Lesson 1

Question 1

Corporation

Answer 1

Legal business entity that is separate from its business owners

Question 2

Corporate law

Answer 2

Legal norms relating to certain types of business organizations, provides legal structure of business enterprises

Question 3

Company

Answer 3

Association of people who combine for the purpose of joint activity

Question 4

Types of business organizations:

Answer 4

Natural person: sole trader/proprietor
Business organization: 2 or more people

Question 5

Types of business organizations:

Answer 5

Partnerships
Private companies
Public companies
Hybrid legal forms

Question 6

Partnership

Answer 6

Coordination of the economic activity of two or more people
- in general: unlimited liabilities for debt, each has management rights
- partners w limited liability: restricted management rights

Question 7

Private company

Answer 7

Small and medium sized companies w limited liability and legal personality, do not require access to public funding trough general capital markets

Question 8

Public company

Answer 8

Larger enterprises of bigger importance w access to capital markets for raising finance.
Owners= shareholders, but do not manage the company

Question 9

Main characteristics of a corporation

Answer 9

1. Legal personality
2. Limited liability
3. Transferable shares
4. Delegated management with a board structure
5. Investor ownership

Question 10

Legal personality

Answer 10

Nexus of and for contracts (rete di contratti)
-OF: relationships within a firm
-FOR: counterparty of both internal (employees) and external (suppliers) contracts, coordination of actions via contractual rights
!it is not the owner of the firm being represented!

Question 11

Separate patrimony

Answer 11

Assets that differ from the ones of the shareholders
The firm as legal entity is the owner of the pool of assets, hence the firm (and not the shareholders) can use the assets to sell them and make them available to their creditors

Question 12

Entity shielding

Answer 12

Dividing the patrimony of the firm from the one of the shareholder

Question 13

2 rules of law (for separate patrimony)

Answer 13

Priority rule: creditors>shareholders when it comes to claims
Liquidation protection rule: shareholder can’t withdraw their share of assets and creditors of an individual owner can’t foreclose (espropriare, pignorare) the share of the firm’s asset

Question 14

2 rules of firms as a contracting party

Answer 14

1. Authority rule: specify who has the authority to sell and buy assets x the firm, to enter contracts (delegation of authority - default rule)
2. Procedure rule: specify procedures needed to bring lawsuits on the contracts entered into the name of the firm

Question 15

Rules for legal personality

Answer 15

1. Entity shielding
2. Authority
3. Procedure

Question 16

Limited liability

Answer 16

Creditors of the firm can claim the firm’s asset but not the shareholders’ personal assets

Question 17

Owner shielding

Answer 17

Opposite of entity shielding (protects firm’s assets against personal creditors)
=protects personal assets against firm’s creditors

Question 18

Transferable shares

Answer 18

Means simply that shares can be transferred from one owner to another without dissolving the company

Flip side of liquidation protection
Corporation has it, partnership and other standard form legal entities don’t
Uninterrupted business even if the owners change

Relationship w liquidation protection and limited liability: identity shareholder has no direct impact on creditworthiness of corporation

Question 19

Difference between transferable and freely tradeable shares

Answer 19

Transferable shares means that u might also just be allowed to transfer them within limited groups of individuals or just w the approval of the current shareholders

In each jurisdiction diff types of corporations:
Private (unlisted for stock exchange) corporations are restricted in transferability: need for approval/limited groups only - restricted trade ability, private agreements

Public (listed for stock exchange) corporations are freely tradable on an open market

Question 20

Closely held vs openly held corporations

Answer 20

Closely held: few shareholders, very important interpersonal relationships
Openly held: more shareholders, less important interpersonal relationships

Question 21

Delegated management with a board structure

Answer 21

Different standard legal forms have different allocations of powers
Authorities to:
1 bind the firm to contracts
2 exercise the contractual power
3 direct the uses of the assets

Usually shareholders elects periodically a board of directors

Question 23

Board of directors (bod)

