Corporations

2 Corporate Personnel Who owns corporation? Who runs the company: Stock holders can sue corporation and be sued by corporation in rare instances

 Corporations are recognized as legal “persons” and enjoy virtually same rights and privileges under our Constitution as natural persons. Corporations 3

 Responsibility for overall management of company rests with board of directors (elected by shareholders).  Board of directors makes policy decisions and hires officers to run corporation on a daily basis. Corporate Personnel 4

5 Shareholders Shareholders liability – stocks? Piercing the “corporate veil = when can sue and get stock holders. Typically something illegal going on where stockholders or owners part of corruption.

6 Torts and Criminal Acts What is a tort? A corporation is liable for the torts committed by its agents or officers within the course and scope of their employment (CALLED - respondeat superior.) Corporation can be liable for criminal acts, but only fined. Ex: BP Oil

7 Incorporation Process-Website Name Search File Articles of Incorporation Prepare docts 1st Organiza- tional Meeting Pay fees

8 Incorporation Procedures 1 st – Decide a State 2 nd – Decide a name. –What must name have in it? –What is assumed name? 3 rd - Articles of Incorporation –– who file with Tn Secretary State – Cost to file $100

TN - Name A name for the new corporation must meet the requirements of TCA § name must contain the word Inc, Corp A corporation’s name must be distinguished from any other name on file with the Division of Business Services. 9

Reserve/Assume Name What is reserve name? 4 months $20 VS. What is assumed name? 5 years $20 10

11 The charter or “articles of incorporation” : 1. A corporate name that satisfies the name requirements 2. The number of shares the corporation is authorized to issue; 3. Registered agent 4. Principal office 5. Shares, classes stock and 6. A statement that the corporation is for-profit. Articles of Incorporation

12 First Organizational Meeting Must be chartered First organizational meeting asap with shareholders And elect board of directors Must meet 1 a year

S Corporation Why form S corporation instead of C corporation: TAXES - S can be taxed as partnership vs. C which is taxed like corp 13

No foreign investor (v. LLC) Profits divided by investment 14

S corporations No more than 100 shares of one type stock Cannot be nonresident aliens vs. LLC Profits divided like corp. An S corporation is operated in the same way as a corp. An S corp. must follow the same formalities and record keeping procedures. The directors or officers of an S corp. manage the company. 15

S CORP v. LLC S corpLLC Shareholders Member US residentNon resident alien Split according to investmentsplit according to agreement SIMILARITIES File with SOSFile with SOSLimited LiabilityTax partnership 16

17 Defects If messed up in forming corporation – can individuals be sued? What if do not hold self out as a corporation No Protection!!! (Previous Case)

18 Powers that are not written Corporation can: Borrow and lend money. Extend credit. A corporate officer can bind corporation in contract in matters connected with the ordinary business affairs of the enterprise.

19 Duty of Care : Directors/officers are expected to act in good faith and the best interests of the corporation. Failure to exercise due care may subject individual directors or officers personally liable. Tyco: Duties and Liabilities of Directors and Officers

20 Business Judgment Rule consequences of a business decision that turned sour – are directors or officer immunized? Honest mistakes of judgment and bad decisions vs. bad faith, fraud - Business Judgment Rule