Corporations

Question 1

Personal liability of owners?

Answer 1

None; for high risk business

Question 2

Tax issues

Answer 2

A taxable entity then dividends taxed as well (double taxation)

Question 3

Transferability issues

Answer 3

Easily done, stock market

Good for raising capital

Question 4

Registration with government agency required?

Answer 4

Yes, with the Secretary of State

Question 5

Formation

Answer 5

Complex and expensive
Stock structure
Appoint officers
Draft article

Question 6

Corporations

Answer 6

A legal entity created by a state to carry out business

Owned by shareholders

Question 7

Professional corporation

Answer 7

one formed for the purpose of practicing a profession, such as law, medicine, or accounting
only incur tax liability on profits
individual personally liable

Question 8

Promoter

Answer 8

One involved in organizing a corporation
Personally liable for pre-incorporated corporations
Corporations not liable until K adopted
Even if corporations adopts, novation (substitution of parties w/ the consent of performing party) necessary to free promoter

Question 9

Selling Stock

Answer 9

occurs local or on national level

Question 10

Issuing debt securities (Hypothication)

Answer 10

Secured party (lender) issues promissory note (security agreement) to the debtor (borrower/the corporations) who provides collateral (equipment)
attachment-perfection = file document called financing statement with Secretary of State

Question 11

Alien corporation

Answer 11

created outside of the country

Question 12

Domestic corporation

Answer 12

created within the state incorporated

Question 13

Foreign corporation

Answer 13

created outside state incorporated

Question 14

Close Corp

Answer 14

Family/small corporation

State relax requirements

Question 15

S-Corps

Answer 15

100 or less shareholders (non alien)
Not taxed
eliminated by limited liability corporations

Question 16

Parent Corporation

Answer 16

establishes second corporation

Question 17

Subsidiary Corporation

Answer 17

corporation established by parent corporation

Question 18

Bylaws

Answer 18

minutia details

Question 19

Special Meetings

Answer 19

Shareholders 10% or more; Officer or Directors can call

Question 20

Inspection Rights

Answer 20

Shareholders have these rights with “proper purpose” when management acting in way that will devalue shareholders stock

Question 21

Piercing the Corporate Veil

Answer 21

Only in extreme circumstances can the players have their personal assets seized to pay corporate debt
Factor:
Failure to adhere to corporation formalities
Commingling of assets
Inadequate Capitalization at the time of inception
Fraud

Question 22

Quorom

Answer 22

Minimum number of shareholders that must be present to vote

Question 23

Record Date

Answer 23

whoever owns shares on that date can vote

whether or no they still own the shares

Question 24

Straight Vote

Answer 24

one for one

three for one

Question 25

Cumulative Voting

Answer 25

Multiply open director seats by number of shares

Question 26

Business Judgment Rule

Answer 26

Protects managers, officers, directors and the decision itself

• the court will presume that an officer of director has acted in the best interest of the corporation
• courts are reluctant to substitute their own judgment for that of officers and
• courts allow officers and directors broad discretion to carry out duties

Question 27

Self Dealing Transactions

Answer 27

Is beneficial to the officer or director
Destroys the presumption of the Business Judgment Rule but may still be valid if:
disinterested shareholders vote and approve
disinterested board members vote and approve
entirely fair to the corporation

Question 28

To enjoy the protection of the Business Judgment Rule

Answer 28

Officers and directors must exercise due care:
become informed
not act illegally and
have rationale business purpose

Question 29

The Business Judgment Rule accomplishes 3 task

Answer 29

Permits officers and directors to do their jobs
Keeps the courts out of corporate management
Encourages officers and directors to serve