Chapter 7 Test 2 Flashcards
An artificial “being” created under authority of state statute
To create: Articles of incorporation
State requirements
Internal Revenue Service (IRS) requirements
Corporation
Partnerships General partnerships Limited partnerships Joint ventures Sole proprietorships
Healthcare Organization Forms
Two or more physicians agree to practice together
Partnership
Share the profits or losses equally, and they are personally responsible for liabilities or debts
General Partnership
Limit the potential liabilities, greater liability protection, but also limited powers. Generally do not participate in day-to-day management
Limited Partnership
Purpose created and limited lifespan
Sometimes seen when two corporations come together to provide a shared service
EX: Dialysis Center and Radiation Therapy Center
Joint Ventures
Simpler legal form with a single owner who elects not to insulate his or her personal assets through the use of corporation or legal form.
Proprietorship
Legally separate entity
Owners shielded from personal liability
Taxed separately from the owners
Continued existence despite death of an owner
Owners can transfer interests/shares without permission (for-profit)
Advantages of a Corporation
Liability protections offered by a corporation to its owners are not “absolute.”
- Protections can be pierced if corporation is
used by its owners to commit fraud or other
crimes
- Owners may be directly liable for the bad
acts
Elements of “piercing the corporate veil”
- Complete domination of the corporation by
its owners
- Such control was used to commit fraud or
perpetrate a wrong, violate a statutory or
other duty, or commit a dishonest or unjust
act
- Corporate control was the proximate cause
of the injury that is the subject of the suit
Piercing the Corporate Veil
Privately owned
Stock shares not offered for sale to general public
Relatively few shareholders
Privately held
Ownership shares sold to the general public
Thousands of shareholders-owners
Publicly held
Not-for-profit
For-profit
Privately held
Publicly held
Types of Corporations
Income may be distributed to shareholders, directors, officers, or other individuals for their private gain.
For-profit
Profit is permitted, but is not the primary purpose.
Income may not be distributed for individuals’ private gain.
Income must be used for the corporation’s purposes.
Determined by state corporation laws
Have specific social or beneficial purposes
May pay reasonable salaries
Receive preferred tax treatment if they also are formed for a charitable purpose that benefits the public or community (“community benefit standard”)
Charitable corporations are the most common for US hospitals
Not-for-profit
requires that hospitals meet five criteria (relating to purpose) to be tax exempt
Whether it maintains a governing body that includes community leaders (not just organizational insiders)
Whether the hospital has an “open” medical staff that permits all qualified physicians to practice there
Whether the hospital has a full-time emergency department that is open to all, regardless of ability to pay
Whether the hospital provides non-emergency care to all personal able to pay (including through Medicare and Medicaid)
Whether the hospital uses its surplus money to improve quality of care, expand its facilities, and improve medical education and training programs
Whether, in the absence of the above five factors, there are other favorable factors that demonstrate benefit to the community; and
Whether the hospital serves a broad cross-section of its community through charitable care or research
IRS - Community Benefit Standard
Charitable-purpose element of not-for-profit hospitals (which allows for ______) has been challenged based on
Aggressive and inflated billing practices (especially vs. the uninsured)
Amount of charity care provided
Tax exempt status
Ultimate legal authority of a corporation
_______ is governed by bylaws
Governing board
Internal rules that describe the governing board’s powers and duties
Describe the makeup of the governing body (for example, numbers, type of members, terms of service, qualifications, duties, number of meetings, methods for making decisions, compensation)
Bylaws
Developing a strategic plan
Setting broad policy
Appointing medical staff members
Delineating medical staff clinical privileges
Hiring and guiding the CEO
Overseeing overall organizational performance (clinical, administrative, financial)
Fiduciary oversight
Hospital Governing Board Duties
Executive committee Building and grounds Human resources Corporate compliance Finance Professional staff relations Executive committee
Committees of a Hospital Governing Board
All governing board members have a _______ to the corporation, its members and shareholders, and (in not-for-profit corporations) to the community at large.
Fiduciary duty
Fiduciary duty consists of:
Duty of loyalty
Duty of responsibility
Board members must put the corporation’s interests ahead of their personal interests.
Conflict-of-interest policies
Duty of loyalty
Board members must act with due care in exercising their duties. Due diligence (a legally acceptable level of care)
Duty of responsibility
_________ are generally protected from personal liability if they fulfill their duties of loyalty and responsibility.
Personal liability may result from breach of fiduciary duty.
Governing Board Members
Governing board or corporate executive decision-making that goes beyond the express or implied powers of the corporation
These acts are usually void
Ultra vires act
________ and _________ can be personally liable for an ultra vires act that causes the corporation to suffer financial loss if the act was
Taken with knowledge that it was beyond their power
Made in bad faith
Governing board members and corporate executives
One corporation absorbs another
Corporations are similar in size and agree to the merger.
Merger