The concept of corporations and shareholders

What is a corporation?A corporation is a separate legal entity or legal person.
Legal entityA legal entity has the capacity to enter into contracts, assume obligations, sue and be sued.
Corporate entityA corporate entity is legally distinct from its members and can hold property and be sued.
What can be an owner?Any legal entity, natural persons, partnerships, or corporations.
Who are corporate owners?Shareholders.
Corporations are treated asArtificial (legal) persons created by the state.
What can corporations do?Sue or be sued, enter into contracts, hold property, be found liable for violations, exercise rights.
Who are part of corporate personnel?Board of directors, officers, shareholders.
How do you become a shareholder?By purchasing a share of stock in a corporation.
Shareholders have…Limited liability unless they voluntarily assume personal liability.
DividendA distribution of corporate profits or income to shareholders.
Retained earningsThe portion of a corporation’s profits not paid out as dividends.
Domestic corporationA corporation doing business in and organized under the laws of a specific state.
Foreign corporationA corporation doing business in a state without being incorporated there.
ProfitMaking an income ($)
Non-profitCorporations formed for purposes other than making a profit.
Examples of non-profitHospitals, educational institutions, charities, religious organizations.
Alien corporationA corporation formed in another country but doing business in the United States.
Publicly heldA corporation whose shares are publicly traded in securities markets.
Closely held (close)A corporation whose shares are held by a family or relatively few persons.
Most corporate enterprises in the US areClosed corporations.
Who can hold shares in a close corporation?Members of a family, privately held corporations.
Closed corporations are also referred to asClosely held, family, or privately held corporations.
Close corporation is similar toA partnership.
Promotional activitiesSteps taken to organize and promote a business before incorporating.
IncorporationThe legal process of forming a corporation.
Incorporation procedures1. Select a state of incorporation. 2. Secure the corporate name. 3. Prepare articles of incorporation. 4. File articles of incorporation.
Name is subject toState approval.
Who runs a check for the proposed name?The secretary of state.
Corporate name must includeThe words “corporation,” “incorporated,” “company,” or “limited.”
Primary document needed to incorporateArticles of incorporation.
Articles of incorporation must includeName of the corporation, number of authorized shares, name and addresses of initial registered agent, name and address of each incorporator.
Who signs the articles of incorporation?Incorporators.
Who has implied powers?Corporate officers.
After incorporating,The first organizational meeting must be held.
Most important function of organizational meetingAdoption of the bylaws.
Bylaws cannot conflict withThe corporation’s statute or articles of incorporation.
Corporate powersThe express and implied powers necessary to achieve the corporation’s purpose.
Where are express powers found?Articles of incorporation, state law, state and federal constitutions.
Order of priority in case of conflicts among documentsU.S. Constitution, state constitutions, state statutes, articles of incorporation, bylaws, resolutions of the board of directors.
Why does a corporation have implied powers?To borrow funds, lend funds, extend credit, and perform other necessary acts within the business purpose.
Expressed powersThe specific powers listed in laws and documents.
Implied powersPowers reasonably necessary and appropriate to accomplish the corporate purpose.
Who and what is a corporation liable for?Torts committed by its agents or officers within the scope of their employment.
Are corporations liable for criminal acts?Yes, but they can only be fined.
Piercing the corporate veilWhen the court holds shareholders personally liable for corporate debts and obligations.
When do courts pierce the corporate veil?When a party is misled, the corporation is set up never to make a profit, personal and corporate funds are commingled, or statutory formalities are not followed.
What do directors do?Make corporate policy and hire officers.
Directors haveRights, duties, and limited liability.
Duties of a directorLoyalty, care, and avoiding waste.
Officers haveDuties and limited liability.
Duties of officersLoyalty and care.
Rights of directorsParticipation in board meetings, inspection of records, indemnification.
Duty of careExercising due care in performing duties in good faith.
Duty of loyaltyActing in the company’s best interest and avoiding conflicts of interest.
Shareholder rightsElect directors, preemptive rights, inspection rights, derivative lawsuits, voting rights, dividends, right upon dissolution.
Liability of shareholdersLimited liability with exceptions (such as piercing the corporate veil).
Corporate governanceThe relationship between a corporation and its shareholders.
Governance and corporate lawState laws that set up the legal framework for governance.
The most important structure of corporationsBoard of directors.
Sarbanes-Oxley ActA law that increases corporate accountability and imposes strict disclosure requirements and penalties.
Corporate dissolutionThe termination of a corporation’s existence, either voluntarily or by government action.
Voluntary dissolutionAction taken by shareholders, incorporators, or initial directors to dissolve a corporation.
Administrative dissolutionThe state administrator takes away the rights, powers, and authority of a business entity due to non-compliance.
Judicial dissolutionThe termination of a corporation’s existence handled by the courts.
Rights and dutiesShareholders have ownership rights, while duties involve loyalty and care.
Equity shareholdersMain stakeholders with voting rights.
Preference shareholdersShareholders with no voting rights.

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