Corporations: Formation and Financing

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Flashcards covering key concepts related to corporation formation, classification, and financing.

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31 Terms

1
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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).

2
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What rights does a corporation have as a legal person?

The right to sue, borrow money, and freedom of speech, among others.

3
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What does the 'corporate veil' protect?

Shareholders from liability arising from the actions of the corporation.

4
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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.

5
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Who is responsible for the overall management of the corporation?

The Board of Directors.

6
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To what extent are shareholders personally liable?

Only to the extent of their investment.

7
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What is 'double taxation' in the context of corporations?

Corporate profits are taxed, and dividends paid to shareholders are taxed again as well.

8
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What are retained earnings?

Profits that are not distributed to shareholders but are retained by the corporation.

9
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What is a domestic corporation?

A corporation in its home state (the state in which it incorporates).

10
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What is a foreign corporation?

A corporation that is formed in one state but is doing business in another state.

11
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What is an alien corporation?

A corporation formed in another country but is doing business in the U.S.

12
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What is the purpose of a public corporation?

To meet some political or government purpose (e.g., cities, towns, USPS).

13
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What is the purpose of a private corporation?

Created wholly or in part for private benefit; owned by private persons, not the government.

14
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What is the purpose of a non-profit corporation?

Formed for purposes other than making a profit (e.g., private hospitals, charities, religious institutions).

15
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What is a close corporation?

A private corporation whose shares are held by a family or relatively few persons; operated like a partnership.

16
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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.

17
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What is a professional corporation?

A corporation formed by professionals like accountants, lawyers, and physicians, providing limited liability except for individual professional negligence (malpractice).

18
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What is a benefit corporation?

A corporation that seeks to have a material positive impact on society and the environment.

19
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Who is liable for preincorporation contracts?

Individuals are personally liable for any preincorporation contracts made on behalf of the future corporation.

20
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What are the steps to incorporate?

Select state, secure corporate name, prepare and file Articles of Incorporation, hold first organizational meeting.

21
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What is 'de jure' corporate existence?

Substantial compliance with all requirements for incorporation; only the state can attack its existence.

22
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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.

23
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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.

24
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What are express and implied corporate powers?

Express powers are explicitly stated; implied powers are those reasonably appropriate and necessary to accomplish corporate purposes.

25
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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.

26
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What are stocks and bonds?

Stocks (equity securities) represent ownership; bonds (debt securities) represent the borrowing of funds.

27
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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.

28
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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.

29
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What is venture capital?

Capital provided by outside investors to new business ventures, often with managerial and technical advice.

30
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What is private equity capital?

Capital provided by private firms to existing corporations, often to reorganize them for increased profitability.

31
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What is crowdfunding?

Cooperative activity where people pool money online to assist a cause or invest in a venture.