Session 1 - Corporate Form

Question 1

civil and common law

Answer 1

civil law: legal system born in ancient Roman focused on laws and codes governing principles supposedly applicable to most situations

• common law: people were free to start business and sign contracts, no laws or codes and they applied the principle of the previous judge

Question 2

business organization definition

Answer 2

is the framework hat laws provide to the business in order to be structured properly and run its on operations and relationships with third parties

Question 3

what does ownership mean in corporate law

Answer 3

Shared ownership is tailored by contribution of capital: ownership rights are proportionally tied to the amount of investment of capital contributed to the firm.

owners of the company holds shares that include the same set of obligations and rights.

Question 4

which is the meaning of legal personality

Answer 4

the firm serves as a single contracting party that is DISTINCT from the various owners and managers of the firm (a «nexus FOR contracts»)

Question 5

what does it mean limited liabilities

Answer 5

business creditors are limited to making claims against assets that are held in name of the firm itself and have no claim against assets that are firm’s shareholders’

Question 6

assets partitioning allows to

Answer 6

isolate different lines of business

share (and reduce) the risks

grant flexibility in the allocation of risk and return between equity-holders and debt-holders

to facilitate tradability of firm’s shares

to facilitate “delegated management”.

Question 7

two tier system (dualistic) - two boards

Answer 7

separation between managers and supervisors

Question 8

one tier system (monistic)

Answer 8

only one board consisting of management and supervisors

Question 9

3-tier system (latin system)

Answer 9

operational + management + executive different boards

Question 10

the board of directors is elected by

Answer 10

shareholders (except from Germany)

Question 11

the board of directors is normally distinct from

Answer 11

shareholders

Question 12

free transferability of shares permits the firm to

Answer 12

• conduct business uninterruptedly as the identity of her owners changes
• maximize liquidity of shareholdings
• maximize ability of shareholders to diversify their investments
• flexibility in raising capital (on stock exchange markets).

Question 13

sole proprietorships

Answer 13

• UNLIMITED liability (you create debt, creditor can ask money to the one who owns the company)
• NO legal personality (no separation between the person and the entity)
• fiscal personality

Question 14

Partnership

Answer 14

Simple organization, substantially based on the individuals: who by default are also vested with the powers of managing and monitoring the business activity

• UNLIMITED liability
• NO CLEAR CUT between partners and partnership
• fiduciary interpersonal relationship
• i can ask money to my other partners

Question 15

limited liability partnership

Answer 15

• partnership with some or all partners with limited liability
• limited partners’ risk is the amount invested and no parts in running the business
• general partners have unlimited liability and manage
• encourages investors to invest without risking more than the capital they have contributed

Question 16

limited partnership

Answer 16

a partnership that must have AT LEAST ONE UNLIMITED PARTNER

Question 17

what is the main distinction between private and public companies

Answer 17

Public Companies vs Private Companies base their distinction due to the different way the Companies RAISE & COLLECT “Equity” and partially “Debt”

Collecting equity means that the share capital can be increased and you can offer the subscription and contribution to third parties.

Question 18

private company law is typically based on

Answer 18

1. FREEDOM OF CONTRACT
2. coincidence of shareholders/managers

Question 19

how many shareholders has a private company?

Answer 19

is based on fiduciary relationships among shareholders (limited number), few shareholders interacting to carry out business, based on network of contracts

Question 20

is individual interest in information and monitoring high for private companies?

Answer 20

individual interest in information/ monitoring is (proportionally to the investment) intensive (stress the management to be in line with shareholders expectations)

Question 21

5 common features of public companies

Answer 21

1. LEGAL personality
2. LIMITED liability (consequence of legal personality)
3. INVESTORS OWNERSHIP
4. DELEGATED MANAGEMENT with a board structure (shareholders are not directly present in the board but delegate management to selected and appointed managers)
5. TRANSFERABLE shares in the market (even if not listed)

Question 22

Widely and closely held corporations

Answer 22

1. «Widely held Corporations» company’s shares are held by a great and dispersed number of individuals (U.S. system).
2. Closely held Corporations» company’s shares are held by a smaller and more concentrated number of holders (stable “blocking equity-stakes”) (E.U. system).

Question 23

why public companies have limited liabilities, legal personality and transf. shares?

Answer 23

is a (necessary) way for “converting savings” in “(long term) business investments”

Question 24

why delegated management is a benefit?

Answer 24

each investment does not require individual commitment in firm’s management

changes in ownership do not diminish firm’s reliability in obtaining finance: modification of shareholders does not affect directly the management

Question 25

what is the incorporation process?

Answer 25

The incorporation of a limited liability company implies the REGISTRATION of the constitution documents (article of association and memorandum of association)

Question 26

memorandum of association

Answer 26

document prepared and signed at the beginning of the business entity’s life, it is a list of requirements

• name and address
• purposes and scope of activities to achieve it
• nominal amount of share capital
• number and classes of shares
• once signed, it CANNOT BE CHANGED

Question 27

memorandum of association: Can it change?

Answer 27

Once signed, it cannot be changed

Question 28

article of association

Answer 28

rules by which the company is governed that will regulate its life:
- Financial statements
- Shareholder enter or not
- When and how the company will finish its purpose
- Process to liquidate assets

This CAN be modified according to changes in activities and outside environment

Question 29

COMMON law incorporation

Answer 29

• generally easy, quick and inexpensive
• no minimum legal capital . but there are disadvantages, since raising capital is more difficult.

Question 30

civil law incorporation

Answer 30

• more complex and more time
• specific rules about form and content of memorandum or articles of association
• governing documents is subject to an ex ante control by a notary public
• a minimum legal capital is also required

Question 31

regulated industry incorporations (banks, investment funds, insurance companies)

Answer 31

even more complex

• (higher) minimum legal capital
• ownership structure (qualified investors)
• programme of the activity
• stricter governance structure (organization and control systems)

Question 32

role of directors

Answer 32

to oversee managers and report to shareholders

Question 33

role of managers

Answer 33

report to directors and act as agents for shareholders

Question 34

role of shareholders

Answer 34

appoints/remove directors and provide funds to managers