Ch 39 Corporate Formation and Financing

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Michigan corporation

1 books 2 annual meeting- notice 3. Minutes kept 4. Attendance 5. Discussed 6. Voted 7. who voted 8. Results

S corporation requirements

1 the corporation must be a domestic Corporation 2. the corporation must not be a member of an Affiliated group of Corporations 3. the shareholders of the corporation must be individuals, Estates, or certain trust and tax exempt organizations 4. The corporation must have no more than 100 shareholders 5. the corporation must have only one class of stock although all shareholders do not need to have the same voting rights 6. no shareholder of the corporation may be a non-resident alien

Shareholder agreement- ( to restrict stock transfers) -

A shareholder agreement can provide for proportional control when one of the original shareholders dies. The Descendants shares of stock in the corporation would be divided in such a way the proportion of Holdings of the survivors and thoughts the proportion of control would be maintained

Select the state of Incorporation

Considerations of process: which state offers the best tax advantage. how much does each state charge to incorporate. as well as the annual fees and fees for specific transactions. Delaware has historically been the least restrictive.

Trade name dispute

Corporation doing business within the state if a firm does business under a name that is the same or is deceptively similar to an existing company name it may be liable for trade infringement

Nonprofit corporation-

Corporation formed for purposes other than making a profit private hospitals educational institutions Charities and religious organizations are frequently organized as non-profit corporations it is a convenient form of organization that allows various groups to own property and deform contracts without exposing the individual members to personal liability.

Management of close corporations-

Resembles that of a sole proprietorship or partnership and that a single shareholder or a tightly-knit group of shareholders usually hold the positions of Directors & officers, yet as a corporation The Firm must meet all specific legal requirements set forth in state statutes. To prevent the majority shareholder from dominating the company a close corporation may require that more than a simple majority of the directors approve any action taken by the board

Tort liability

a corporation is liable for the torts committed by its agents or officers within the course and scope of their employment

Securities

corporations are financed by the issuance and sale of corporate Securities which include stocks and bonds.

Limited situation

courts can pierce the corporate veil and impose liability on its shareholders for corporate obligations. Normally corporate shareholders are not personally liable for the obligations of the corporation beyond the extent of their Investments

domestic Corporation-

defined by its home state

Classification of Corporation-

depends on location purpose and ownership characteristics. A corporation does not have an automatic right to do business in a state other than its state of Incorporation therefore it must obtain a certificate of authority in any state in which it plans to do business.

Earnings

firms are not obligated to return a principal amount per share to each holder of common stock because no firm can ensure that the market price per share of its common stock will not decline over time. the issuing firm also does not have to guarantee a dividend some corporations never pay dividends.

Public corporation

formed by the government to meet some political or government purpose. government organizations such as the US Postal Service Tennessee Valley Authority and Amtrak are public corporations. A public corporation is not the same as a publicly held Corporation.

alien Corporation-

formed in one country yet does business in another

foreign corporation-

formed in one state but does business in another

C Corp

has to file its own personal tax return because it is its own entity and once the money is paid out as dividends to its shareholders the shareholders themselves now have to file their own tax returns as well resulting in a double taxation

De Jure Corporations

if Corporation has substantially complied with all conditions precedent to incorporation the corporation is said to have de jure, rightful and lawful existence. The Secretary of State's filing of the Articles of Incorporation is conclusive proof that all mandatory statutory Provisions have been met.

De Facto Corporations

if a defect and information is substantial in the articles of Corporation such a corporation's failure to hold an organizational meeting to adopt bylaws, the outcome will vary depending on the jurisdiction. Some States including Mississippi New York Ohio and Oklahoma still recognize the common law doctrine of de facto Corporation no States the course will treat a corporation as a legal Corporation despite the defect in its formation if the following three requirements are met. 1. estate statue exist under which the corporation can be validly Incorporated 2. the parties have made a good-faith attempt to comply with the Statute 3. the parties have already undertaken to do business as a corporation

Misappropriation of close corporation funds-

if a shareholder and a close corporation takes advantage of his or her position and misappropriate company funds, the shareholder may have their shares appraised and to be paid the fair market value for them.

