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BUA 220 Chapter 19

Corporation
An artificial being, existing only in law and neither tangible nor visible.
Board of Directors
The people who are in charge of the overall management of the firm, who are elected by the shareholders. They make the policy decisions and hire corporate officers and other employees to run the daily business operations.
Limited Liability in Corporations
Corporate shareholders are not personally liable for the obligations of the corporation beyond the extent of their investments.
Pierce the Corporate Veil
When a court imposes personal liability on shareholders for the corporation’s obligations.
Corporate Earnings
When a corporation earns profits, it can either pass them on to shareholders in the form of dividends or retain them as profits.
Retained Earnings
Profits are retained and if invested properly, will yield higher corporate profits in the future and thus cause the price of the company’s stock to rise.
Corporate Taxation
All profits of a corporation are subject to income tax by various levels of government. Corporate profits can be subject to double taxation. The company pays tax on its profits. Then if the profits are passed on to the shareholders as dividends, the shareholders must also pay income tax on them.
Holding Company
A company whose business activity consists of holding shares in another company. Typically it is established in a low-tax or no-tax offshore jurisdiction to reduce or defer their U.S. corporations.
Tort Liability of Corporations
A corporation is liable for the torts committed by its agents or officers within the course and scope of their employment.
Domestic Corporation
Referred by the state it incorporates in.
Foreign Corporation
A corporation formed in one state but doing business in another state.
Alien Corporation
A corporation formed in another country but doing business in the United States.
Certificate of Authority
A legal document that grants a corporation permission to do business in a state other than its state of incorporation.
Public Corporation
A corporation formed by the government to meet some political or governmental purpose. An example of this are cities and towns that incorporate, the U.S. Postal Service, etc.
Publicly Held Corporation
Any corporation whose shares are publicly traded in a securities market, such as the New York Stock Exchange or the NASDAQ.
Private Corporations
Corporations created either wholly or in part for private benefit, or profit.
Nonprofit Corporations
Corporations formed for purposes other than making a profit. Private hospitals, educational institutions, charities, and religious organizations. They also various groups to own property and to form contracts without exposing the individual members to personal liability.
Close Corporation
A corporation whose shes are held by members of a family or by relatively few persons. the RMBCA gives considerable flexibility in determining its rules of operation. If all of a corporation’s shareholders agree in writing, the corporation can operate without directors and bylaws, annual or special shareholders’ meetings, stock certificates, or formal records of shareholders’ decisions.
Management of Close Corporations
A single shareholder or tightly knit group of shareholders usually hold the positions of directors and officers.
S Corporations
A close corporation that meets the qualifying requirements specified in Subchapter S of the Internal Revenue Code. It can avoid the imposition of income taxes at the corporate level while retaining many of the advantages of a corporation, particularly limited liability.
Requirements for S Corporation Status
1. The corporation must be a domestic corporation.
2. The corporation must not be a member of an affiliated group of corporations.
3. The shareholders of the corporation must be individuals, estates, or certain trusts and tax-exempt organizations.
4. the corporation must have no more than one hundred shareholders.
5. The corporation must have only one class of stock, although all shareholders do not need to have the same voting rights.
6. No shareholder of the corporation may be a nonresident alien.
C Corporation
This corporation is taxed like a partnership, so the corporate income passes through to the shareholders, who pay personal income tax on it. This avoids double taxation.
Professional Corporations
Professionals such as physicians, lawyers, dentists, and accountants can incorporate.
Benefit Corporations
A for-profit corporation that seeks to have a material positive impact on society and the environment.
Three Ways Benefit Corporations Differ From Traditional Corporations
1. Purpose. Although the corporation is designed to make a profit, its purpose is to benefit the public as a whole, rather than just to provide long term shareholder value. The directors of a benefit corporation must, during the decision-making process, consider the impact of their decisions on society and the environment.
2. Accountability. Shareholders of a benefit corporation determine whether the company has achieved a material positive impact.
3. Transparency. A benefit corporation must issue an annual benefit report on its overall social and environmental performance that uses a recognized third party standard to assess its performance.
Incorporation Procedure
1. Select the state of incorporation
2. Secure the corporate name
3. Prepare the articles of incorporation
4. File the articles of incorporation to the secretary of state
Articles of Incorporation
The primary document needed to incorporate a business that includes basic information about the corporation and are a primary source of authority for its future organization and business functions. They must include:
1. The name of the corporation
2. The number of shares the corporation is authorized to use
3. The name and street address of the corporation’s initial registered agent and registered office.
4. The name and address of each incorporator.
Bylaws
The internal rules of management adopted by the corporation at its first organizational meeting.
De Jure Corporations
When a corporation has substantially complied with all conditions precedent to incorporation so that the corporation is rightful and lawful. The secretary of state’s filing of the articles of incorporation is usually conclusive proof that all mandatory statutory provisions have been met.
De Facto Corporations
When a corporation has a substantial defect, such as not holding an organizational meeting to adopt bylaws.
Ultra Vires
Acts of a corporation that are beyond its express or implied powers.
Inside Director
A director who is also an officer of the corporation.
Outside Director
A director who does not hold an officer position in a corporation.
Quorum
The minimum number of members of a body of officials that must be present for business to be validly transacted.
Business Judgement Rule
A corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgement and bad business decisions.
Voting Trust
An agreement under which a shareholder assigns the right to vote his or her shares to a trustee, usually for a specified period of time. The trustee is then responsible for voting the shares on behalf of all the shareholder in the trust.
Stock Certificates
Evidence of ownership of a specified number of shares in the corporation.
Stock Warrants
Rights to buy stock at a stated price by a specified date that are given by the company
Dividend
A distribution of corporate profits or income ordered by the directors and paid to the shareholders in proportion to their respective shares in the corporation.
Shareholder’s Derivative Suit
When the corporation is harmed by the actions of a third party, the directors can bring a lawsuit in the name of the corporation against that party. If the directors fail to bring a lawsuit, shareholders can do so.
Watered Stock
When a corporation issues shares for less than their fair market value.

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