Chapter Seven Introduction to Corporations

Corporation Corporation: Corporation: A legal entity created by a state to carry out business (if a for-profit entity).

Model Business Corporation Act  MBCA: act on which individual state statutes governing corporations are based

Corporate Powers  List of activities enumerated by a state in which a corporation can engage

Powers Typically Granted to a Corporation By State Law Slide 1 of 3  To sue and be sued and to defend in the corporation’s own name  To make and amend bylaws for regulating the business of the corporation  To purchase, acquire, own, hold, improve, sell, lease, or mortgage real or personal property  To enter into contracts, incur liabilities, borrow money, issue bonds, and lend money  To elect directors and appoint officers

Powers Typically Granted to a Corporation By State Law Slide 2 of 3  To establish pension and other benefit plans for its directors, officers, agents, and employees  To make donations for the public welfare  To make payments or donations that further the business of the corporation  To purchase and hold shares or other interests in entities

Powers Typically Granted to a Corporation By State Law Slide 3 of 3  To be a member or manager of a partnership or other entity  To have and use a corporate seal  To transact any lawful business  To exist perpetually

Types of Corporations  Domestic corporations  Foreign corporations  Federal or state corporations  Public corporations  Privately held corporations  Nonprofit corporations  Close corporations  Professional corporations  S corporations  C corporations  Parent and subsidiary corporations

Advantages of a Corporation  Limited liability  Corporate deductions  Continuity of existence  Transferability of share ownership

Disadvantages of a Corporation  Double taxation  Formalities of organization and operation  Centralized management

Double Taxation  Concept in corporate law in which money earned by a corporation is taxed; when remainder is distributed to shareholders, they are also taxed

Key Features of Corporations Slide 1 of 2  Corporations are persons and exist separate and apart from their owner-shareholders  Offer limited liability for their shareholders, officers, and directors, because the corporation itself is liable for its own debts and obligations  Can exist perpetually  Ownership is easily transferred

Key Features of Corporations Slide 2 of 2  Corporations are subject to double taxation: the income of a corporation is taxed, and when profits are distributed to shareholders, they also pay tax  Can be expensive to form and maintain  Management of corporations is centralized in a board of directors; the owner-shareholders do not manage the typical large business corporation