Corporate Powers | Brian JM Quinn | November 15, 2013

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Corporate Powers

Original Creator: Brian JM Quinn Current Version: Brian JM Quinn Show/Hide

Prior to the passage of general enabling laws, the explication of corporate power through the corporate charter was extremely important. State legislatures could tailor corporate charters to provide corporations significant powers, including monopoly rights over markets or territories. Although states no longer grant corporations such unique powers, explication of corporate powers (e.g. right to own property, right sue and be sued, etc.) remains nevertheless important in establishing a corporation's legal personality.

Sections 121 and 122 are authorizing provisions that grant corporate entities both explicit and implicit authority to act and conduct business.  While §122 provides explicit authority for certain activities of the corporation, §121 is a catch-all provision that provides implied authority to the corporation to undertake all other actions required to conduct business. Taken together, the corporation has a great deal of flexibility to act.

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  1. 1 Show/Hide More DGCL Sec. 121 - General Powers
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
    Section 121 provides for the general powers of a corporation.  The corporation has implied authority to undertake all actions required in order to conduct its business as determined by the board of directors and as limited by the corporation's certificate of incorporation and the statute.
  2. 2 Show/Hide More DGCL Sec. 122 - Specific Powers
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

    In addition to a corporation's general powers, the statute lays out a series of specific powers available to every corporation.  Many of these specific powers are critical to the life of a corporation. These specific powersunder §122 were once controversial, but by now are almost taken for granted.

    For example, the corporate power to make charitable donations is one such specific corporate power that was once controversial. In the early years of the corporate form, donations to charitable causes were deemed to be ultra vires – or beyond the power of boards of directors. Through a series of changes – in the code and the common law – charitable contributions are now permissible. 

    Section 122 grants the corporation other specific powers, all of which are calculated to facilitating the ability of the corporation to act in its own behalf as a corporate person separate from its stockholders. 

  3. 3 Show/Hide More Theodora Holding Corporation v. Henderson
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

    Theodora deals with the issue of corporate charity.  Until the post-War period, there was some question whether a corporation had the power to make donations to charity. On the one hand, there were those who felt that a board's sole duty was to  maximize profits for stockholders and that absent express authority to make corporate charitable contributions in the corporation's certificate of incorporation, that a board does not have the authority to make such contributions. On the other hand, there were those who recognized corporations had – even back to the pre-enabling laws period – a broader social role beyond maximizing profit for stockholders in the short run.

    Eventually, states legislatures put this question to rest by amending their corporate statutes to recognize the power of boards to make charitable corporate gifts. A series of court cases, including Theodora, reinforced the importance of corporate charitable contributions and the role of corporate chartitable contributions in the corporate social compact.

    The power of a corporation to make charitable contributions is not unlimited, however. Theodora and AP Smith, cited in Theodora, hint at the limits to corporate largesse.

  4. 4 Show/Hide More DGCL Sec. 123 - Ownership of securities
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

    Prior to the adoption of general incorporation statutes, corporations were regularly prohibited from owning stock or securities of other corporations. By specifically permitting a corporation to own and vote the stock of another corporation, §123 makes possible the “holding company” structure.

    A holding company is a corporation that has no operations but holds assets in the form of stock of subsidiary operating corporations. This hierarchial business structure is now quite common in the US and has a number of obvious benefits. First and foremost, the holding company structure permits the parent corporation to hold risky assets at arm's length, utilizing the subsidiary's limited liability shield to prevent an adverse risk in one business unit from affecting the entire business operation. The holding company structure also makes it easier to buy and sell corporate assets. Rather than engage in an corporate level merger or sale, the board of directors of a holding company can buy or sell divisions by simply transfering the shares of the division to or from a buyer. For these reasons, and others, the holding company structure has become ubiquitous.

  5. 5 Show/Hide More Public Benefit Corporations
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

    The development of corporate social responsibility and social entrepreneurship has given rise to demand for a different kind of corporate form, the “public benefit corporation”. The public benefit corporation is a for-profit corporation established with a specific public purpose. The certificate of incorporation of a public benefit corporation requires that incorporators specify some public benefit against which the pecuniary interests of the corporation's business must be balanced. 

    Although the form is relatively new, there is very little in the public benefit form that could not also be accomplished using a regular corporation. For many years, non-profit corporations were nothing more than corporations in which the certificate of incorporation prohibited the board from making a profit for stockholders. In fact, the Green Bay Packers' certificate of incorporation prohibits stockholders from ever receiving a dividend and requires the board of the Packers to donate any profits the team might have to a community foundation.

    Public benefit corporations as a specifc form are a relatively new addition to corporate laws of states in response to a growing desire by promoters to have a corporate form that outwardly signals a credible commitment by managers to a more publicly-minded business. 

    In recent years, there has been a proliferation of public benefit corporations. For example, Ello, a Delaware public benefit corporation (social networking site), specifies as its public benefit that it will not share the private information of its customers with third parties. Plum Organics, another Delaware public benefit corporation (a baby food manufacturer), specifies that its public benefit includes “the delivery of nourishing, organic food to the nation's little ones.” Certificates of incorporation for these and other public benefit corporations are available on the course website. 

    1. 5.1 Show/Hide More DGCL Sec. 361-368 - Public Benefit Corporations
      Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
      The following amendments to the Delaware corporation code became effective on August 1, 2013 and provide for the establishment of public benefit corporations under the Delaware General Corporation Law. Section 362 requires public benefit corporations to identify a public benefit in its certificate of incorporation.  Section 365 requires boards of directors to manage the business in a manner that balances profit with the best interests of those affected by the corporation's conduct as well as the specific public benefit identified in the certificate of incorporation.
  6. 6 Show/Hide More Formation Assignment
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