Corporate Law: Formation, Authority, and Governance
Core concepts
Corporate Law questions test whether you can trace a decision from the statute or charter to a real-world actor. Start with formation and the corporate personality: incorporation mechanics, the role of articles and bylaws, and the consequences of limited liability. Move to authority: actual authority (express and implied), apparent authority, and ratification. Then governance: the board's managerial role, shareholder voting and approval rights, and fiduciary duties of care and loyalty, including the business judgment rule and conflict-of-interest review.
Traps to expect
- Confusing authority types. Apparent authority flows from the principal's manifestations to a third party, not from the agent's own belief.
- Overreading shareholder power. Shareholders generally do not manage; questions often hinge on whether an act needs board action, shareholder approval, or both.
- Misapplying the business judgment rule. It protects informed, disinterested decisions; it is not a shield for self-dealing or gross negligence.
- Ignoring formalities. Defective authorization can be cured by ratification, but only where the ratifying body had capacity to authorize the act originally.
Rule of thumb
Ask three questions in order: Who had authority? Was the decision informed and disinterested? Did any required approval happen? If all three clear, the action likely stands.
Worked example
A vice president signs a supply contract without board approval. The board never objected and accepted the goods. The VP had no express authority, but acceptance and repeated dealing can supply implied or ratified authority. Analyze express authority first, then apparent authority, then ratification as a fallback.