Business Law - Chapter 41

Under the Commerce Clause, the power to regulate interstate commerce is given to the

federal government.

The Supreme Court of the US held that a foreign corporation may be brought into a state's court in connection with its activities within the state, provided that the state down not violate the corporation's

due process rights under the 14th Amendment of the Constitution and its rights under the Commerce Clause

The states do NOT have the power to exclude or discriminate against foreign corporations that are

engaged solely in interstate commerce

Two requirements must exist for a court to pierce the corporate veil:

1. Domination of a corporation by its shareholders 2. Use of that domination for an improper purpose

A state may tax a foreign corporation if such taxation does not violate:

1. Due Process Clause 2. Commerce Clause

Which of the following constitute improper use of a corporation?

1. Evading an existing obligation 2. Circumventing a statute 3. Defrauding creditors

Corporations may be divided into 3 classes:

1. For profit 2. Not for profit 3. Government owned

The following does not constitute intrastate business:

1. Maintaining an office to conduct intrastate business 2. Selling personal property not in interstate commerce 3. Entering into contracts relating to local business or sales 4. Owning or using real estate for general corporate purposes 5. Passive ownership or real estate for investment

A state tax does not violate the commerce clause when:

1. The tax is applied to an activity with a substantial connection with the taxing state. 2. Fairly apportioned 3. Does not discriminate against interstate commerce 4. Fairly related to the services provided by the state

Four purposes for doing business is determined by:

1. Whether a corporation is subject to a lawsuit in a state's courts. 2. Whether the corporation's activities are subject to taxation. 3. Whether the corporation must qualify to carry on its activities in the state. 4. Whether the state may regulate the internal affairs of the corporation.

Improper use

1. defrauding creditors 2. circumventing a statute 3. evading an existing obligation

A state may impose its laws on a foreign corporation if such an imposition does not violate the Due Process Clause of the

14th Amendment to the US constitution

For profit corporations

A business that issues stock to their shareholders, who invest in the corporation with the expectation that they will earn a profit on their investment. The profit may take the form of a dividend paid by the corporation or increased market value of their shares.

A certificate of authority

A foreign corporation must apply for it from the secretary of state, pay an application fee, maintain a registered office, and a registered agent in the state, file an annual report, and pay an annual fee.

Examples of not for profit corporations:

Charities, churches, fraternal organizations, community arts councils, cooperative grocery stores, and cooperative farmers' feed and supplies stores.

Domination

If a shareholder causes a corporation to act to the personal benefit of the shareholder

Most states have statutes for nonprofit corporations based on the revised

Model Nonprofit Corporation Act (MNCA)

All shareholders must consent to an

S corporation election. The Internal Revenue Code requires an S corporation to have only one class of shares and 100 or fewer shareholders.

Which of the following clauses of the US constitution requires that a foreign corporation have sufficient contacts with a state before the state may exercise jurisdiction over the corporation?

The Due Process Clause.

Which of the following has held that a foreign corporation may be brought into a state's court in connection with its activities within a state?

The United States Supreme Court

Parent corporation

The corporation that owns at least a majority of the shares of another corporation

Looting

Transfers of corporate assets to shareholders for less than fair market value

When does a state tax violate the Commerce Clause of the US Constitution?

When it does not relate to the services offered by the state

Corporations with very few shareholders whose shares are not available to the general public are called

close corporations.

The law of piercing the corporate veil is

common law protecting creditors of corporations

An isolate transaction is

completed within 30 days and is not one in the course of repeated transactions of a like nature

To aid their determination of whether a state may constitutionally impose its laws on a foreign corporation, courts have traditionally used the concept of

doing business

Courts have generally held that a foreign corporation is subject to the laws of a state when it is

doing business in the state

The MNCA and other laws impose the same requirements and penalties on nonprofit corporation as are imposed on

for-profit corporations

A corporation incorporated in one state is a

foreign corporation in all other states in which it does business.

The circumstances under which states impose their laws on a business incorporated in another state is determined by the law of

foreign corporations

Almost all for profit corporations are incorporated under the

general incorporation law of a state

Nearly all for profit corporations are incorporated under the

general incorporation law of a state.

To become a corporation, a business must

incorporate by complying with an incorporation statute.

Not for profit corporations do not

issue stock expect to make a profit

Most long arm statutes grant

jurisdiction over causes of action growing out of any transaction within the state

A corporation is a

legal entity separate from its shareholders.

A state's imposition of a tax on a foreign corporation must serve a

legitimate state interest and be reasonable in relation to the foreign corporation's contacts with the state.

Most states have passed

long arm statutes to permit their courts to exercise jurisdiction under the decision of the International Shoe Case.

Publicly held corporations tends to be

managed by professional managers who own small percentages of the corporation.

Close corporations are

managed only by their controlling shareholders

A corporation may be incorporated in one state yet do business in other states in which it is

not incorporated

Shareholders may be

only individuals or trusts

Government owned corporations are

owned by governments and perform governmental and business functions such as a municipality.

In the late 18th century in the US, incorporation was

permitted only for limited purposes beneficial to the public

The action by which courts sometimes ignore the separateness of a corporation and its shareholders is called

piercing the corporate veil

All states require professionals who wish to incorporated, such as physicians, dentists, lawyers, and accountants to incorporate under

professional corporation acts

Not for profit corporations do

provide services to their members under a plan that eliminates any profit motive. They have members rather than shareholders. Surplus revenues do not get distributed to their members.

A foreign corporation that conducts most of its business in a state other than the one in which it is incorporated is a

pseudo-foreign corporation in the state in which it conducts most of its business

Shares that are generally available to public investors are

publicly held corporation.

A state may require that foreign corporations

qualify to conduct intrastate business in the state, that is, conducting business transaction within the state.

Greater contacts are needed to subject a corporation to

sales taxation in a state than are needed to subject it to property taxation.

Early American corporations received

special charters from state legislatures. These charters were granted one at a time by special action of the legislatures; few special charters were granted.

A Subchapter S corporation, or S corporation, is a

special type of close corporation. Treated nearly like a partnership for federal income tax purposes.

Regulation of the internal affairs of a corporation is most likely to be exercised by the

state of incorporation

Long arm statutes frequently specify several kinds of corporate activities that make foreign corporations

subject to suit within the state, such as the: Commission of a tort Making of a contract The ownership of property

S corporations are

taxed only once - at the shareholder level, eliminating the double taxation penalty of incorporation.

The primary consequence of piercing the corporate veil is

that a corporation's shareholders may lose their limited liability

The model statute that improves rationality of corporation law is called

the Model Business Corporation Act (MCBA).

The revised Model Business Corporation Act (MBCA) is

the basis of corporation law in 29 states and the District of Columbia.

Thin capitalization

the corporation has been formed without sufficient capital (inadequate capitalization)

Subsidiary corporation

the corporation that is owned by the parent corporation

The circumstances under which states may impose their laws on a business incorporated in another state is determined by

the law of foreign corporations

In a typical close corporation, the controlling shareholders are

the only managers of the business

The relation between the corporation and its directors, officers, and shareholders is usually exercised only by

the state of incorporation