares can be limited or freely tradable.
Who manages business activities in a corporation?
Board of directors
The board is separate from shareholders but must respond to their interests.
What powers do investors have in a corporation?
- Control the firm
- Elect/remove directors
- Right to receive dividends
Majority shareholders have more control and influence over corporate decisions.
What influences the sources of corporate law?
Models provided by law in different countries, shareholder contracts, jurisdiction, and judiciary system
These factors shape how corporations operate and are regulated.
