(4) Corporations: Corporate Powers / Corporate Finance

Question 1

Definition:

Ultra Vires Acts

Answer 1

A corporation may only engage in activities that are within the stated corporate purpose in its articles of incorporation. When a corporation engages in activities outside of its states purpose these activities are deemed ultra vires.

Question 2

Rule:

Ultra Vires Acts

Answer 2

Under common law, a corporations ultra vires acts are deemed void and unenforceable. Under the RMBCA (revised model business corporation act) these ultra vires acts cannot be challenged on the grounds that the corporation lacked the power to act. Ultra vires acts are generally valid and enforceable but the individuals who approved that transaction are held personally liable.

Question 3

Ultra Vires Acts

Challenging a Corporations Power to Act

Answer 3

A corporations power to act may be challenged in 3 ways: (1) when a shareholder sues the corporation to enjoin the ultra vires act; (2) when the corporation (directly or derivatively) sues an officer or director for damages for approving an ultra vires act; or (3) the state brings an action to dissolve the corporation for committing an ultra vires act.

Question 4

Powers of a Corporation

Answer 4

A corporation has the power to do all things necessary or convenient to carry out its business and affairs including (1) to sue and be sued; (2) to own, lease, or convey real or personal property; (3) to make contracts, borrow money, issue notes or bonds; (4) to lend money and make investments; (5) to own or be involved with another business entity; (6) to fix the compensation of directors, officers, and employees; (7) to lend directors, officers, employees money; (8) to make charitable donations; (9) to make payments or donations that furthers the business and affairs of the corporation; and (10) to pay or engage in lobbying to aid governmental policy.

Question 5

Watered Stock

Corporate Fianance

Answer 5

Watered stock is stock that is issued at a price that is greater than its actual market value. The stockholder may be exposed to liability up to the actual value of the stock rather than the value paid.

Question 6

Who has the power to issue Dividends?

Corporate Finance

Answer 6

Only the board of directors have the power to issue dividends or make distributions. Once a distribution is declared, the shareholder affected has a legal right to that distribution.

Question 7

Rule & When courts can intervene:

Shareholders rights with Distributions

Answer 7

A shareholder doesn’t have the right to compel a corporation to issue a distribution (whether in the form of a dividend or otherwise), unless the right is expressly granted in the article of incorporation.

A court will interfere with the board’s discretion and order a dividend/distribution upon a showing of (1) bad faith or dishonest purpose; and (2) that funds were available for the