Business Law - Chapter 30

Corporation

A business entity that is separate and distinct from its owners, the shareholders. The law grants a corporation status as an artificial being, much like a person, in that it has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

Preferred Stock

A class of stock shares that gives its owners priority with regard to the distribution of dividends and a more elevated status if the corporation goes through bankruptcy.

Wholly Owned Subsidiary

A company whose common stock is 100% owned by another company, commonly called the parent company.

Stock Subscription

A contract in which the person agrees to buy shares of stock when the corporation comes into existence.

Secretary

A corporate officer whose duty it is to keep records of directors' and shareholders' meetings and to authenticate records of the corporation.

De Facto Corporation

A corporation in fact, and treated as a valid corporation.

Foreign Corporation

A corporation operating in states in which it did not file its original Articles of Incorporation. To become a foreign corporation, the business must file with the secretary of each state where it seeks to operate.

Domestic Corporation

A corporation operating only in the state in which it filed its Articles of Incorporation.

Nonprofit Corporation

A corporation organized for the purpose of achieving some artistic, humanitarian, or philanthropic purpose or the rendering of some public service. By definition, all public corporations are nonprofit.

Alien Corporation

A corporation organized under the laws of another country that does business anywhere in the United States.

De Jure Corporation

A corporation properly formed by virtue of law.

Chapter C Corporation

A corporation that can have unlimited shareholders, foreign or domestic.

Chapter S Corporation

A corporation with no more than 100 shareholders, all of whom are individuals, which the IRS exempts from paying federal corporate taxes but is treated as a partnership for federal tax purposes.

Derivative Action

A lawsuit brought by the shareholders of a corporation instead of the board of directors, whom the shareholders believe did not take proper and timely action.

Business Judgment Rule

A standard known for officers of a corporation, stating that boards of directors must make their decisions on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. Failure to come up to this standard may result in individual liability for the directors.

Private Corporation

A type of corporation organized by private individuals to carry out private business; either profit or nonprofit, depending on its purpose.

Public Corporation

A type of corporation organized by the federal, state, or local government to carry out a necessary public service that is by nature nonprofit.

Professional Corporation (PC)

A type of corporation that is for profit and organized to provide a professional service such as for physicians, lawyers, architects, accountants, and engineers.

Publicly Traded Company

A type of corporation whose shares are traded in any stock exchange.

Closely Held Corporation

Also known as a close corporation, a business entity whose shares are not traded to the general public in any stock exchange but that has a close-knit group of shareholders (or in some cases, only a single shareholder).

Classes of Shares (stock)

Corporate stock comprises several types, including common stock and preferred stock. Different classes of stock confer different voting rights on their owners.

Distributions

In a Chapter C corporation, a distribution occurs when profits of the corporation are sent to the shareholders in the form of dividends.

Incorporators

People who form the initial group who aim to create a new business by making investments, selling stock subscriptions, and performing preincorporation activities at their own risk. Also known as promoters.

Stockholder

Person owning shares of stock in a corporation.

Dividends

Profits divided equitably among stockholders.

Promoters

See incorporators.

Model Business Corporation Act (MBCA) of 1950

The basis of corporate law in most states, a model statute created by the American Bar Association.

Artificial Being

The concept that a corporation is a separate entity (separate from its owners) and can sue and be sued, borrow or lend money, etc., in the corporate name, much like a natural person.

Double Taxation

The concept that corporations are taxed twice: first, when the corporation pays income taxes on corporate profits, and second, when the shareholders pay personal income taxes on corporate profits distributed to them as dividends.

Board of Directors

The group of people that oversee a corporation and set policy. They are elected by the shareholders at the annual meeting.

Articles of Incorporation

The initial paperwork filed by the incorporators with the secretary of state that, if approved, begins the corporation.

Bylaws

The internal rules governing the operation of the corporation.

Shareholders

The owners of a corporation whose interest in the corporation is represented by shares of stock. Shareholders exercise decision-making authority over the corporation at the annual meeting by electing members of the board of directors, rather than in the daily operations of the company.

Registered Agent

The person designated by a corporation to receive service of process on behalf of the corporation.

Corporate Officers

The persons responsible for the day-to-day operation of a corporation who are appointed by the board of directors.

Piercing the Corporate Veil

When a court allows a plaintiff to reach beyond the corporate assets and corporate immunity and allows the personal assets of the company owners or directors to be subject to a lawsuit; usually when there has been fraud in the formation of the corporation or other serious misconduct.