Introduction

Question 1

General Characteristics of a Corporation

Answer 1

• a corporation = a legal entity distinct from its owners
• may be created only by filing certain docs w/ the state

Question 2

Key Players

Answer 2

• shareholders -> owners of the corporation
• board of directors -> the group in charge of management of the corporation AND
• officers -> agents of the corporation appointed to carry out the corporation’s policy

Question 3

Key Characteristics of a Corporation

Answer 3

• limited liability for owners, directors + officers
• centralized management (board of directors manage instead of owners)
• free transferability of ownership
• continuity of life
• taxation - C corporation vs S corporation

Question 4

C Corporation

Answer 4

• taxed as an entity distinct from its owners
• corporate tax rate generally lower than personal tax rate -> can be advantageous to persons who delay the realization of income
  -> BUT double taxation

Question 5

S Corporation

Answer 5

• tax laws permit certain corporations to elect to be taxed like partnerships + yet retain other advantages of the corporate form
• NO double taxation
• there are certain restrictions on S corporations (ex: stock can be held by no more than 100 persons, generally shareholders must be individuals + there can be only one class of stock)

Question 6

Key Fact Patterns for Corporations Questions

Answer 6

• organization of a corporation
• issuance of stock
• directors and officers
• shareholders
• fundamental corporate changes

Question 7

Corporation vs. Sole Proprietorship

Answer 7

• sole proprietorship has no business entity distinct from the owner -> one person owns all of the assets of the business
  -> owner is personally liable for the business’s obligations, + the business “entity” can’t continue beyond the life of the owner
• ownership is freely transferrable, + all profits + losses from the business flow through directly to the owner

Question 8

Comparison with Limited Liability Company

Answer 8

• LLC is designed to offer the limited liability of a corporation and the flow through tax advantages of a partnership (unless the parties elect to be taxed as a corporation
• like a corporation, LLC may be formed only by filing appropriate docs with the state, but otherwise very flexible business form (owners can choose between centralized management + owner management, free transferability of ownership or restricted transferability, etc.)

Question 9

Comparison with Benefit Corporations

Answer 9

• benefit corporation intends to benefit the public and the environment, in addition to shareholders
• treated same as C corps for tax purposes
• articles of incorporation must state that it’s a benefit corporation
• directors + officers operate w/ same limited liability + fiduciary duties as counterparts in C corporations, but they are also required to consider the impact of their decisions on the B corporation’s employees, customers, communities, + the environment, not just its shareholders
• must also prepare an annual benefit report, which is delivered to all the shareholders + posted online and/or filed w/ secretary of state