BULE 303: (CH 18 Corporations)

Corporation

Legal entity created and recognized by state law.

Board of Directors

Hires corporate officers and other employees to run the corporation's daily business operations

Limited Liability of Shareholders

Corporate shareholders' liability is limited to the amount of their investments. Shareholders usually are not otherwise liable for the debts of the corporation.

Dividend

The portion of corporate profits paid out to stockholders

Retained Earnings

The portion of a corporation's profits that has not been paid out as dividends to shareholders.

Corporate taxation

- Profits are subject to income taxation by various levels of government

- Corporate profits can be subject to double taxation.

Domestic Corporation

a corporation in the state in which it is incorporated

Foreign Corporation

a corporation that does business in the state but is not incorporated there

Alien Corporation

A corporation formed in another country but doing business in the United States

Public Corporation

Formed by the government to meet some political or governmental purpose

Publicly Held Corporation

A corporation whose shares are publicly traded in securities markets, such as the New York Stock Exchange or the NASDAQ

Nonprofit Corporations

Corporations that are formed without a profit-making purpose

Close Corporation

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

Professional Corporations

Professionals such as physicians, lawyers, dentists, and accountants can incorporate. Professional corporations typically are identified by the letters S.C. (service corporation), P.C. (professional corporation), or P.A. (professional association).

Why do corporations have to be careful when picking a state to incorporate in

Because state corporate laws differ, corporations look for the states that offer the most advantageous tax (Delaware)

What are the requirements for picking a name for a corporation

- A new corporation's name cannot be the same as (or deceptively similar to) the name of an existing corporation.

- All states require the corporation name to include the word Corporation, Incorporated, Company, or Limited, or an abbreviation of one of these terms

Securities

Generally, stocks, bonds, and other items that represent an ownership interest in a corporation

Bonds

- Issued by business firms and by governments at all levels as evidence of the funds they are borrowing from investors.

- normally have a designated maturity date

- Bondholders also receive fixed-dollar interest payments, usually semiannually, during the period of time before maturity

Stocks

represent the purchase of ownership in the business firm

Common Stock

Shares of ownership in a corporation that give the owner a proportionate interest in the corporation with regard to control, earnings, and net assets

Piercing the Corporate Veil

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

Directors

the ultimate authority in every corporation.

Who are the Corporate officers and executive employees hired by

board of directors

What are the duties of corporate directors and officers

Directors and officers owe both ethical and legal duties to the corporation and to the shareholders as a whole, specifically the duty of care and the duty of loyalty

Business Judgment Rule

corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgment or bad business decisions made in good faith

When does the business judgment rule apply?

1. Took reasonable steps to become informed about the matter.

2. Had a rational basis for the decision.

3. Did not have a conflict between personal interests and the interests of the corporation.

When does the business judgment rule not apply?

when a director engages in fraud, dishonesty, or other intentional or reckless misconduct

Shareholder’s Derivative Suit

A lawsuit brought by a shareholder to enforce a corporate cause of action against a third party.