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XI. Conflict of Laws Principles
The unique nature of corporations creates interesting problems in regard to determining where a corporation can be sued or where the corporation can decide to file its own cause of action. A corporation can also elect to avail itself to the courts in the state in which it is incorporated and can also be subject to service in such state as well but the issue is not so easily decided in other circumstances. The operation of most corporations involve interactions with different states and a determination of the corporation's minimal contacts with other states has a major bearing on when and where a particular corporation can be made a part of litigation. The law in this area is highly dependent on the case law of the various states and there are no hard and fast rules that determine whether a corporation might be subject to service in a particular jurisdiction. This is an area of law that remains highly changeable.
Corporations have become an important part of the American economy. Under American law, corporations have become recognized as an entity that are organized so as to provide a convenient method for individuals and business entities to not only pool capital but also limit potential liability. Corporations are generally organized with the purpose of realizing profit but they can also be organized in non-profit form in order to provide social agencies and charitable organizations the opportunity to enjoy the benefits of the corporate form.
Corporations enjoy the status of being considered the same as any individual. They can sue and be sued like anyone else. Unlike other business units such as partnerships and sole proprietorships, corporations are not subject to rules that require that they be dissolved in the event of death or incapacity of one of its principal. Theoretically, the life of a corporation can be perpetual and there are a significant number of corporations operating in the United States that have done so for over a hundred years.
Corporations differ from other business forms in other ways as well. In the case of most business forms, the ownership and management of the business are one and the same. The owner of most partnerships and sole proprietors the owner of the business is intricately involved in managing the business but in the corporate form this is not always the case. In smaller corporations the owner and shareholders may be the same but in many other corporations the shareholders, who are the actual owners of the corporation, have no firsthand knowledge of how the business operates and, in fact, have nothing to do with the operation of the business. Instead, corporations are run by a Board of Directors and Officers who may actually have no ownership interest in the corporation. Most state corporate laws have no specific requirements as to the number of required Directors or the number of officers.
The actual process of incorporating a business is an easy procedure but incorporators must be careful in selecting where to actually file their necessary documents. Among the considerations are the specific corporate laws of the state, whether or not the corporation will be eventually conducting business in other states, the number of shareholders and the corporation's projected revenues, and the corporation's exposure to potential legal liability due to the nature of its operation.
The role of the incorporator, other than determining where to file the corporate documents, is usually an insignificant one but, on occasion, the incorporator may occupy an important role. The incorporator, on occasion, may be responsible for procuring equipment, facilities, and sign contracts on behalf of the corporation. In doing so, the incorporator is taking a considerable risk as he would be liable on all such transactions until such time as the corporation assumes responsibility for such transactions.
One of the biggest advantages of operating a business under the corporate form is the capacity to limit the liability of the owners. By electing to operate as a corporation, the shareholders of the corporation are able to limit their liability for contractual debts and tort damages. Under normal circumstances, shareholders are limited in their exposure for corporate debts to the extent of their investment in the corporation.
Another advantage of the use of the corporate form is the broad range of purposes for which corporations can be organized. Historically, corporations were required to state a specific purpose for their operation at the time of the initial filing but this requirement has been largely extinguished and most jurisdictions now allow corporations to be organized for general purposes.
The popularity of the corporation as a business form has led to the development of several hybrid business forms based on the corporate model. These new forms of corporate structure, such as limited liability corporations and sub-chapter S, have unique features that make them attractive to business owners in special situations. Their introduction has allowed business owners a broad range of options in determining how to best operate their individual companies.
There are no federal statutes governing the formation of corporations. This authority is limited to the states and every corporation must elect to incorporate in only one state. Several states, due to their attractive statutory treatment, are more popular choices for incorporating. Delaware has been the most popular choice for a number of years for the larger corporations. Smaller corporations still tend to incorporate in the state where their central operations are located.
The federal law does have application, however, to corporate securities and tax treatment of the various forms of corporations. All corporations selling their stock publicly must comply with the federal security laws and, regardless of what corporate form they elect, all corporations must comply with the Internal Revenue Laws and Rules that are particular to the form of organization that the corporation has elected to operate.
The operation of a corporation is subject to a much more organized and strident set of rules than other business forms. All corporations, when originally organized, must file articles of incorporation and a set of by-laws that dictate how the company will be governed. These documents set forth the responsibilities of the various corporate officials involved in the operation of the corporation and the rules and regulations set forth in the corporate documents are the governing doctrines of the corporation. Other forms of business are not subject to the same set of rules and…[continue]
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