18 Flashcards
what are corporations recognized as? How many shareholders can it have? what can be it’s owners? What does corporation substitutes itself for?
-corporations are regcognized as legal “persons” (like a person,can have its own tax id,speech rights,can sue, own assets
-can have one or more shareholders (shareholders=name of ppl who own corporations)
-owners can be natural persons or other businesses( there can be layers of business entity before reaching human being)
-corporation substitutes itself for shareholders( shareholders=owners, corporation=agent.corporation substitutes in to act in behalf of shareholders. it benefits shareholders by following rules)
What are Board of Directors responsible for? What do they do?
-Responsible for overall management of company rests with board of directors (elected by shareholders)(they look at high lvl management ,look at strategic directions)
-make policy decisions and hires officers .officers run corporation on a daily basis
What are Owners ( Shareholders) capable of?what liability do they have and does it vary?
-can sue the corporation, can get sued by corporation, and bring suit for the corporation (shareholders derivative suit)
-have limited liability
-can have the corporate “veil” of limited liability to be pierced,it would make shareholders personally liable (there are things u can do that can take off liability shield)
How does Corporate Earning and Taxation work? How does it look like?
-corporate profits can be kept as retained earnings or passed on to the shareholders as dividends
-corporations can be taxed twice, first to the corporation( income tax), then to the shareholders via dividends (pay capital gains)
How are corporations kept liable when Criminal or Tort acts occur? when do they Respond-eat superior?
Respondeat superior: corporation is liable for the torts committed by its agents (employees) or officers within the scope of employment (an employer can be held accountable for negligence or wrongdoing committed by their employee or agent.)
-corporation can be liable for criminal acts but only fined
-responsible officers that may have helped commit the crime may go to prison
employees of corporation= called agents
Define; Domestic corporation
Foreign corporation
Alien corporation
domestic: the corporation does business under the same state laws where it was organized ( a company is considered domestic where it was formed)
foreign: the corporation does business in the state without being incorporated there
alien: the corporation was formed in another country but doing business in the United States ( ex: Ireland corporation does business in US)
(ex: if a company was formed in delaware and operates there it would be domestic in delaware.It would be foreign in any other state that isn’t Delaware.)
(ex: a corporation formed in delaware but does business in Cali is foreign inside california)
Define; Public corporation, Private corporation
public: formed by the government (gov owns company )
private: created in whole or in part for private benefit ( owned not by gov)
- they’re not the same as publicly or privately held
Define; Nonprofit corporation, Close Corporation and S-Corporation
Nonprofit: a corporation that operates for a purpose besides profit ( they do make profit but their proceeds go for charitable funds)
Close: one whose shares are held by members of a family or by few persons ( tend to run into issues larger corporations don’t)
S: avoids “double taxation” since only dividends are taxed to the shareholders as personal income. But limitations on who can own (no more than 100 shareholders, one class of stock, no alien shareholders “no non US citizens, certain entities not allowed as shareholders)
(subsection of tax code, it’s taxes as of it were a partnership, one layer as tax.
advantage:limited liability, no double taxation
disadvantage:have a cap on # of shareholders, restricts on who can be a shareholder, can’t have entities, one class of stock
-s corporations is similar to LLC as it came before it)
define; professional corporation, benefit corporation. what are they used for and by who
professional: formed for a particular profession ( law firms, tax firms, engineering, architecture)
benefit: a for-profit corporation that seeks to have a material positive impact on society and/or environment. it’s a new hybrid structure (not every state has the concept of benefit. special paper has to be filed, can have flexibility for its purpose, make money and to benefit impact to society. can have charitable profit seeking activity .not tax exempt , operational flexibility is a benefit)
What are the Incorporation Procedure Steps (5), what are Bylaws
step1: select a state of incorporation (choose state for headquarters,state where it primarily operates)
step2: secure the corporate name by confirming its availability (check name availability,if it is available u can reserve for limited time)
step3: prepare the articles of incorporation( 1-2 pgs long, includes name of company, addresses, purpose,stock)
step4: file the articles of incorporation with the secretary of state and pay the specified fees( fee hundered dollars)
step5: First organizational meeting to adapt bylaws (right after the form you’d have to do this very quickly)
bylaws:rules on how corporation governs themselves, “when and how do shareholders vote,officer duties,profit allocation,termination, high level rules of corporation”
In regards to Corporate Financing what is;Stock(common & Preferred),
Bond, venture capital, private equity capital
Stock: an ownership(equity) interest in a corporation,measured in units of shares (1st basic option of corporate financing)
common stock: gives a proportionate interest in with regard to control, earnings, & net assets(ex: corporation commission, id u own 10% of the 100 stocks,10% would be given to u.have voting rights,dividends fluctuate,get profits after preferred)
preferred stock: you have priority over common stock for payment of dividends and distribution of assets upon the corporation’s dissolution (but u cant vote, but have priority)
Bond: a security that evidences a corporate (or government) debt (ex: u gave corp $10, u have to pay $10 + interest,debt before equity)
venture capital: financing provided by professional,outside investors to new businesses( team of professionals find investors for business)-more for new businesses
private equity capital: capital funds invested by a private equity firm in an existing corporation,usually to purchase and reorganize it( find a buyer to reorganize existing company) -more for existing businesses
What are Corporate Express vs Implied Powers
Express:
-found in articles of incorporation,the laws of the state of incorporation,and in state and federal constitutions (gen statement)
implied(what they need to typically do):
-to perform all acts reasonably necessary to accomplish its corporate purposes ( can hire agents, make loans,hire contractors, have anything necessary done to buy/sell real estate)
-a corporate officer can bind the corporation in ordinary business affairs of the enterprise
what’s the Ultra vires doctrine
-corporate acts be on the expressway implied powers of the corporation( by statute or articles of incorporation)
-corporate articles of incorporations now adopt very broad purposes, to prevent lawsuits against the corporation
(assures shareholders that their investments will not be used for any activities other than the ones that were mutually agreed upon,company can’t do above its beyond powers)
Factors that lead courts to Pierce the Corporate Veil( goes directly after the shareholders)
-A party is tricked into dealing with the corporation rather than the individual(purposely using corporation for using car )
-The corporation to set up never to make a profit or always to be insolvent, or it is to “thinly” capitalized. (makes u look like u only want assets)
-The corporation is formed to evade an existing legal obligation (avoiding existing expenses)
next two listed are tempting especially within families
-statutory corporate formalities aren’t followed (don’t have records kept or meetings)
-Personal and corporate interests are commingled to such an extent that the corporation has no separate identity (borrows, corporate money, uses company truck)
-A close corporation has to be particularly careful about this factor
What is a Director, what can directors also be?how does its election look like,when are they appointed ,power dif between them and corporation, how long do they serve ? can they be removed?
-not agents of the corporation. only the board itself can act as a “super agent” and bind the corporation (as a group they are responsible that corporation serve for shareholders.not employed by corporation,corporation acts under their control)
-director can also be a shareholder, especially in closely held corporations
Election of Directors;
-Number of directors is set forth in the articles of incorporation;
appointed at the 1st organizational meeting
-serve for terms of office is generally 1 yr
-Directors can be removed for cause (shareholders elect directors,by laws have description of required conduct but if they don’t meet duties then can be removed)