Corporate taxation-

income tax by various levels of government. state can suspend entities corporate status until taxes are paid if not paid, they can even dissolve the corporation for failure to pay. Corporation's profits can be subject to double taxation. Corporations may also be required to collect state sales tax on goods or services sold via the Internet and the corporation normally does not receive a tax deduction for dividends it distributes.

Company bylaws

internal rules of management adopted by the corporation at its first organizational meeting.

A corporation

is a legal entity created and reorganized by state law. This business entity can have one or more owners called shareholders and it operates under a name distinct from the names of its owners. The owners may be individuals or natural persons as opposed to the artificial legal person of the corporation or other businesses

personal guarantee

landlords, no different than a lease about 5 to 10 years you act as a cosigner. Most landlords will try to push for this type of commitment but you will be basically waving your LLC rights

comprehensive Collision

lease vehicles require this coverage if you don't the dealership where you bought the car will add it and charge you the amount by adding it to your monthly payments

Ultra Vires

means "Beyond the power". Usually involves contracts made for unauthorized purposes. Most private corporations nowadays are organized for any legal business and do not stay too specific purpose so the ultra vires Doctrine has declined in importance. Today cases that allege ultra vires acts usually involve non-profit organizations

File articles with the state

once article of incorporation had been prepared and signed they are sent to the appropriate state official usually a secretary of state along with required filing fee.

stocks

or Equity Securities represent the purchase of ownership in the business firm. Issuing stock is another way for Corporation to obtain financing.

Bonds (debentures)

or debt Securities represent the borrowing of funds by firms and governments At all levels as evidence of the funds they are borrowing from investors bonds normally have a designated maturity date the date with the principal or face amount of the bond is returned to the investor there are sometimes referred to as fixed income securities

Corporate personnel

overall management responsibility board of directors members elected by shareholders

no-fault claim policy :

phase 2: bodily injury pain and suffering your insurance company will kick in second time to protect you if you are sued by another party

no-fault claim policy :

phase one: All medical unlimited anything related to the Collision Coverage Ambulance Hospital/ ER X-rays MRI physical therapy Medication loss of wage reimbursement up to 85% $20 a day for home practitioners attendant care hourly rate between 12 and $15 an hour

participating preferred stock

preferred shares and titling owner to receive one preferred stock dividend and two additional dividends after the corporation has paid dividends on common stock

redeemable or callable preferred stock

preferred shares issued with the express condition that the issuing Corporation has the right to repurchase the shares as specified

Cumulative preferred stock

preferred shares on which required dividends not paid any given year must be paid in a subsequent year before any common stock dividends can be paid

convertible preferred stock

preferred shares that under certain conditions can be converted into specific number of common shares either and the issuing Corporation or sometimes and another Corporation

Private Equity Capital

private Equity firms obtain their capital from wealthy investors in private markets. the firms use their private Equity Capital to invest in existing corporations.

Improper Incorporation

procedures for incorporation are very specific if they are not followed precisely others may be able to challenge the existence of the corporation this can become important when a third-party who is attempting to enforce a contract or bring a suit for a tort injury learns of them

Professional corporations

professional such as Physicians lawyers Dentists and accountants can incorporate typically identified by the letters p c- professional Corporation s c- Service Corporation or PA- Professional Association. professional corporations are held at higher standards of conduct.

Sole proprietorship or DBA

sole proprietorship is set up as a business by the person who is personally liable.

Corporation by estoppel

sometimes a business Association holds itself out to others as being a corporation when it has made no attempt to incorporate and those situations The Firm normally will be stopped from denying corporate status and a lawsuit by a third party

shares of the corporation

the Articles must specify the number of shares of stock the corporation is authorized to issue.

