Characteristics of a Corporation

Question 1

Filings & Requirements

Answer 1

Articles of Incorporation & Bylaws

Question 2

Separate Legal Entity

Answer 2

Can sue & be sued. Has legal rights and duties of a separate legal entity.

Question 3

Limited Liability

Answer 3

Debts, liabilities, etc. held by the corp., not the equity owners or managers. Owners liability limited to amount of investment. Corp. not responsible for debts/obligations of shareholders

Question 4

Piercing the Corp. Veil

Answer 4

Exception to the limited liability rule. Allowed when: such a unity of interest and ownership that the separate personalities of corp. and individual no longer exist. 4 Factors: 1) Commingling of assets 2) Lack of corp. formalities 3) Undercapitalization 4) Domination and control of a single shareholder to the point where the corp. can be said to have no separate mind, will, or existence of its own. Circumstances are such that adherence to the corp. fiction would sanction a fraud or promote injustice.

Question 5

Parent-Subsidiary

Answer 5

When a subsidiary is controlled to such an extent that it is the alter ego of the parent, corp. veil may be pierced and the parent held liable. Totality of the Circumstances Factors: 1) Same directors/officers 2) File consolidated taxes 3) Subsidiary is undercapitalized 4) Subsidiary gets all business from the parent 5) Parent uses subsidiary’s property for its own 6) Parent pays expenses/wages for subsidiary 7) Daily operations commingled. If a parent owns multiple subsidiaries one subsidiary not liable for actions of another.

Question 6

Continuity of Existence

Answer 6

Death of owners (shareholders) does not terminate entity. Shares easily transferable.

Question 7

Shareholders- Management & Control

Answer 7

Equity owners of the business, right to profits, can elect directors, vote on key organizational issues, no duties to corp., no personal liability, articles/bylaws may limit number of shares an individual may own.

Question 8

Directors- Management & Control

Answer 8

Directors are elected by shareholders to represent them in management. Bring matters to shareholders for vote, hire & review officers, organized as a board, receive compensation, exercise governance decisions. 2 types: insider- officer or employee of corp. & outsider- do not work for corp. in other capacity.

Question 9

Officers- Management & Control

Answer 9

Chosen by directors to operate the day to day business of the corp. Report to the board of directors.