Chapter 6: Special Types of Corporations and Limited Liability Companies

Question 1

Describe a closely held corp

Answer 1

Few SH opposed to publicly traded on stock exchange

Specific legal rules (can compel distributions)

Question 2

Describe Foreign Corporations

Answer 2

Incorporated in another state
Must obtain certificate of authority to do business in NC
Failing to do so prevents corp from suing in NC and subjects corp. to penalties

Question 3

Professional corporations

Answer 3

Only provide professional services
Only professionally licensed service providers may elect to be subject to the special rules for PCs
Limited liability for general neg. of professional corp. and the professional neg. of others. Individual always liab for own neg.

Question 4

S Corporations

Answer 4

Special corp that receive flow-through tax treatment, as opposed to paying corp. tax.

Limitations to type of owners and number, can’t have more than 100 SH, all SH must be human beings

SH agreements often limit transferability in part to maintain S status

Question 5

LLCs

Answer 5

Limited Liability Companies afford complete limited liability to their owners.

Articles of organization
Members
Managers

Can be manager managed (comparable to corp) or member managed (individually manage co. and is comparable to partnership)

Relationship between members is governed by the K

Default rule: new members can’t be added w/out consent of all other members, but the articles or operating agreement can provide otherwise.

Default rules: is that transferees of membership interests are entitled to economic rights only.

Question 6

Non-Profit Corp.

Answer 6

Special corp that cannot distribute profits to its owners

Does not issue stock or pay dividends or make liquidating distributions to its owners

Formed by filing a certificate of existence and articles of inc.
The articles are like those filed for ordinary corp with the following additional req. : statement as to whether the non-profit will support charitable or religious goals; statement declaring whether the non-profit will have members; a statement as to where the assets will go upon liquidation (can’t go to members)

Don’t have stockholders, but can have members as set forth in articles. If members, rights and obligations must be set forth in bylaws. If the members vote for the board, the nonprofit must hold an annual meeting.