25 - Business Structures 2

Question 1

What are the key aspects of Joint Ventures (JV)?

Answer 1

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

Question 2

What are the key aspects of a corporation?

Answer 2

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

Question 3

What are some of the advantages of a corporation?

Answer 3

Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

Question 4

What actions can pierce the veil of a corporation?

Answer 4

Commingling of assets

Fraud

Under-capitalization

Question 5

How is a corporation governed?

Answer 5

Board adopts Corporate Bylaws to govern company business

Question 6

What items are required in a corporations Articles of Incorporation?

Answer 6

Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

Question 7

What is the biggest disadvantage of a corporation?

Answer 7

Double taxation

Question 8

How are corporations formed by promoters?

Answer 8

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.

Question 9

When is a corporation liable for pre-incorporation actions taken by a Promoter?

Answer 9

Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

Question 10

In how many states must a corporation incorporate?

Answer 10

Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

Question 11

Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.

Answer 11

Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

Question 12

What are key aspects related to the holding of Preferred Stock?

Answer 12

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

Question 13

What aspects are related to all classes of corporate stock?

Answer 13

Valid consideration must be given for shares

Cash; property; or services performed

No promises to pay or perform services

Question 14

What are the key aspects of Treasury Stock?

Answer 14

No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

Question 15

What is a stock subscription and what is required for it to be valid?

Answer 15

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

Question 16

When is a corporation liable for torts by employees?

Answer 16

If committed within the normal scope of the employee’s job

Even if they were disobeying orders

Per respondeat superior

Question 17

What are the key aspects of a corporate officer?

Answer 17

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)

Question 18

What are the key aspects of a corporation’s board of directors (BOD)?

Answer 18

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

Question 19

What is Ultra Vires?

Answer 19

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

Question 20

When is inspecting Board minutes the right of a shareholder?

Answer 20

Shareholders can inspect Board minutes and records only if request is in good faith

Question 21

Who must approve mergers and consolidations?

Answer 21

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

Question 22

What characterizes a Professional Corporation?

Answer 22

Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

Question 23

Who can and cannot own an S-Corporation?

Answer 23

CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

Question 24

What is the primary advantage of an S-Corporation?

Answer 24

Avoidance of Double Taxation

Question 25

What are the disadvantages of an S-Corporation?

Answer 25

No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents