IV The Corporation

4. The Corporation

The notion that a corporation is an entity independent of its shareholders is deeply in­grained. The corporate business is conducted in the corporation’s name. The corporation itself enters into contracts,borrows money,sues and may be sued in its own name,and otherwise conducts its business much as though it were a real,flesh - and - blood person. It may own real es­tate in its own name free and clear of claims of the spouses of shareholders or other claims and creditors. However, the assets of the corporation are subject to seizure by corporate creditors and the shares of stock of the corporation are subject to seizure by personal creditors of A and B.

A useful classification of corporation is between" closely held" and" publicly held."" Pub­licly held" means that the corporation has shares that are traded on public securities markets subject of federal regulation. Virtually all publicly held businesses are conducted in corporate form. Corporations that do not have publicly traded shares are described as" closely held. " In e- conomic terms, the corporation drafts in importance many time over all other business form com­bined.

1. Theoretically, a corporation consists of three layers of tiers: ( i ) the shareholders who are traditionally viewed as the ultimate owners of the enterprise; ( ii ) The board of directors, who are the managers of the corporation’s affairs (see MBCA 8.01(b)) ,and( iii) the officers, who act for the corporation to implement the decisions of the directors ( see MBCA 8. 41). A single individual may simultaneously act as an officer, a director, and a shareholder. In the AB Software Store,Inc. , A and B could each own 50 percent of the shares and be the sole directors of the corporation. In addition, A may be president of the corporation with power to approve or disapprove all expenditures,while B may be vice president, secretary," general manager," and whether other officer the parties desire to create. In this way,profits may be shared in the form of dividends and/or salary while A has the veto power he desires.
2. If B does not engage in negligent or fraudulent conduct but simply is an ineffective manager of the business and as a result the corporation or LLC ultimately fails, usually neither A nor B will be personally liable for the losses that may be suffered by creditors. There is,how­ever, a well - established principle in corporation law,called"piercing the corporate veil,"that permits creditors of closely held corporations in limited circumstances to recover directly from directors, officers, or shareholders.