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Regulation > 15.1 - Formation (Corporation) > Flashcards

15.1 - Formation (Corporation) Flashcards

1
Q

What is a corporation?

A
  • Separate and distinct entities from their owners
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2
Q

How are corporations taxed?

A
  • Taxation as a C corporation or S corporation
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3
Q

How do S corporations report earnings?

A
  • on personal returns regardless if they’ve received distributions
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4
Q

How are C corporations taxed?

A

subject to corporate income tax

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5
Q

Identify 2 disadvantages of “C” corporations

A
  • Entity level tax
  • Double taxation
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6
Q

Identify 2 advantages of a “C” corporation

A
  • Separate legal entity
  • Shield from liability
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7
Q

What is a public corporation?

A

organized for public purposes related to the administration of government (i.e., an incorporated municipality) & may be funded by local taxes

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8
Q

What must a corporation acquire in order to do business as a foreign corporation in another state?

A

a certificate of authority

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9
Q

Define an alien corporation

A

corporation organized in another country

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10
Q

Identify the duties and obligations of a promoter in the formation of a corporation

A
  • Arranges for formation of corporation
  • Provides for:
    • Financing
    • Compliance w/ securities laws
    • Personnel
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11
Q

Who is personally liable on contracts made on behalf of the corporation?

A

the promoter

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12
Q

When is personally liability relieved for the promoter?

A

When the corporation adopts contract which is implied by accepting benefits of the contract

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13
Q

What is a novation?

A
  • Agreement entered into by the promoter, 3rd party to contract and corporation which effectively substitutes the corporation for the promoter in any binding contracts
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14
Q

Define a subscription agreement

A
  • Process of soliciting commitments from potential investors
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15
Q

What are articles of incorporation?

A
  • Brief with specific contents
  • Incorporation formally accomplished through filing with secretary of state or another designated official
  • Once filed, corporation formally comes into existence
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16
Q

What is the purpose of the initial board and how are they elected?

A
  • Elected by incorporator(s) and may adopt bylaws
  • Incorporators resign and board governs corporation
17
Q

What are bylaws?

A
  • Detailed procedures for meetings, quorums, restrictions on stock sales, etc.
  • Articles filed, bylaws adopted
18
Q

At what point does the board elect offiers to run the business?

A

Once the bylaws are adopted

19
Q

Define defect in formation and how the defect is classified

A
  • One or more formation procedures completed in defective manner
  • Classification depends on whether procedures complied with state law or were defective in some manner
20
Q

Define a DeJure corporation

A

Business that has filed its requirements for formation according to the regulations for earning a state charter

21
Q

Define a defacto corporation

A
  • Filing was defective but parties thought corporation had been properly formed and acted that way
  • Corporation is permitted to exist
22
Q

Provide an example of a defacto corporation

A
  • promoter hired a lawyer — the lawyer took the fee, but never filed articles with the state
23
Q

Provide 2 examples of private corporations

A
  • Close corporation (closely held corporations)
  • Publicly held corporation
24
Q

Identify 4 characterizing traits of a close or closely held corporation

A
  • Owned by small number of shareholders
  • Do not sell stock to public
  • Officers and directors commonly own stock in corporation
  • Shareholders are active in management and control of corporation
25
Q

Identify 5 characterizing traits of a publicly held corporation

A
  • Organized for public purposes
  • Sells stock on exchange to public
  • Share price quotes regularly published
  • Related to the administration of government
  • May be funded by local taxes
26
Q

How is an S-Corporation taxed?

A

similarly to a partnership

27
Q

How do shareholders report their share of earnings / distributions in an S - Corp?

A

Report their share regardless if they receive distributions

28
Q

What happens if an S-Corp has more than one class of stock?

A

it is terminated

29
Q

What is the maximum number of shareholders an S-Corp can have before it is terminated?

A

100 max shareholders

30
Q

Define a shareholder of an S - Corp

A
  • individuals,
  • estates,
  • qualified trusts,
  • banks and
  • certain tax-exempt entities (i.e., certain charities)
31
Q

Can non-resident aliens hold shares in an S - Corp?

A

No - the corporation would be terminated

32
Q

What happens when an S - Corp has excessive net passive investment income?

A

It is terminated

33
Q

What happens to the domestic charter of an S - Corp if it is not incorporated in the U.S.?

A

it is terminated - must be incorporated in the U.S.

34
Q

What are professional corporations?

A
  • Professional Service Association (PSA)
  • Give professional benefits of incorporation
35
Q

Are there any stock restrictions on professional corporations?

A
  • Statutes restrict stock ownership to specific professionals licensed within that state
36
Q

What information must the incorporation articles contain?

A
  • Corporation’s name
  • Number authorized shares of stock
  • Street address of corporations initial registered office
  • Name of registered agent at office
  • Name and address of each incorporator
  • May contain optional provisions
37
Q

What information would the optional provisions of the incorporation articles contain?

A
  • Purpose and powers of the corporation, internal management, any subject to be addressed in bylaws
38
Q

What types of transactions would the board of directors engage in for furthering the business purpose?

HINT: 4 transactions

A
  • Adopting / rejecting pre-incorporation contracts of promoters
  • Adopting form of certificate representing shares of stock
  • Accepting / rejecting stock subscriptions
  • Comply with requirements for doing business in other states
39
Q
A

Regulation (67 decks)

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