American Business

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31-01-2010, 20:58

Model Business Corporation Act (MBCA)

The Model Business Corporation Act (MBCA), 1950 is a model statute created by the American Bar Association for adoption by state legislatures. The Model Business Corporation Act, as revised, is the basis for corporate law in most states. California, New York, and Delaware (a state attractive to many businesses because of its incorporation laws) do not follow the MBCA.

The Model Business Corporation Act includes numerous important legal issues associated with creating and managing corporations in the United States. According to the authors Bruce D. Fisher and Michael J. Phillips, the act is considered supportive of management power “at the expense of corporate shareholders and creditors.” Among many provisions in the Model Business Corporation Act is the requirement that corporations designate registered agents, who act as their legal representatives. Many times companies incorporate in states where tax laws and incorporation statutes are least costly but then operate in other states. The registeredagent requirement allows creditors to find and file litigation against companies through these agents. The act also defines when a company begins to exist—that is, when the public official issues the certificate of incorporation. It also addresses liability for preincorporation contracts made by the corporation’s promoter.

Several important aspects of the Model Business Corporation Act concern the definition of the board of directors’ activities as well as their responsibilities to shareholders, and corporate officers. The MBCA declares that the board of directors are the corporate managers, fixes the number of members on the board, and grants the first board authority to manage the company until the shareholders meet to elect a board. The act also lists the steps involved in incorporating a business and outlines the contents of corporate articles of incorporation and bylaws and addresses problems of conflict of interest when board members engage in transactions with the company, indemnification of directors, and shareholders’ rights.

Further reading

Fisher, Bruce D., and Michael J. Phillips. The Legal, Ethical and Regulatory Environment of Business, 8th ed. Cincinnati: Thomson/ South-Western, 2003; Mallor, Jane P., A. James Barnes, Thomas Bowers, Michael J. Philips, and Arlen W. Langvardt. Business Law and the Regulatory Environment, 11th ed. Boston: McGraw-Hill, 2001.