Answer 23

Governing body of a company to set a strategy and oversee management

In public companies: elected by shareholders

Question 24

4 basic features bod

Answer 24

1. Formal matter, separated from operational management: board monitors and ratifies decisions + hires officers, the hired officers initiate and execute business decisions
2. Bod is elected by shareholders
3. Its formally distinct form shareholders
4. It has multiple members

Question 25

Investor ownership

Answer 25

Right to control the firm (vote at shareholder meeting and electing bod) and to receive the firm’s net earnings (dividends or profit) Depends on the amount of money you invest (how many shares u buy): so the more you invest the more control u have Differs from partnerships (no link between investment and control)

Question 26

Other types of firms

Answer 26

1. Public benefit/ community interest: specific social obj 2. State owned enterprise (soe): shared ownership gov-private investors 3.non profit firms:

Question 27

Sources of corporate law

Answer 27

1. National corporate code: min 1 core statute that establishes basic corporate firm w the 5 characteristics 1.2. Special and partial corporate firms: min one distinct statutory form specialised in the formation of closed corporation/limited liability companies +quasi corporate forms (you add some of the 5 characteristics) 1.3. Other bodies of law: separated from previous ones, still useful for address agency problems/ related to the 5 characteristics - stock exchange rules - securities laws: rules on disclosure and sometimes regulation of sale and resale of corporations -bankruptcy law (insolvency law) shift of ownership shareholder-creditor -tax law -labor law

Question 28

Corporation charter

Answer 28

Articles of association, constitution for relationships among partecipants in corporations Basic terms of relationship for shareholders (among themselves and w directors and managers) Can be part of a contract (shareholders/-employees/creditors) +shareholders agreements

Question 29

Mandatory versus default agreements

Answer 29

Default: valid unless said otherwise - provision of a standard contract that can be used (saves costs and negotiations) Mandatory: must adhere to them +either-or provision: alternative provided to default rule

Question 30

Contracting failure

Answer 30

Exploitation of parties cause not well informed Interests of third parties affected

Question 31

Benefits of (default) legal rules

Answer 31

Convenient standard forms Encourages transparency Facilitates choice among rules +the charter is never fully updated or complete, hence default legal rules fill the gaps

Question 32

Choice of legal regime

Answer 32

1 specially drafted vs default charter 2 among default rule (either or idea) 3 statutory form 4 which jurisdiction to incorporate in -us: incorporation doctrine -u choose which of the 50 states law to incorporate under -eu: court of justice -domestic recognition of corporations created in other ms

Question 33

Real seat doctrine (rum

Answer 33

Incorporate under the law of where they have their principal place of business (difficult due to ecj decisions)

Question 34

Corporate law goal

Answer 34

Advance the aggregate welfare of all who are affected by a firms’s activuty (shareholders, employees, suppliers, customers…) as well as local communities and social beneficiaries of natural environment

Question 35

Forces that shape corporate law

Answer 35

1 aspects corporate gov environment: predominant type of industries, institutions governing employees relations, structure of share ownership… 2 reforms after scandal or crisis (financial crisis, Arthur Andersen…) 3 pattern of corporate ownership -us/uk:large number of publicly traded corporation w dispersed share ownership (no single or family shareholders capable of exercising control over the firm) -Netherlands, France, Italy, Germany:even publicly traded corporation have always had a controlling shareholder (often another firm tied to a coordinated person, family, group of firms or gov)

Question 36

Non controlling shareholders

Answer 36

Us: mostly individual investors, retail investors (buying shares directly) Uk: mostly institutional investors (pension funds, insurance companies or any other entity investing other peoples money) Germany’s banks (both for themselves or for investors, where shares are still under the bank’s name)

Question 37

Types of individual investors

Answer 37

1 hedge fund: private investment funds that use risky/speculative strategies when buying big shares in companies and pushing them to make changes. They aim at safest profit through change 2 private equity firms: buy large or majority of large companies (public) and privatize them. Basically restructure. Company and aim at profiting by reselling it 3 sovereign wealth funds (swf): gov owned investment funds that invest in public stocks, real estates, etc. long term entity that aims at econ growth and diversification of income for future generations