Ch. 4-4 Corporations
articles of incorporation aka corporate charter
a contract between a corporation and the state in which the state recognizes the formation of the artificial person that is the corporation.
alien corporation
a corporation chartered by a foreign government and conducting business in the United States.
foreign corporation
a corporation in any state in which it does business except the one in which it is incorporated.
S corporation
a corporation that is taxed as though it were a partnership.
open corporation
a corporation whose stock can be bought and sold by any individual.
closed corporation
a corporation whose stock is owned by relatively few people and is not sold to the general public.
dividend
a distribution of earnings to the stockholders of a corporation.
limited liability
a feature of corporate ownership that limits each owner's financial liability to the amount of money that he or she has paid for the corporation's stock.
proxy
a legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual or individuals.
stockholders
a person who owns a corporation's stock.
Advantages of Corporations
Limited Liability Ease of Raising Capital Ease of Transfer of Ownership Perpetual Life Specialized Management
Disadvantages of Corporations
Difficulty and Expense of Formation Government Regulation and Increased Paperwork Conflict within the Corporation Double Taxation Lack of Secrecy
criteria for S corporation status includes:
No more than 100 stockholders are allowed. Stockholders must be individuals, estates, or certain trusts. There can be only one class of outstanding stock. The firm must be a domestic corporation eligible to file for S-corporation status. All stockholders must agree to the decision to form an S-corporation.
articles of incorporation include:
The firm's name and address The incorporators' names and addresses The purpose of the corporation The maximum amount of stock and types of stock to be issued The rights and privileges of stockholders The length of time the corporation is to exist
corporation
an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.
a business is allowed to incorporate in:
any state it chooses
two basic types of stock
common stock preferred stock
rights of owners of both common and preferred stock include:
dividends receiving information about the corporation voting on changes to the corporate charter attending the corporation's annual stockholders' meeting
benefit corporation
form of business ownership gives a for-profit corporation the legal authority to operate for the benefit of societal stakeholders, not just for stockholders.
capital raised from selling stock can be used:
fund expansion to repay debt for any valid business reasons
forming a S corporation
once the corporation is established, the corporation must complete Form 2553 and submit it to the IRS
Articles of corporation filed with:
secretary of state
common stock
stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others
preferred stock
stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners.
Corporate officers
the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors.
decision on where to incorporate usually is based on two factors:
the cost of incorporating in one state compared with the cost in another state the advantages and disadvantages of each state's corporate laws and tax structure.
stock
the shares of ownership of a corporation.
board of directors
the top governing body of a corporation, the members of which are elected by the stockholders.