Chapter 22 - FBE

corporation

fictitious legal entity that’s created according to statutory requirements, and dominant form of business organization in US

corporations are…

legal entity (legal person), can sue and be sued in corporate name, can be held liable for civil violations and guilty of criminal violations

legal entity distinct from its owners (characteristic)

property owned by corporation belongs to the corporation, NOT shareholders

shareholder limited liability (characteristics)

liable to the extent of capital contributions

free transferability of stock (characteristics)

ease in which stock is shared may have a positive impact on market share

perpetual existence (characteristics)

unless the articles of incorporation specify a duration, the corporation will continue to exist no matter what happens to directors, shareholders, or founders

centralized management and control (characteristics)

owners = shareholders, but they vote on the board of directors who make policy decisions and elect officers who run day to day operations

corporation is…

SOLEY liable for the debts of the business, shareholders have no personal responsibility

incorporation process us

is the process of forming a corporation in a state (can only be incorporated in 1 state & must follow state’s incorporation status)

pseudo foreign corporation

incorporated in one state but does all of it’s business in another state

selecting a corporation name (2)

name must contain corporation incorporated or limited or an abbreviation, cannot use word or phrase indicating corporation has a purpose other than those stated in articles of incorporation, can’t use a name already taken in that state, or name similar to a federally trademarked name

articles of incorporation

Basic government documents of the corporation, signed by the incorporator who can be a person or BUSINESS ENTITY

registered agent

empowered to accept service of process on behalf of the corporation (receives lawsuits and other legal documents for the company)

purpose of corporation - limited clause

may limit a corporation to only engage in certain activities

corporate powers express

powers granted in the articles of incorporations, bylaws and by the law or state

implied

not powers can be expressly detailed, corporation has certain implied powers necessary to carry out corporate purposes

ultra virest act

officers and directors responsible for acts outside of express or implied powers become liable to the corporation or shareholders for damages

bylaws

Internal management and structure (ex: when and where meetings take place) more limited, not filed with state, adopted at first organizational meeting, can be amended by board of directors

organization meeting

organizational meeting held after articles of incorporation, elect initial board of directors, adopt bylaws, & other business affairs

defacto corporation

improperly formed corporation still gets corporate status, some defect in compliance with the incorporation statue

corporations by estoppel

a third person has contracted with the business and the business represented itself to the 3rd party as a corporation (3rd party can’t go after shareholders, instead must go after corporations assets)

promoter

acting on behalf of a corporation that is not yet formed (promoted retains liability until their is a novation)

publicly held

corporation with many shareholders or shares are publicly traded on national stock exchanges

closely held corporation

corporation privately held with a small number of shareholders

piercing the corporate veil

can pierce the shield and hold the responsible shareholders liable for a corporation’s debt and obligations

if company can’ afford normal operating expenses to start (undercapitalized)

everyone becomes personally liable

alter ego theroy

unity of interest and control between two or more entities such that they are not considered separate (2 companies are then treated as one)

preferred stock

generally not given a right to vote, has preference over common stock, can have different classes

stock subscriptions

agreement to purchase a corporation’s shares

preincorporation stock subscription

not binding just seeing who’s interested

common stock

doesn;t need dividends, typically has classes of voting shares and non voting shares (non voting shares common between family)

conversion rights

preferred stock can be converted into common stock

redeemable preferred stock

the company can buy back the shares later

debtor

debtor = corporation, holder of security = creditor

debt (debenture)

long term, unsecured debt (no specific asset is tied to the loan)

bond

long-term, secured debt

note

short term debt, can be secured or unsecured

crowdfunding

obtaining financing by pooling funds through the internet

The S corporation

a regular corporation but NO corporate tax profits “pass through” to owners (so they only pay taxes once AVOID double taxation)

s corp requirements

domestic corp (must be formed in the US), shareholders must be US citizens, limited types of shareholders (corps and parnterships NOT allowed), 100 or fewer shareholders, only one class of stock (common or preferred), shareholders have limited liability still