E3 CH18-Corporations

Corporate Personnel

The people employed by a corporation, which encompasses all employees from top management to staff.

Officers and employees run the daily operation and answer to the Board of Directors, elected by shareholders, to manage the firm.

Corporate Veil

The protection of shareholders to not be personally liable for corporate debts and obligations.

Piercing the Corporate Veil

The action of a corporate entity and hold the shareholders personally liable for corporate debts and obligations.

Typically done in situations dealing with fraud or the law, or when corporate privilege is abused for personal benefit. Another case is when the corp. business is treated so carelessly that it is indistinguishable from that of a controlling shareholder. (Commingling)

Commingled

Mixed to such a degree that individual parts (such as funds or goods) no longer have separate identities.

Corporation

An legal entity formed in compliance with statutory requirements that is distinct from its shareholder-owners.

• Can be held liable for torts & crimes (usually fined)

• DOUBLE TAXED- Corp. Income & Shareholder dividends

• Limited L$ for Shareholders “Corporate Veil”

• Has some constitutional rights but no right against self-incrimination

Domestic Corporation

In a given state, a corp. that is organized under the law of that state.

• “the state in which it incorporates”

Foreign Corporation

In a given state, a corp. that does business in the state but is not incorporated there. In some instances, in order to do business in a different state, it must obtain a “certificate of authority” in the state it want’s to do business in.

• Ex, Incorporated in FL, but does business in NC

Alien Corporation

A corp. formed in another country but doing business in the US.

• EX, formed in Mexico, but does business in US

Public Corporation

A corp. owned by a FED, STATE, or municipal GOVERNMENT to meet a political or governmental purpose.

• Ex- US Postal Services, AMTRAK

Publicly held Corporations

A corp. whose shares are publicly traded in securities markets, such as the NYStock Exchange or the NASDAQ

Private Corporation

A corp. created either wholly or in part for private benefit. Most corps. are private but may serve a public purpose such as gas utility.

Non-Profit Corporations

Corps. that are formed with a profit-making purpose.

• Private hospitals, educational institutions, charities, religious organizations ,etc.

Close Corporation

A corp. whose shareholders are limited to a small group of persons, often only family members.

• also referred to as closely held, family, or privately held

• usually no trading market for shares and are somewhat like partnerships or sole proprietorships.

S Corporation

A close business corporation that has most corporate attributes, including limited L$, but qualifies under the Internal Revenue Code (IRC) to be taxed as a partnership.

• Taxed ONCE by shareholders not at corp. level.

Professional Corporations

Corporations held by most commonly physicians, lawyers, dentists, and accountants and must generally be licensed professionals.

Incorporation Procedures

1. Select the STATE of incorporation

2. Secure an appropriate corp. name.

   1. requires the word corp, incorporated, company, or limited, or an abbr of one of these terms.

3. Prepare the Articles of Incorporation

4. File the Articles of Incorporation

   1. with secretary of state and pay specified fees.

Articles of Incorporation

The document that is filed with the appropriate state official when a business is incorporated and that contains basic info about the corp. Ex- Express and implied powers, Ultra Vires Doctrine

1. Name of corp.

2. Number of shares of stock the corp is authorized to issue.

3. Name and street address of corp.’s initial registered agent and registered office.

4. Name and address of each incorporator.

First Organizational Meeting

After incorporation, the __ _______ ____ must be held. Directors, by majority vote, call this meeting. Discuss the adoption of bylaws which set forth the internal rules of management for the corp.

Directors and Officers

____ are fiduciaries of the corporation and owe duty of care and loyalty. ______ are elected and set forth by the corporation’s articles or bylaws.

Business Judgement Rule

A rule under which courts will not hold corp. officers and directors liable for honest mistakes of judgement and bad business decisions that were made in good faith.

• Shield GOOD officers and directors from L$

Corporate Opportunity Doctrine

A doctrine that prohibits a corporate fiduciary from exploiting an opportunity related to the corporation’s business unless they first offer that opportunity to the corp.

Shareholder Powers

Have acquired a share of stock in a corporation. They own part of the corp., but are generally not responsible for its daily management. Although they have no legal title to corp. property, they do have an equitable (ownership) interest in the firm.

• must approve fundamental changes affecting the corp. before changes can occur.

• can amend articles of incorporation, bylaws, approve mergers, corp. dissolution, or sale of corp. assets.

Shareholder Meetings

These meetings must occur at least annually, however, special meetings can be called to deal with urgent matters. If a shareholder cannot attend, their vote will be by proxy(appointing another person to represent you to vote)

Shareholder Votings

In order for shareholders to act, a Quorum must be present. (more than 50% of outstanding shares are present) Once a quorum is present, voting can proceed. Voting can he held by majority, cumulative, as well as other ways.

Quorum

The number of members of a decision-making body that must be present before business may be transacted.

Preemptive Rights

The rights of a shareholder in a corp. to have the first opportunity to purchase a new issue of that corp.’s stock in proportion to the amount of stock already owned by the shareholder.

Dividends

A distribution of corp. profits or income ordered by the directors and paid to shareholders in proportion to their shares in the corp.

Inspection Rights

Gives the shareholder the right to inspect in person or have an attorney, accountant, or other authorized agent to do so.

• SH’s can sue when their own rights have been violated and sometimes can sue on behalf of their company called a derivative action.