15.2 - Operation, Financing and Distributions Flashcards
Identify the 4 rights of corporations
- Corporations are people too
- May participate in legal proceedings and property transactions
- Exist perpetually
- Sue and be sued
How are corporations’ powers limited?
by the articles of incorporation or bylaws
Define doctrine of ultra vires
doctrine stating that a corporation cannot act beyond inherent powers / those provided in the articles and statutes
Define separate liability for corporations
- Owners, directors, and officers cannot be held liable for actions of corporation
Identify the party personally responsible if the courts disregard the corporate form aka “pierce the corporate veil”
shareholders
When might the courts disregard a corporate entity?
If it finds that the corporation has:
- Thin capitalization
- Inadequately capitalized
- Commingled assets
- Corporate formalities ignored
- Sham corporation from beginning
What is “piercing the corporate veil”?
When the courts disregard a corporation or business as a separate entity from its owners
Define state jurisdiction
- Establishing minimum contracts within a state
Identify the 3 types of corporate financing
- Debt
- Equity
- Retained earnings
- Cost of capital of retained earnings and common stock are the same
Identify the pros of debt financing
- Less expensive than equity financing
- Owners give up no control
- Lenders have claims up to amount lent
- Interest payments are tax deductible
Identify the cons of debt financing
- Increases corporation’s risk
- Must be paid regardless of earnings
Are dividend payments mandatory under equity financing?
No
What is equity financing?
a form of ownersip associated with higher risk and a higher reward threshold
Does equity financing confer title to any specific corporation property?
No
Is dividend interest tax deductible for equity financing?
No
