Chapter 18: Corporations

Corporation

Legal entity created and recognized by state law with one or more shareholders.

Legal person

A corporation that enjoys rights like free speech, due process, and access to courts.

Shareholders

Owners of the corporation who purchase stock.

Board of directors

Elected by shareholders to manage policy decisions.

Corporate officers

Individuals hired to run the corporation’s daily operations.

Limited liability

Shareholders are not personally responsible for corporate debts or acts.

Retained earnings

Profits kept by the corporation for reinvestment.

Dividends

Profits distributed to shareholders.

Double taxation

Corporate profits taxed at both corporate and shareholder levels.

Respondeat superior

Doctrine holding corporations liable for employees’ acts within scope of employment.

Responsible officer doctrine

Corporate officers can be criminally liable for corporate violations.

Domestic corporation

Operates within its state of incorporation.

Foreign corporation

Formed in one state, operates in another.

Alien corporation

Formed in another country.

Public corporation

Large corporation with publicly traded shares.

Private corporation

Formed for private profit; shares not publicly traded.

Nonprofit corporation

Organized for purposes other than profit (e.g., hospitals, charities).

Close corporation

Small company with few shareholders and informal management.

Shareholder agreement

Contract that restricts transfer of shares in close corporations.

S corporation

Meets IRS rules to avoid double taxation; limited to 100 shareholders and one class of stock.

Promoters

Individuals organizing a corporation and attracting investors before formation.

Promoter’s liability

Promoters are personally liable for pre-incorporation contracts.

Articles of incorporation

Document filed with state containing key details about the corporation.

Bylaws

Internal rules governing management of the corporation.

De jure corporation

Legally recognized corporation with minor filing defects.

De facto corporation

Formed with major defects but in good faith under a valid statute.

Good faith effort

Requirement for de facto corporation status showing honest attempt to comply with law.

Express powers

Powers listed in articles of incorporation or bylaws.

Implied powers

Powers reasonably necessary to accomplish corporate purposes.

Ultra vires act

Action beyond the corporation’s express or implied powers.

Piercing the corporate veil

Holding shareholders personally liable when corporation is misused.

Undercapitalization

Inadequate funding that can justify piercing the corporate veil.

Commingling

Mixing personal and corporate assets, risking loss of limited liability.

Alter-ego theory

When a corporation and its owner are treated as one entity due to lack of separation.

Corporate formalities

Legal requirements like holding meetings and keeping separate records.

Retained earnings vs dividends

Choice between reinvesting profits or distributing them to shareholders.

De jure vs de facto

Degree of compliance with incorporation laws.

Close vs public corporation

Ownership and management differences based on number of shareholders.

Express vs implied powers

Direct vs necessary incidental corporate powers.

Ultra vires vs within authority

Acts beyond vs within corporate powers.

Piercing veil factors

Fraud, undercapitalization, evasion, lack of formality, commingling.