Nature and Formation of Corporations Notes

Legal Entity: Corporations are separate legal entities from their shareholders; they can sue and be sued, hold property, and incur debts.
Limited Liability: Shareholders are liable only to the extent of their investment; they are not personally liable for corporate debts, except in cases of personal guarantees or wrongful acts.
Free Transferability of Shares: Shares are easily transferable unless restricted by agreement.
Perpetual Existence: Corporations continue to exist independently of their shareholders unless explicitly stated otherwise in the articles of incorporation.
Centralized Management: Shareholders elect a board of directors responsible for managing the corporation, as opposed to direct management by shareholders.
Corporation as a Person: Recognized under the law as a "person" for due process and equal protection rights (Fifth and Fourteenth Amendments) but not for self-incrimination (Fifth Amendment).
Citizenship: Corporations are considered citizens of the state(s) where incorporated, affecting jurisdiction and legal status.

Summary Attributes:
- Legal entity separate from its shareholders.
- Existence granted by state regulation.
- Limited liability for shareholders.
- Shares of stock can be freely traded.
- Perpetual existence unless otherwise stated.
- Centralized management structure.
- Considered a "person" under certain legal contexts.
- Considered a "citizen" in relation to jurisdictional issues.

Public vs. Private:
- Public Corporations: Organizations created for public purposes (e.g., local government functions).
- Private Corporations: Formed for private benefit, can be 'closely held' or non-profit by nature.
Profit vs. Nonprofit:
- Profit Corporations: Operate to generate profits for shareholders.
- Nonprofit Corporations: Profits reinvested into the organization, must serve a charitable or educational purpose (IRC §501(c)(3)).
Domestic vs. Foreign:
- Domestic Corporations: Incorporated in a particular state.
- Foreign Corporations: Established under laws of another state and must register to do business in other states.
Publicly Held vs. Closely Held:
- Publicly Held Corporations: Shares owned by the public, widely traded.
- Closely Held Corporations: Shares owned by a small number of individuals, often with transfer restrictions.
Subchapter S Corporation: Special tax status allowing income to be taxed at the shareholder level, must meet specific criteria (e.g., domestic entity, limited number of shareholders).

Organizing the Corporation:
- Promoters: Responsible for arranging capital, securing assets and forming the corporation.
- Promoters' Contracts: Promoters remain liable for contracts made on behalf of the corporation prior to its incorporation unless stated otherwise.
- Subscribers: Individuals who agree to purchase initial shares of the corporation.
Formalities of Incorporation:
- Selection of Name: Must include designations like "Inc." or "Corporation".
- Articles of Incorporation: Essential document including name, share structure, registered agent details, etc.
- Organizational Meeting: The first meeting to adopt bylaws, elect officers, and establish corporate governance.
- Bylaws: Internal regulations that govern the corporation, amendable by the board of directors without shareholder approval.

Consequences:
- A corporation can lose its status if incorporation requirements are not met or if it fails to operate as a proper corporate entity.
- Common law designations include:
- Corporation de Jure: Properly formed according to law.
- Corporation de Facto: Exists in practice but may not meet all formalities.
- Corporation by Estoppel: Recognized despite defects due to reliance by third parties.
- Statutory Approaches: Incorporation filings are conclusive proof of proper formation.

Definition: Courts may disregard corporate structure to hold individuals personally liable under specific circumstances, usually involving fraud or abuse of corporate form.
Key Factors:
- Inadequate capitalization or failure to observe corporate formalities.
- Utilization of corporation for personal dealings to the detriment of creditors.

Statutory Powers: Include perpetual succession, the ability to sue, acquire and dispose of property, and conduct lawful business activities.
Ultra Vires Acts: Acts beyond a corporation's powers. Traditionally void, modern law has reduced the application of ultra vires defenses.

Torts: Corporations are liable for torts committed by employees in the course of employment under the doctrine of respondeat superior.
Crimes: Corporations can be held criminally liable for statutory violations and offenses committed by high-ranking officials in the company. Punishment typically involves fines.