Prepare the article of incorporation

the article includes basic information about the corporation and serve as primary source of Authority for its Future Organization and business functions the persons who execute sign the articles are the incorporators generally the Articles of Incorporation must include the following information. Name of the corporation the number of shares the corporation is authorized to issue the name and street address of the corporation's initial registered agent and registered office the name and address of each incorporator

Novation

the substitution of a new contract in place of an old one. A business person is personally liable for all pre incorporation contracts made with investors accountants or others on behalf of the future Corporation. Personal liability continues until the newly formed Corporation assumes liability for the pre incorporation contract through novation

Common stock

the true ownership of a corporation is represented by common stock it provides proportionate interest in the corporation with regard to control earnings and net assets

Commingled

to mix personal affairs with business affairs

Piercing the corporate veil********

to pierce the corporate veil is to expose shareholders to personal liability. Generally courts pierce the corporate veil when the corporate privilege is abused for personal benefit or when the corporate business is treated so carelessly that it is indistinguishable from that of a controlling shareholder. For example if a corporation is set up to never make a profit, has no intent to pay, Corporation is formed to evade existing legal obligations, tries to transfer property/ titles Without actually purchasing previous inventory.

Alter Ego Theory

when a corporation was not operated as a separate entity but was just another side or Alter Ego of the individual or group that actually control the corporation. example that's a business file for bankruptcy closes the business insert using the assets of that business under a new name without selling assets

insurance responsibility claim:

1. You 2. if you don't have insurance then they go to your resident relative, the relative you live with 3. no insurance with the relative you go back to the car that you were in if it were car accident 4. State assigned insurance

Incorporation procedures

1. select state of Incorporation. 2. secure the corporate name. 3 prepare the article of incorporation 4. file the article of incorporation with the secretary of state

Sample Articles of Incorporation

Article 1 the name of the corporation Article II the period of its duration is (A corporation has A perpetual existence unless the article States otherwise) article 3 the purpose for which the corporation is organized article 4 the aggregate number of shares that the corporation shall have the authority to issue Article 5 the corporation will not commence business until it has received for the issuance of its shares consideration article 6 the address of the corporation's registered office article 7 the number of initial directors article 8 the name and addresses of the incorporators

Bond indenture

Between bond issuers and bondholders, an indenture is a legal and binding contract specifying all the important features of a bond, such as its maturity date, timing of interest payments, method of interest calculation, and callable or convertible features, if applicable.

Respondeat Superior

Latin for let the master answer meaning responsible party

Venture capitalist

Outside investors provide financing to new businesses in exchange for an ownership interest in the business. Venture Capital Investments are high-risk and the investor must be willing to lose their invested funds but offer the potential for well above average returns at some point in the future.

Close corporations-

Shares are held by members of a family or relatively few people such as a small group of shareholders usually personally known to each other so there is no trading for market shares. A close corporation is often operated like a partnership. Some states have enacted special statutory Provisions that apply to these corporations and allow them to depart significantly from certain formalities required by traditional Corporation law. Additionally the RMBCA gives the close corporation considerable flexibility in determining its rules of operations. Because close corporation has small number of shareholders the transfer of 1 shareholders share to someone else can cause serious management problems. the other shareholders may find themselves required to share control with someone they do not know or like A close corporation gives you the ability to control who your shareholders are the stock of the ownerships are restricted to who they can transfer shares to protection for those who own smaller shares.

