Corporations Chapters 9 and 10

Double Taxation:

Taxation of corporate income at two levels: (1) the corporate level and (2) the shareholder level.

What documents is filed with the secretary of state before corporation can begin?

Articles of Incorporation

Types of Corporate Forms:

Business Corp Statutory Close Corps Nonprofit Corps Professional Corporations S Corporations (IRS Designation)

S Corporation:

C Corporations are double taxed on business income S Corporations are taxed as a Partnership and corporate taxes "pass-through" the corporation tax-free and the shareholders are taxed personally on their percentage of corporate profits. Small Corporations Probability of losing money first few years Taxes can pass through and shareholders can lose the losses to offset other sources of income.

Advantages of Corporations:

Continuity of Life Centralized Management Limited Liability, and Free Transferability of Interests

What is "Continuity of life" for a corporation?

Corporations exist independently of its owners and does not dissolve upon withdraw of one or more of its owners like partnerships, therefore may exist indefinitely and thus a "person" may have continuity of life.

Disadvantages of Corporations

Formalities Double Taxation

Professions Permitted Incorporation:

Physicians Attorneys Chiropractors Engineers Insurance agents Architects Pharmacists Rea Estate Agents/Brokers Physical Therapists Accountants Dentists Veterinarians

Who owns a Corporation? (Ownership):

Shareholders

Corporate Powers:

Sue and be sued Make and amend its internal operating procedures in its bylaws Buy, hold, and sell real and personal property Make contracts Borrow money Lend money Participate in a partnership or other entity Conduct its business inside and outside its state origination Elect its managers

Who manages a corporation?

The Officers (elected in by the board of directors) and the board of directors (elected in by shareholders) manage the corporation (I.e.: President, vice president, secretary, treasurer, etc.)

What is "Free transferability of interests" When applied to a corporation?

The ownership of a corporation may be assigned, sold or otherwise transferred to a third party outside the corporation without consent form other shareholders. Corporations that publically traded on exchanges on the NYSE do not restrict who may own a corporations stock because shareholders are viewed as merely investors in their business. Small family corporations restrict shareholders to family members or other specified individuals or groups. Small corporations can limit who may own their corporate stock; therefore, do not have free transferability of Interests.

What's the purpose of a corporation's organizational meeting?

To appoint directors and corporate officers, Approve articles of incorporation and bylaws, and to ratify all reorganizational transactions of the organizers/promoters and to address any other organizational matters. Also Minutes from meeting requirements must be continuously observed in order to maintain corporate status and the attendant liability protections for the shareholders.

What's the purpose of corporate bylaws?

To establish the corporations operating procedures.

Will the owners (Shareholders) of a corporation be held personally liable for the debts and obligations of the corporation if the business has not properly complied with the states statutory requirements for formation of a corporation?

Yes, (i.e.: Corporation by Estoppel).

Domestic Corporation:

A corporation operating in the state in which it was incorporated.

Statutory Close Corporation:

A corporation owned by a small number of shareholders whose shares are not freely transferable.

How does a corporation notify the public of its corporate status?

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De Jure Corporation

A corporation properly formed in accordance with state law.

De Facto Corporation:

A business that has not strictly compiled with the state's statutory incorporation process but conducts business in good faith as though it were a corporation.

Incorporation by Estoppel:

A business that is not properly incorporated but may be extended the liability protections of a corporation in a contract dispute.

Professional Corporation:

A corporation formed by one or more professionals to conduct business.

Foreign Corporation:

A corporation operating in a state other than the state in which it was incorporated.

Business Corporation:

A legal entity created to conduct business.

Ultra Vires Acts:

Actions by a corporation that exceed the corporate purpose and/or powers.

Preincorporation Share Subscription:

An agreement to purchase shares of a business once it is incorporated.

Corporation Characteristics:

Continuity of Life 2) Centralized Management 3) Limited Liability, and 4) Free Transferability of Interests

Centralization of Management:

Core group of individuals who manage a corporation.

Nonprofit Corporation:

Corporation formed for charitable purposes.

Purpose Clause:

Describes the intended purpose(s) of a corporation.

Officers:

Individuals appointed by the board of directors to manage the daily operations of a corporation.

Once a business files it articles of incorporation with the secretary of state does its corporate existence begin?

Not until they receive acknowledgment from the secretary of state that its articles have been approved and accepted by the secretary of state will the corporate business formally exist.

Continuity of Life:

Perpetual existence.

Stock Transfer Restriction:

Restriction on the transfer of ownership (stock) of a corporation.

Forum Shopping:

Selection of a jurisdiction in which to do business.

Formalities:

Statutory requirements for formation of a business entity

Promoter:

The individual who organizes and forms a corporation.

Incorporator:

The individual who signs and files the corporation's articles of incorporation.

What are the shareholders responsibilities in a corporation?

To make a financial investment in the corporation, entitling them with voting shares to elect the directors. Shareholders do not normally have any rights to be involved directly in company management. Their connection to company management is typically via the Board of Directors and if shareholders are not satisfied with the performance of the directors, they may remove the director(s) or refuse to re-elect them.