Fin331 Chapter 41
What are the consequences if a foreign corporation is doing business in the state and fails to qualify?
1. Class 1 misdemeanor 2. may not commence a lawsuit in any state court 3. each officer, director, and employee who "does any such business" in VA knowing that a cert of authority is required is liable for a penalty between $500 and $5000
What two requirements must exist to pierce the corporate veil?
1. Domination of a corporation by its shareholders 2. Domination is for improper purpose
What are the 5 requirements for a foreign corp to do business in the state?
1. apply for certificate of authority 2. pay an application fee ($25) 3. maintain a registered office and registered agent in the state 4. file an annual report 5. pay an annual fee ($50-$850, depending on number of authorized shares)
What are activities that rise to the level of "doing business" within a state?
1. maintaining an office in the state 2. entering into contracts related to local business purposes (acceptance occurs in VA) 3. owning or using real property for business purposes 4. maintaining an inventory of goods to fill orders 5. performing service activities in the state
What does the MBCA list as not "doing business" within the state?
1. soliciting orders (by mail or with employees) in the state that require acceptance outside the state (Amazon.com) 2. selling through independent contractors 3. owning real or personal property for investment purposes 4. conducting an isolated transaction (i.e. sale to one customer) that is completed within 30 days 5. maintaining a bank account
A state law the regulates a foreign corp's business activities will not violate Commerce Clause if: (3 points)
1. state law serves a legitimate state interest 2. state law is the least burdensome means of achieving that interest 3. legitimate state interest outweighs the law's burden on interstate commerce
Depending on the amount of contacts that a foreign corp (NC) has with residents of another state (VA), those contacts may be enough to:
1. subject the NC corp to lawsuits in VA courts 2. subject the NC corp to VA taxes 3. require the NC corp to "qualify" (to conduct business) in VA
Was it constitutional to grant corporations personhood?
Because the Constitution makes no mention of corporations (even though corporations did exist at that time), this is a fairly clear example of the Court taking it upon itself to rewrite the Constitution, as most leftist activist judges usually do.
In what way are corporations classified?
By purpose, ownership, and origin
Which of the following activities meet the requirements for doing business in a state? A. owning real or personal property for investment purposes B. maintaining a bank account C. maintaining a store for product sales D. soliciting product orders through a catalog E. all of the above
C
The Supreme Court ruled the Commerce clause have government power to regulate: A. interstate commerce B. intrastate commerce C. both
C (when intrastate affects interstate commerce)
A state may impose its laws on a foreign corp if it does not violate: __________ and __________
Commerce Clause: must not unduly burden interstate commerce Due process clause of 14th amendment: foreign corp must have "sufficient minimum contracts" with the state
A state law that regulates business activities of a foreign corporation is constitutional if: A. it serves a legitimate state interest B. the legitimate state interest outweighs the burden on interstate commerce C. it is the most burdensome means of achieving the interest D. all of the above E. A and B, not C
E
A state may impose its laws on a foreign corporation if imposing its laws does not violate: A. the Takings Clause B. the Commerce Clause C. the First Amendment D. the Due Process Clause of the 14th Amendment E. B and D only
E
An example of a corporation granted monopoly in trade and power to govern colonies
East India Trading Company (lead to colonization of India), Hudson's Bay Company (lead to colonization of Canada)
T/F A corporation can be created without the government's permission
F
T/F A foreign corporation is one that operates in a country other than the one in which it is incorporated
F
T/F ABC Corp. is incorporated in the state of Nevada and owns a vacant parcel of land in California. The mere ownership of vacant land in California is sufficient to subject ABC Corp. to Cali. state income tax
F
T/F The Commerce Clause gives states the power to regulate intrastate commerce
F
T/F Each purpose that is considered "doing business" requires the same amount of contacts
F different amount of contacts required for each
T/F Cole Inc. is owned by two people. The corp applied for a loan from State Bank, the proceeds of which are to be used for business purposes. However, the 2 owners used the loan proceeds to build new homes for themselves. The corp then defaulted on the repayment of the loan. The corp shield provides absolute protection to both owners from personal liability for repayment of the loan
F (co-mingled corporate assets)
In 1886, the Supreme Court declared a corporation to be a ____________
Fictitious legal person
What are the two types of purpose for a corp?
For-profit and not-for-profit
Most states generally follow the _________ or the __________
Model Business Corporation Act (MBCA) or Model Nonprofit Corporation Act (MNCA)
Is government permission needed to create a sole proprietorship or a general partnership?
No, it is one entity (no distinction between the business and the owner)
What are the three ownership categories?
Publicly held (many shareholders), closely held (few shareholders, family-owned), and government-owned (municipalities, schools ,water companies)
The corporate form of business can be traced back to the ______________
Roman Empire
Plaintiff sued defendant for malpractice in CT state. Defendant did not have cert. of authority in CT but plaintiff claimed long arm statute applied. Trial court held it lacked personal jurisdiction over defendant. Defendant services were performed exclusively in NY. Even though services were provided to CT resident, it was "not doing business" in CT. No personal jurisdiction over defendant.
Ryan v. Cerullo
A closely held corp falls under Subchapter ____
S
Which court case in 1886 gave corporations Constitutional protections?
Santa Clara County v. Southern Pacific Railroad Company
T/F A fictitious legal person is entitled to the same Constitutional protections as natural persons
T
T/F An S corp is treated nearly like a partnership
T
T/F If a foreign corporation has not qualified to do business in a state, the state may still be able to exercise personal jursidiction over the corporation through its "long-arm statute"
T
T/F In a close corporation, the controlling shareholders are usually the only people that manage and operate the company
T
T/F Today, most incorporation statutes are enabling, granting the persons who control a corporation great flexibility in establishing, financing, and operating it
T
T/F Many states allow greater latitude in operation of close corporation internal affairs than public
T i.e. shareholders of a close corp may be permitted to dispense with the board of directors and manage the close corp as if it were a partnership
Why does the doctrine of corporate personhood create a legal contradiction?