Publicly held Corporation (Often called a public company)-

Shares are publicly traded and a Securities Market such as the New York Stock Exchange or (NASDAQ) An electronic stock exchange founded by the National Association of Securities dealers. In contrast to public corporations private corporations are created either wholly or in part for private benefit that is for profit most corporations are private although they may serve a public purpose

Corporate powers

The Express Powers of a corporation are found in its Articles of Incorporation. in the law of the state of incorporation and in the state and federal constitutions. corporate bylaws in the resolutions of the corporation's board of directors also established the expressed powers of the corporation. If the company's bylaws are silent on an issue it's important that the bylaws set forth the specific operating rules of the corporation. The following order of priority is used if the conflict arises among the various documents of all being a corporation. 1. the US Constitution 2. State constitutions 3.State statutes 4. The Articles of Incorporation 5. Bylaws 6. resolutions of the board of directors

Secure the corporate name

The choice of corporate name is subject to State approval to ensure against duplication or deception. The Secretary of State runs and check on the name. Some states require the person incorporating a firm to run their own check at their own expense. Once clear the name can reserve for a short time for a fee pending the completion of the Articles of Incorporation all states require the corporation's name to include the word Corp-Corporation INC.- Incorporated Co- company or LTD- Limited. First check available domain name whois.com

Corporate earnings and Taxation-

When a corporation earns profits it can either pass them on to shareholders in the form of dividends or retain them as Profits.

right of first refusal

When a shareholder wants to rid itself of its shares they have to present the shares to the current shareholders first And for the shares to be sold outside of the shareholders to a new person that new person still has to be approved by the current shareholders. Basic requirements for a new shareholder to come on board what is their experience? Etc. The shares can be sold to a company it does not have to be a person because they're not getting S.Corp. benefits

Holding company- (sometimes referred to as a parent company)-

a company whose business activities consist of holding shares and another company typically the holding company is established and a low tax or no tax offshore jurisdiction such as the Cayman Islands Dubai Hong Kong Panama Luxembourg or Monaco Where they can transfer cash bonds stocks and other Investments to be taxed at the rate of the offshore jurisdiction

shareholder

a shareholder can sue the corporation and vice versa and under certain circumstances a shareholder can sue on behalf of a corporation

First organizational meeting to adopt bylaws

after incorporation the first organizational meeting must be held usually the most important function of this meeting is the adoption of the bylaws, the internal rules. It's Articles of Incorporation name initial board of directors than the directors by majority vote called the meeting to adopt the bylaws and complete the company's organization. If they did not name the directors a meeting is held to elect the directors End complete routine business. issuance of shares, hiring employees ect

preferred stocks

an equity security with preferences usually this means that the holder of preferred stock have priority over holders of common stock as to dividends and payment on dissolution of the corporation the preferences must be stated in the Articles of Incorporation holders of preferred stock may or may not have the right to vote. preferred stock is not included among the liabilities of a business because it is equity preferred shares have no fixed maturity date on which the firm must pay them off.

voting rights

any person who purchases common stock requires voting rights one vote per share held. voting rights in a corporation apply to the election of the firm's board of directors and to any proposed changes in the ownership structure of the firm

Torts and criminal law

anyone acting on behalf of a company

Benefit Corporation-

benefit Corporation is for-profit corporation that seeks to have a material positive impact on society and the environment. benefit corporations differ from traditional corporations in the following three ways. 1. Purpose- its purpose is to benefit the public as a whole 2. Accountability- Shareholders determine whether the company has achieved a material positive impact. 3. transparency a benefit Corporation must issue an annual benefit report on its overall social and environmental performance.

Board of directors. B.O.D.

board of directors make policy decisions and hires corporate officers and other employees to run daily operations

S corporation

can avoid double taxation. they can also avoid imposition of income taxes at the corporation level while retaining many of the advantages of a corporation particularly an LLC most businesses that are s corporations are the same as corporations with different tax status. there can only be one class of stock. no more than 100 shareholders. all shareholders has to be persons/ not a business and US citizens. In an S corporation the money goes directly to the shareholders and Taxation at the corporate level goes away. S corps. are not publicly traded. And an s-corp you declare whatever amount of shares of stocks you want them to be. corporation will automatically be taxed under subchapter C unless it'll excess Corporation status if a corporation has S corporation status

certificate of authority

certificate to allow business to be done in a state other than the state of Incorporation


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