Essay Answers Flashcards
corp-liability
A corporation is a distinct entity, separate from its shareholders. Once created, the corporation, and not the persons associated with it, is liable for the obligations of the corporation unless the corporate veil is pierced.
taxation
- As a separate entity, a corporation is taxed on its income.
- Shareholders, who own the corporation, are entitled to distributions from the corporation.
- The shareholders are then taxed on their income, including the distributions.
- Thus, there is a double taxation of the business’ profits.
general management
- Officers, directors, and shareholders all have roles in the management of the corporation.
- Officers manage the day-to-day operation of the corporation and answer to the board of directors.
- The degree of control exercised by the board of directors over the corporate officers varies greatly.
- In closely held corporations, directors, who frequently also serve as officers, are intimately involved in the management of the business affairs of the corporation.
TBOC mandates-impermissible
Finally, the Texas Business Organizations Code (“TBOC”) lists activities that a for-profit corporation may not operate, including engaging in the business of raising cattle and the business of operating stockyards and slaughtering, canning, or packing meat.
indemnify an officer
A corporation may indemnify an officer when:
-(1) the officer acted in good faith with the reasonable belief that his conduct was in the best interests of the corporation, or that his conduct was at least not opposed to the best interest of the corporation; and -(2) in the case of a criminal proceeding, the officer did not have reasonable cause to believe that his conduct was unlawful.
what corp may indemnify officer for
A corporation may indemnify a director or officer for all amounts expended, including reasonable expenses. However, if liability was imposed in a derivative action, or a personal benefit was improperly received, only reasonable expenses may be indemnified
mandatory indemnification
A corporation is required to indemnify an officer for any expense, including court costs and attorney’s fees, incurred in the successful defense of a proceeding against the officer in his role as an officer. Indemnification is required whether the defense is successful on the merits or for a procedural reason.
officer as agent of corp
As an agent of the corporation, an officer does not incur liability to third parties merely for the performance of duties to the corporation. Of course, an officer can be liable to a third party when the officer has acted in his personal capacity (e.g., guaranteed a corporate loan), or has engaged in purposeful tortious behavior.
director’s 2 basic duties
A director owes two basic duties to the corporation: (1) a duty of care; and (2) a duty of loyalty. In discharging these duties, a director is required to act in good faith. Traditionally, the duty of care has been defined as the duty to act with the care of an ordinarily prudent person in a like position and similar circumstances. The duty of loyalty requires a director to act in a manner that the director reasonably believes is in the best interest of the corporation.
statutory powers of a corp
A corporation has several statutory powers to carry out its business and
affairs. The powers of a corporation include the power to make contracts and guarantees; lend money to its managerial officers, owners, members, or employees, as necessary or appropriate if the loan or assistance reasonably may be expected to benefit the entity; pay pensions and establish profit-sharing plans; make donations for the public welfare or for a charitable, scientific, or educational purpose; and take other action necessary or appropriate to further the purposes of the corporation.
CoF- purpose
The certificate of formation must state the nature of the business or the purposes for which the corporation is organized. The statement may be broad, simply stating that its purpose is to engage in any activity for which corporations may be legally formed.
de facto corp
There are three requirements for the common-law doctrine of de facto corporation: (1) a statutory law for formation of the corporation; (2) a good-faith effort to comply with the law; and (3) the owners and operators must operate under the corporate name.