The corporation is owned by its shareholders and is therefore their property. If it is also a legal person, then it is a person owned by others and thus exists in a condition of slavery -- a status explicitly forbidden by the Thirteenth Amendment to the Constitution.
T OR F: Governments granted corporations special privileges and powers believing that the benefit they provided to society outweighed any harm.
True
What is the legal status of a corporation?
a fictitious legal person; separate entity from the owner(s)
What is the corporate veil?
an imaginary wall between its corporation and its shareholders
Gonzales v Reich dealt with what
commerce clause and whether growing on marijuana affected interstate commerce
What are three types of domination for improper purpose?
defrauding creditors, circumventing a statute, evading an existing obligation
What is "doing business" with regard to Due Process?
depends on the purpose: 1. to subject the corporation to a lawsuit in the state 2. to subject the corporation to taxation in the state 3. to require the corporation to "qualify" to carry on its activities (to conduct business) in the state
Closely held corps are difficult/easy to settle
difficult
Categories of origin are:
domestic (in state), foreign (any other state), alien (all countries other than country which it incorporated) ex: a company that incorporates in VA, and does business in MD and Canada is a domestic in VA, foreign in MD, and alien in Canada
Causing the corporation to act in the best interests of the majority shareholders, i.e. paying shareholder's personal living expenses is what?
domination for improper purpose
Shareholders can exercise their influence and cause the corp to act in a certain way, good or bad. This is what?
domination of corporation by its shareholders
commingling assets between corporate entities or between shareholders and corporation (defrauds creditors)
domination used for improper purpose
establishing a subsidiary to circumvent or evade a statute or contractual obligation
domination used for improper purpose
inadequate capitalization (high debt-to-equity ratio defrauds non-secured creditors)
domination used for improper purpose
transfer of corporate assets to shareholders for less than fair market value (looting; defrauds creditors)
domination used for improper purpose
What is a benefit of a corporation in regard to transfer of owner's interest?
ease of transferability (shares of stock)
What is a characteristic of a publicly held corp?
easy to purchase/sell shares (traded on an exchange)
What three classes can corporations be divided into?
for-profit non-profit government owned
What are characteristics of a not-for-profit corp?
i.e. charitable/religious org no expectation of profit do not issue stock may have members (instead of shareholders)
By the late 1800's, corporate laws began to increase/decrease corporate powers
increase
What are characteristics of a for-profit corp?
issues stock to shareholders s/h's have an expectation of profit
What liability do the owners (shareholders) of a corp have?
limited liability, personal assets are not at risk
In 1776, American state legislatures began issuing special charters to corporations with what three caveats?
limited time, limited purpose, revocable
A foreign company committing a bad act in VA and is benefitting from the use of VA roads and is therefore sued in VA, is an example of a ________ (does this wording make sense?)
long arm statute
If a corp has no certificate of a authority, you would rely on the ________
long arm statute
Most states have enacted a __________ that allow its courts to exercise personal jurisdiction over an entity that harms a state interest
long arm statute
What powers does a corporation have?
may acquire, hold, and convey property in its own name, may sue and be sued in its own name
Is a flat tax imposed on all trucks using state highways a valid tax?
no, disproportionately burdens interstate trucking companys
If a portion of income is earned in VA by a CA resident, can VA tax all of the income? Can CA tax all of the income?
no, only the portion earned in VA yes
A corporation is __________ of conducting business, also known as a ______________
one form, business entity
Characteristics of a subchapter s are
only taxed at s/h level (no double tax) all shareholders must consent limited to 1 class of stock and 100 or fewer shareholders i.e. individuals or trusts (corporation/estate can't hold stock)
If there are 3 owners of a corporation and an injured party files a lawsuit, who will be sued?
only the corporation is sued, not each person
What qualifies a foreign corp to be subject to taxation?
property tax - ownership of property in that state state income and sales tax - greater contacts are needed to subject a foreign corp to this
What does the corporate veil do?
protects shareholders from personal liability for a corporation's actions
An incorporation statute sets the:
requirements for a business to incorporate procedures for shareholders election of directors duties directors and officers owe to the corp
A corporation is a ___________
separate legal entity
What is the result of "piercing" the corporate veil?
shareholders loss of limited liability
In the US, ________ regulate how a corporation is created and operated
states
What is a downside to a corporation?
subject to double taxation; the same $1 of income that is earned is taxed twice; money that is earned is taxed and then money distributed to shareholders is also taxed
Who must give permission for the creation of a corporation?
the government
What did the Supreme Court rule in International Shoe (1945)?
under due process clause, sufficient minimum contacts with a state may include an isolated event that harms a citizen or state interest (as long as subjecting corp to a lawsuit in the state does not violate "traditional notions of fair play and substantial justice"
Would VA satisfy 3 requirements of not violating Commerce Clause by requiring a 1 million dollar insurance plan to contractors operating in VA?
yes 1. legit state interest (protects homeowners) 2. least burdensome (policy is reasonable and doesn't discriminate against foreign corps) 3. interest outweighs burden on commerce (interest of protecting homeowners outweighs burden)
If an out-of-state truck driver (FL) is negligent and causes an accident (VA), is this a sufficient "contact"?
yes, one "bad event" is enough
