Chapter 19 - Corporations
What is a *Benefit Corporation*?
A corporation that benefits the environment or society, not just shareholders. Key Differences: - Purpose - Accountability - Transparency
What is a *Professional Corporation*?
A corporation where all shareholders are required to be members of the same profession.
What is a *Publicly Held* corporation?
A corporation who's shares are traded in a securities market
What are the restrictions for the formation of an *S Corporation*?
- No more than 100 shareholders - Only one class of stock can be issued - Can not be part of an affiliated group - Shareholders have to be individuals, estates, or trusts
What state do a lot of corporations incorporate in because of its favorable corporation laws?
Delaware
What is a Corporation's *Minute Book*?
A book that records minutes and written consents of directors meetings
What is the *"Business Judgment Rule"*?
A common law doctrine that protects a director acting in good faith (or w/ a *Duty of Care*) that happens to turn out bad for the corporation. Only protects as long as the director/officer took step to: - Become informed - Had rational basis for decisions made - Did not have conflict of interest
What is a *Holding Company*?
A company in a low tax country used by corporations to defer taxes
What is a *Public Corporation*?
A corporation organized by the government to meet a purpose (TVA, AMTRAK)
Directors and Officers have to act under a *Duty of Loyalty*, what does that mean?
A duty that requires putting the corporation's interests before your personal interests. Prohibits: - Competing with corp. - Taking the corporation's opportunity - Insider Trading - Approving transactions that hurt minority shareholders
What is an *S Corporation*?
A regular corporation that makes a special IRS Election to be taxed like a partnership. This lets the corporation avoid "double taxation" at federal level. Shareholders report their share of corporate income on their individual tax returns
What are *Ultra Vires Acts*?
Acts that are beyond a corporation's power (guaranteeing debt, or loans)
What is a *Fiduciary* of a corporation?
An entity that owes ethical and legal duties to a corporation
What general responsibilities does a Director of a corporation have?
Directors are responsible for general management decision. - Corporate Policies - Hiring/Firing Officers - Financial Decisions (distribute dividends or not)
Directors and Officers have to act under a *Duty of Care*, what does that mean?
Directors/Officers are expected to act in good faith and in the best interest of the corporation.
How does "double taxation" apply to corporations?
Corporations *pay an income tax on their earnings*, and when those earnings are distributed in the form of dividends, the shareholders *pay an income tax on the dividends* they actually receive.
What are *Bylaws*?
Laws that govern internal affairs for a corporation
What does it mean to say a Corporate Director has the right of *Indemnification*?
If a director is sued for acts as a director, the corp. should guarantee reimbursement and/or purchase liability insurance to protect the board from personal liability.
What is the *Registered Agent/Office* responsible for in a corporation?
Receiving any legal notice or documents from the state and/or 3rd parties.
A corporation's profits are either _____ or _____.
Retained Earnings (to reinvest) or Dividends (payed to shareholders)
What is a *Close Corporation* (or Privately/Closely Held Corporation)?
Stock is not publicly traded, and shares are typically held by a small number of people who know each other. Shareholders are often directors and officers Most common type of corporation in the USA
When a corporation starts out who typically designates the directors? And after that who selects the directors?
The incorporators typically elect the first board of directors. Once the first board has been elected, the shareholders typically elect the rest of the following directors.
How does a Director's terms work? And can they be removed?
The term of office is generally for one year, but some have staggered 3-year terms. They can be removed *for cause* (failing to perform a required duty)
How are corporations taxed?
They are "double taxed" on a federal and state level.
What is *Piercing the Corporate Veil*?
When a court can ignore the corporate structure and hold shareholders personally liable. (Often when a corporation is an 'alter-ago' for major shareholders, or when corporate interests are parallel to personal interests)