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Flashcards covering key concepts related to corporation formation, classification, and financing.
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What is a corporation?
A legal entity created and recognized by state law, operating under a distinct name from its owners (shareholders).
What rights does a corporation have as a legal person?
The right to sue, borrow money, and freedom of speech, among others.
What does the 'corporate veil' protect?
Shareholders from liability arising from the actions of the corporation.
Under what circumstances can the 'corporate veil' be pierced?
When the corporate entity is used to perpetrate a fraud, circumvent the law, or achieve an illegitimate objective.
Who is responsible for the overall management of the corporation?
The Board of Directors.
To what extent are shareholders personally liable?
Only to the extent of their investment.
What is 'double taxation' in the context of corporations?
Corporate profits are taxed, and dividends paid to shareholders are taxed again as well.
What are retained earnings?
Profits that are not distributed to shareholders but are retained by the corporation.
What is a domestic corporation?
A corporation in its home state (the state in which it incorporates).
What is a foreign corporation?
A corporation that is formed in one state but is doing business in another state.
What is an alien corporation?
A corporation formed in another country but is doing business in the U.S.
What is the purpose of a public corporation?
To meet some political or government purpose (e.g., cities, towns, USPS).
What is the purpose of a private corporation?
Created wholly or in part for private benefit; owned by private persons, not the government.
What is the purpose of a non-profit corporation?
Formed for purposes other than making a profit (e.g., private hospitals, charities, religious institutions).
What is a close corporation?
A private corporation whose shares are held by a family or relatively few persons; operated like a partnership.
What is an S corporation?
A close corporation that meets specific requirements in Subchapter S of the Internal Revenue Code, allowing it to avoid income taxes at the corporate level while retaining limited liability.
What is a professional corporation?
A corporation formed by professionals like accountants, lawyers, and physicians, providing limited liability except for individual professional negligence (malpractice).
What is a benefit corporation?
A corporation that seeks to have a material positive impact on society and the environment.
Who is liable for preincorporation contracts?
Individuals are personally liable for any preincorporation contracts made on behalf of the future corporation.
What are the steps to incorporate?
Select state, secure corporate name, prepare and file Articles of Incorporation, hold first organizational meeting.
What is 'de jure' corporate existence?
Substantial compliance with all requirements for incorporation; only the state can attack its existence.
What are the requirements for 'de facto' corporate status?
Statute in the state under which the enterprise could be incorporated; good faith attempt to comply with the statute; and parties have already begun to do business as a corporation.
What is 'Corporation by Estoppel'?
When an association holds itself out as a corporation, it is prevented from denying corporate status in a lawsuit by a third party.
What are express and implied corporate powers?
Express powers are explicitly stated; implied powers are those reasonably appropriate and necessary to accomplish corporate purposes.
What is the 'alter ego' theory regarding piercing the corporate veil?
A court will hold shareholders personally liable if the corporation is indistinguishable from the shareholders.
What are stocks and bonds?
Stocks (equity securities) represent ownership; bonds (debt securities) represent the borrowing of funds.
What is the difference between common and preferred stock?
Common stock represents true ownership with voting rights; preferred stock has priority in dividend and asset distribution, and may or may not have voting rights.
List key differences between stocks and bonds.
Stocks represent ownership, have no fixed dividend rate or maturity date, and give stockholders voting rights; bonds represent debt, require fixed interest payments, have a maturity date, and generally do not give bondholders voting rights.
What is venture capital?
Capital provided by outside investors to new business ventures, often with managerial and technical advice.
What is private equity capital?
Capital provided by private firms to existing corporations, often to reorganize them for increased profitability.
What is crowdfunding?
Cooperative activity where people pool money online to assist a cause or invest in a venture.