25 - Business Structures 2 Flashcards
What are the key aspects of Joint Ventures (JV)?
Similar to a General Partnership; except generally; a JV is for a single business activity
Example: two companies promote a concert
Ability to bind other JV partners is limited
JV partners still have a fiduciary responsibility to JV
No state filings or paperwork necessary
What are the key aspects of a corporation?
Shareholders have limited liability to the extent of their capital contribution
C Corporations have a perpetual life and continue even after shareholder death
Corporations are a separate legal entity from their owners and can own property; sue; be sued
Corporations must file Articles of Incorporation in state of governance
What are some of the advantages of a corporation?
Ability to raise capital
Limited liability - unless actions occur that pierce the veil
Ease of ownership transfer
What actions can pierce the veil of a corporation?
Commingling of assets
Fraud
Under-capitalization
How is a corporation governed?
Board adopts Corporate Bylaws to govern company business
What items are required in a corporations Articles of Incorporation?
Name; purpose; powers of Corporation
Name of registered agent & incorporators
Stock share classes authorized; par values
Name of corporate officers NOT required
What is the biggest disadvantage of a corporation?
Double taxation
How are corporations formed by promoters?
Promoter issues prospectus; arranges capital; and is a fiduciary of the corporation.
A promoter may profit from work performed if the corporation is aware of it.
When is a corporation liable for pre-incorporation actions taken by a Promoter?
Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.
In how many states must a corporation incorporate?
Corporations are only incorporated in one state
Become adomestic corp. in that state
Become aforeign corp. in any other state they do business in
Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.
Dividends are NOT a shareholder right
Once declared; dividends become a liability to corporation
What are key aspects related to the holding of Preferred Stock?
No voting rights
Get first rights to dividends and liquidation
Cumulative Preferred Stock dividends that go undeclared accumulate and Corporation must pay it before issuing dividends to Common Stockholders
Participating Preferred Stock gives shareholder right to dividends in addition to what they get as Preferred Stockholders
What aspects are related to all classes of corporate stock?
Valid consideration must be given for shares
Cash; property; or services performed
No promises to pay or perform services
What are the key aspects of Treasury Stock?
No Gain/Loss recognized on Treasury stock
Have no voting rights
Can be re-purchased below par
Cannot produce dividends
What is a stock subscription and what is required for it to be valid?
An offer to buy shares of stock
Must be accepted by corporation to be valid
Offer cannot be revoked for 6 months
Subscriber becomes liable once accepted
When is a corporation liable for torts by employees?
If committed within the normal scope of the employee’s job
Even if they were disobeying orders
Per respondeat superior
What are the key aspects of a corporate officer?
Appointed by the Board of Directors
Act as Agents
Owe a fiduciary duty to the corporation
Can have legal fees paid by corporation for defense in lawsuit brought on them from carrying out their normal duties (exception- suit brought against officers by shareholders)
What are the key aspects of a corporation’s board of directors (BOD)?
Elected by shareholders
Owe fiduciary duty to corporation
Must act in good faith to avoid being liable for bad judgment
Good faith is NOT a defense for negligence
What is Ultra Vires?
Corporation management acting beyond what the Articles of Incorporation allow
Shareholders can sue for Ultra Vires
When is inspecting Board minutes the right of a shareholder?
Shareholders can inspect Board minutes and records only if request is in good faith
Who must approve mergers and consolidations?
Boards must approve
Shareholders must approve by Majority
Disapproving shareholders can get an appraisal and get their stock back at current market price
Merger does NOT need creditor approval
What characterizes a Professional Corporation?
Shares owned only by licensed professionals (CPAs; attorneys; etc.)
Limited Liability for debts
Personal Liability for negligence
Who can and cannot own an S-Corporation?
CAN be owned by Estates; Trusts; and Individuals
CANNOT be owned by a C-Corporation
What is the primary advantage of an S-Corporation?
Avoidance of Double Taxation
