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CHAPTER 34
NATURE OF A CORPORATION
Answers to Learning Objectives
1. The different classifications and kinds of corporations are public, private, quasi public, not-for-
profit, profit, stock, close, Subchapter S, foreign, domestic, and alien corporations.
Lesson Outline
1. Corporations may be classified as follows:
a. Public corporations formed to carry out some governmental function. Examples: a city, state
university, or public hospital.
b. Private corporations formed by private individuals to perform some nongovernmental function.
They are classified as not-for-profit and profit corporations.
2. Corporations may also be classified as domestic or foreign.
3. Preliminary work for the formation of a corporation includes preparation of incorporation papers,
filing of the registration statement, if necessary, with the Securities and Exchange Commission and
the appropriate state officials, and selling of stock.
advance of the actual incorporation by means of subscriptions.
7. The written document setting forth the facts prescribed by law for the issuance of a charter and
asserting that the corporation has complied with these legal requirements is the articles of in–
corporation.
8. The powers that the corporation has are either express, incidental, or implied.
9. Incidental powers of a corporation include the right to:
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11. An ultra vires contract is one entered into by a corporation that is not authorized by any of its
powers, express, incidental, or implied.
Comments on Cases
(p. 407) The court pointed out that for not-for-profit corporations, the “members” are like the
stockholders of a for profit corporation. Since stockholders can challenge acts of a profit
corporation as illegal, so could a member of a not-for-profit. DeKalb County LP Gas Co. v.
Suburban Gas, 729 So.2d 270 (Ala.)
shareholder. Hotard v. Diabetes Self Management Center, Inc., 838 So.2d 94 (La. Ct. App.)
(p. 412) The court pointed out that because the association was a corporation, it could not act in any way
not authorized by its articles of incorporation or bylaws. Leasing the property to a
nonshareholder was not authorized. Okelberry v. West Daniels Land Ass’n, 120 P.3d 34 (Utah
Ct. App.)
Answers to Questions
(Page 412)
1. Because a not-for-profit corporation is not organized for profit it does not distribute income or
profits to members, officers, or directors; and usually does not issue stock.
be express or implied.
4. Since a subscription agreement signed by a subscriber to stock in a corporation to be formed is an
offer to buy it may be revoked any time prior to acceptance and the corporation cannot accept until
the state issues its charter.
5. The articles of incorporation is a written document setting forth the facts prescribed by law for
issuance of a certificate of incorporation and asserting the corporation has complied with legal
requirements.
Answers to Case Problems
(Page 413)
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1. No. The court pointed out that any breach of the club’s regulations was actionable only by the
shareholders against the corporation. As between the parties to the land sale contract, they were
bound. Carr v. Acacia Country Club Co., 970 N.E.2d 1075 (Ohio Ct. App.)
(Conn.)
5. No. While the agreement did not expressly state Willis would not be personally bound, the fact
that he crossed off his name where he was supposed to sign to bind himself personally and that he
refused to sign it anywhere indicated he was not to be personally bound. Donnelly knew from the
agreement that WHE had not been formed and from Willis’ actions that he did not intend to be
bound. Willis v. Donnelly, 199 S.W.3d 262 (Tex.)
6. Yes. The court stated that the difference between a for-profit and a nonprofit corporation was the
possibility of private enrichment. Any income of a nonprofit corporation had to be used for the