WEEK 2, CH1

Question 1

What does corporate law provide?

Answer 1

A universal legal framework for organizing and operating business corporations.

Question 2

What are the five core features of corporate law?

Answer 2

Legal personality
Limited liability
Transferable shares
Delegated (centralized) management
Investor ownership

Question 3

Why are these core features important?

Answer 3

They help reduce costs and make businesses easier to run, but can also lead to issues like agency problems.

Question 4

What defines a corporation?

Answer 4

A legal form that includes all five core features of corporate law.

Question 5

Why are corporations attractive for business activity?

Answer 5

They allow for efficient organization and investment, but also come with trade-offs and legal complexity.

Question 6

What does it mean when a corporation has legal personality?

Answer 6

The corporation is treated as a separate legal person from its owners.

Question 7

What is “separate patrimony”?

Answer 7

The corporation’s assets are distinct from the personal assets of shareholders.

Question 8

What is the Priority Rule in entity shielding?

Answer 8

The corporation’s creditors have first claim on the firm’s assets before shareholders.

Question 9

What is Liquidation Protection?

Answer 9

Shareholders can’t force the company to liquidate or take assets to pay personal debts.

Question 10

Why is entity shielding important?

Answer 10

It ensures the corporation can operate independently and form reliable contracts.

Question 11

What is the purpose of legal infrastructure in corporate law?

Answer 11

To provide formal rules that clarify rights, authority, and liability.

Question 12

How does legal infrastructure protect creditors?

Answer 12

By ensuring firm assets stay protected and are not misused by owners.

Question 13

Why are procedures like signing authority important?

Answer 13

They define who can legally act for the company and how decisions are formally approved.

Question 14

What does limited liability mean for shareholders?

Answer 14

They are not personally responsible for company debts, only their investment is at risk.

Question 15

What can creditors claim under limited liability?

Answer 15

Only the business’s assets, not the personal assets of shareholders.

Question 16

How does limited liability work with entity shielding?

Answer 16

Both protect the separation of company and personal finances.

Question 17

What other benefit does limited liability provide?

Answer 17

Companies can isolate different business activities to manage risk and credit exposure.

Question 18

Why are transferable shares important?

Answer 18

They allow ownership to change hands without disrupting business operations.

Question 19

Do transferable shares have to be publicly traded?

Answer 19

No, they just need to be capable of being transferred, even privately.

Question 20

How do transferable shares support corporate structure?

Answer 20

They help separate ownership and management more easily than in partnerships.

Question 21

Who manages the company in a corporation?

Answer 21

A board of directors, delegated by the shareholders.

Question 22

What powers does the board of directors have?

Answer 22

They can sign contracts and make strategic decisions for the business.

Question 23

How is the board of directors chosen?

Answer 23

They are elected by shareholders.

Question 24

Is the board involved in daily operations?

Answer 24

No — they are separate from day-to-day management, focusing on oversight.

Question 25

What two rights do investors (shareholders) have?

Answer 25

1. To vote/control the firm 2. To receive profits (net earnings)

Question 26

Are all companies structured around profit-sharing?

Answer 26

No — some use cooperative structures or special entities not focused on profit.

Question 27

What are special statutory forms used for in corporate law?

Answer 27

They are designed for closed corporations (privately held companies) in many countries.

Question 28

statutory forms

Answer 28

real legal corporate forms, but they are designed for small/private businesses.

Question 29

What are quasi-corporate forms?

Answer 29

Legal structures that have most corporate features (like limited liability and shared ownership) but may lack others unless added by contract (may not have board of directors)

Question 30

Are all corporate rules found in corporate law statutes?

Answer 30

No, many important rules come from other legal frameworks.

Question 31

What is the German law of groups (Konzernrecht) about?

Answer 31

It’s a law that controls how big company groups work, like parent companies and their smaller companies (subsidiaries).

Question 32

What does Konzernrecht do?

Answer 32

It makes sure the parent company can’t abuse power and protects minority owners in the smaller companies.

Question 33

What are securities laws (like in the U.S.) for?

Answer 33

They make sure companies are honest and transparent, especially with things like trading, voting, and mergers.

Question 34

What does bankruptcy law do for companies?

Answer 34

It controls how a company shuts down and how it pays off its debts if it goes broke.

Question 35

What two things govern how corporations work?

Answer 35

Statutory law (set by the government) and contracts (especially the company charter).

Question 36

What is a corporate charter?

Answer 36

A contract that sets the rules between shareholders and managers and defines how the company is run.

Question 37

What are default rules in corporate law?

Answer 37

Pre-set rules that apply unless the company chooses something different.

Question 38

Why do default rules exist?

Answer 38

To SAVE TIME AND MONEY by giving companies a simple starting point.

Question 39

Can companies change default rules?

Answer 39

Yes, they can opt out and set their own rules.

Question 40

What are mandatory rules?

Answer 40

Rules that must be followed, no matter what the company wants.

Question 41

Why do mandatory rules exist?

Answer 41

To protect the public or certain groups like employees or investors.

Question 42

What is "political economy" in corporate law?

Answer 42

The mix of politics and business interests that influence which laws get made.

Question 43

Who often influences corporate laws?

Answer 43

Shareholders, managers, labor unions, and special interest groups.

Question 44

When do laws sometimes change quickly?

Answer 44

After scandals or financial crises, when public pressure pushes for reform.

Question 45

How does ownership structure affect corporate law?

Answer 45

Countries with strong protections for minority shareholders tend to have more spread-out ownership. In others, ownership is more concentrated.

Question 46

What is the distributional effect in corporate law?

Answer 46

Corporate law often reflects the interests of powerful groups like large shareholders.

Question 47

What is the efficiency effect in corporate law?

Answer 47

Ownership structures affect how laws are written to encourage investment and protect investors.

Question 48

Why do powerful business groups care about corporate law?

Answer 48

They want laws that help them get funding more easily.

Question 49

When do companies start caring more about legal reforms?

Answer 49

When they face global competition, not just small local firms.

Question 50

Why has there been a push for better corporate governance?

Answer 50

Because global trade and competition have increased.

Question 51

What is the goal of harmonizing corporate laws across countries?

Answer 51

To make legal systems more compatible and reduce conflicts between them.

Question 52

Who pushes for harmonization of corporate laws?

Answer 52

Supranational bodies like the EU and other international organizations.

Question 53

What do harmonization efforts reflect?

Answer 53

Both distributional pressures (who wants what rules) and efficiency goals (what works best for investment and fairness).