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Corporation
Fictitious legal entity that is created according to statutory requirements
Shareholders
Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation
Free transferability of shares
National securities markets have been developed for the organized sale of securities
Corporations codes
State statutes that regulate the formation, operation, and dissolution of corporations
– Courts interpret state corporation statutes to decide individual corporate and shareholder disputes
Centralized management
Board of directors makes policy decisions concerning the operation of a corporation
Limited liability of shareholders
Corporations are liable for their own debts and obligations
Board of directors
A panel of persons who are elected by the shareholders that make policy decisions concerning the operation of a corporation
Corporate officers
Employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation
Limited liability of shareholders
A general rule of corporate law that provides that generally, shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation
Private corporation
A corporation formed to conduct privately owned business
For-profit corporation
Created to conduct a business for profit
– Can distribute profits to shareholders in the form of dividends
Publicly held corporation
Many shareholders
– Shares traded on organized security markets
– Shareholders rarely involved in management
Closely held corporation
Few shareholders
– Shareholders may have buy-and-sell agreements
– Shareholders often involved in management
Professional corporation
A corporation formed by lawyers, doctors, or other professionals
Not-for-profit corporations
Formed to operate charitable institutions, colleges, universities, and other not-for-profit entities
– Have no shareholders
Government-owned corporation
Corporation formed to meet a specific governmental or political purpose
Domestic
A corporation is a domestic corporation in the state in which it is incorporated
Foreign
A corporation is a foreign corporation in states other than the one in which it is incorporated
Alien
A corporation that is incorporated in another country
Incorporators
The parties who sign the articles of incorporation
Promoter
A person or persons who organize and start a corporation, or
– Negotiate and enter into contracts in advance of its formation
– Find the initial investors to finance the corporation
Promoters’ contracts
Collective term for items entered into by promoters on behalf of the proposed corporation prior to its actual incorporation
General-purpose clause
A clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law
Limited-purpose clause
A clause that can be included in the articles of incorporation that stipulates the activities that the corporation can engage in
Organizational meeting
A meeting held by the initial directors of the corporation after the articles of incorporation are filed
Corporate Seal
A design that contains the name of the corporation and the date of incorporation
C corporation is the default
Corporation may elect to be taxed as an S corporation to avoid double taxation
Equity securities (stocks)
Representation of ownership rights to a corporation
Express powers
Powers given to a corporation by (1) the U.S. Constitution, (2) state constitutions, (3) federal statutes, (4) state statues, (5) articles of incorporation, (6) bylaws, and (7) resolutions of the board of directors
Implied powers
Powers beyond express powers that allow a corporation to accomplish its corporate purpose
Ultra vires act
An act by a corporation that is beyond its express or implied powers
Common stock
A type of equity security that represents the residual value of a corporation
– Has no preferences
– Does not have a fixed maturity date
– Par value shares – Common stock on which the corporation has set the lowest price
– No par value shares – No assigned par value
Preferred stockholder
A person who owns preferred stock
Dividend preference
The right to receive a fixed dividend at stipulated periods during the year
Liquidation preference
The right to be paid a stated dollar amount if a corporation is dissolved and liquidated
Cumulative dividend right
Corporations must pay a preferred dividend if they have the earnings to do so
Right to participate in profits
Allows a preferred stockholder to participate in the profits of the corporation along with the common stockholders
Cumulative preferred stock
Stock for which any missed dividend payments must be paid in the future to the preferred shareholders
– Before the common shareholders can receive any dividends
Cumulative preferred stock
Stock for which any missed dividend payments must be paid in the future to the preferred shareholders
– Before the common shareholders can receive any dividends
Participating preferred stock
Allows the preferred stockholder to participate in the profits of the corporation along with the common stockholders
Conversion right
Convertible preferred stock permits the preferred stockholders to convert their shares into common stock
Authorized
Shares authorized in the corporation’s articles of incorporation
Issued
Shares sold by the corporation
Treasury
Shares repurchased by the corporation; these shares do not have the right to vote
Outstanding
Issued shares minus treasury shares; these shares have the right to vote
Debenture
A long-term, unsecured debt instrument that is based on a corporation’s general credit rating
Bond
A long-term debt security that is secured by some form of property
Note
A short-term debt instrument with a maturity of five years or less; notes can be either unsecured or secured
