Formation and Organization Flashcards
Key Players in a Corporation
Shareholders - Owners
Board of Directors - Management
Officers - Agents
Key Characteristics of a Coro
Limited Liability for Owners, Directors, and Officers
Centralized Management
Free Transferability of Ownership - I.e., shareholders are free to sell their shares to others unless provided otherwise.
Continuity of Life - a corp may exist perpetually and generally is not affected by changes in ownership.
Taxation
1. C Corp - corp is taxed as an entity distinct from its owners
2. S Corp - allowed to be taxed like a partnership and yet retain advantages of corporation.
Forming a Corporation (De Jure Corp)
- Person (incorporator - can be a person or entity)
- Paper (articles of Incorporation)
- Act (Incorporator has notarized papers delivered to secretary of state for filing
Articles of Incorporation must include:
- Name of Corp (must include one of the following words or an abbreviation: corporation, company, incorporated, or limited)
- Name/Address (each incorporator, name of registered agent and address of registered office)
- Corporation’s stock (how many authorized, classes of stock)
Organizational Meeting
The organizational meeting may be held by the BOD if they are named in the articles OR by the incorporators if BOD has not been named.
When the BOD runs the meeting, they adopt the initial bylaws and appoint the officers.
When the Incorporators run the meeting they first select/elect a BOD then adopt the bylaws and appoint officers.
The Bylaws
Bylaws are an internal document
Essentially the corp’s operating agreement/manual
If conflict with AOI, then AOI wins
Not filed with state (because internal document)
BOD or SHHs can adopt, amend, and repeal the bylaws.
Internal Affairs Doctrine
Internal Affairs are governed by the law of the state of incorporation
Entity Status
Once formed, corp is a legal person.
B Corp
B Corp - formed for profit but also to pursue some benefit –> broader social policy cause.
Articles must say B Corp
Double Taxation
Corp pays income tax
To avoid legally having to pay income taxes at corp level, we form S Corp.
S Corp
No income tax at entity level. To qualify as S corp under Fed Tax Law:
no more than 100 SHHs
All SHHs human, not entities
US Citizens/Residents
One class of stock, not publicly traded
Limited Liability
SHHs generally only liable to pay for their stock and not corps debts
BOD/Officers not liable for Corp debts
Who is liable? the corporation itself.
Defective Incorporation and Solutions
We wrongly though there was a corporation, so either de facto corp or corp by estoppel.
De Facto is just as good De Jure, but don’t want to be in this situation if not needed.
Defective Incorporation: De Facto Corp
For a de facto corp to exist, we must meet the following requirements:
- There must be a relevant incorporation statute (this is always met because there is a statute in every state).
- The parties made a good faith, colorable attempt to comply with the statute - i.e., the parties tried and came close to forming the corp.
AND
- There has been some exercise of corporate privileges, meaning the parties were acting as though they thought there was a corporation.
If the de facto corp doctrine applies, the business is treated as a corp for all purposes except in an action by the state.
LIMITATION: this defense can only be raised by someone who is unaware that there was no valid incorporation.
Corporation by Estoppel
Not a de jure corp, but treated that way for people who treated the business like a corp.
NOTE: ONLY APPLIES TO CONTRACT CASES!! DOES NOT APPLY TO TORT
There is a very narrow application of this doctrine
Parties act as if there is a corporation; no requirement of following statutory provisions - insulates against personal liability in contract, but in tort.
