Chapter 19 Corporation
1. – THE NATURE AND CLASSIFICATION OF CORPORATIONS
A corporation is a legal entity created and recognized by province jurisprudence. It can dwell of one or two individuals identified under a common name.
When an single purchases a portion of stock in a corporation. that individual becomes a stockholder and proprietor of the corporation. Stockholder and corporations are apt.
THE LIMITED LIABILITY OF SHAREHOLDER
One of the cardinal advantages of the corporate signifiers is the limited liability of its proprietors. Corporate stockholders usually are non personally apt for the duties of the corporation beyond the extent of their investings.
Corporate net incomes are taxed. and do non have revenue enhancement tax write-off for dividends distributed to stockholders. Net incomes that are non distributed are retained by the corporation. These retained net incomes if invested decently. will give higher corporate net incomes in the hereafter.
TORTS AND CRIMINAL ACTS
A corporation is apt for the civil wrongs committed by its agents or officers within the class and range of their employment. Corporation may be held apt for condemnable Acts of the Apostless of its agents and employees. provided the penalty is one that can be applied to the corporation. corporation can be fined.
CORPORATION SENTENCING GUIDELINES
Punishments depend on factors and executives engagement. Corporate violators can confront mulcts smaller amounting or to 100s of 1000000s of dollars. When a company has taken significant stairss to forestall. look into. and punish error. such as by set uping and implementing offense bar criterions. a tribunal may enforce less serious punishments. Corporate sentencing guidelines require corporations to develop employees on how to follow with relevant Torahs.
CLASSIFICATION OF CORPORATIONS
Domestic. foreign. and foreign corporations
* Domestic corporation ; by its place province ( the province in which it incorporates ) . * Foreign corporation ; corporation formed in one province but making concern in another province. * Alien corporation ; corporation formed in another state but making concern on the E. E. U. U.
In some cases. the corporation must obtain a certification of authorization in any province which plans to make concern. But the foreign corporation does non necessitate this certification to sell goods over the cyberspace.
Public and private corporations
* Public corporation. is one formed by the authorities to run into some political intent. such a U. S. Postal service. AMTRAK. A public corporation is non the same as a publically held corporation. A publically held corporation is any corporation whose portions are publically traded in a securities market. such as the New York Stock Exchange or over the counter market. * Private corporation. are created for private benefit. Most corporations are private although they may function a public intent.
Corporation formed for intents other doing a net income are called non-profit-making or not-for-profit corporations. Private infirmaries. educational establishments. charities. and spiritual organisations for illustration. are organized as non-profit-making organisation.
A close corporations is one whose portions are held by members of a household or by comparatively few individuals. Referred besides every bit closely held. household. or in private held corporations. Normally the members of the little group representing a close corporation are personally know to each other. A close corporation is frequently operated like a partnership.
*Management of close corporations
To forestall a bulk stockholder from ruling a close corporation. the corporation may necessitate that more than a simple bulk of the managers approve any action taken by the board.
*Transfer of portions in close corporations
The transportation of one shareholder’s portions to person else can do serious direction jobs. Control of a close corporation can besides be established through the usage of stockholder understanding.
A close corporation that meets the modification demands specified in subchapter S of the Internal Revenue Code can run as an S corporation. If a corporation has a S corporation position. it can avoid the infliction of income revenue enhancements at the corporate degree while retaining many of the advantages of a corporation. peculiarly limited liability.
*Qualification demand for S corporations
1 ) The corporation must be a domestic corporation.
2 ) The corporation must non be a member of an attached group of corporations. 3 ) The stockholders of the corporation must be persons. estates. or certain trusts. 4 ) The corporation must hold no more than one 100 stockholders. 5 ) The corporation must hold merely one category of stock. although all stockholders do non necessitate to hold the same vote rights. 6 ) No stockholder of the corporation may be a nonresident foreigner.
*Benefits of a S corporations
1 ) When a corporation has losingss. the S election allows the stockholders to utilize the losingss to countervail other nonexempt income. 2 ) When the shareholder’s revenue enhancement bracket is lower than the revenue enhancement bracket for regular corporations. The S election causes the corporation’s full income to be taxed in the shareholder’s bracket. whether it is distributed.
Professional corporation such as doctor. attorneies. tooth doctors. and comptrollers can integrate. There is by and large no restriction on liability for Acts of the Apostless of malpractice or duties incurred because of a breach of responsibility to a client of a Personal computer. In many provinces. professional individuals are apt non merely for their ain negligent Acts of the Apostless. but besides for the misconduct of individuals under their direct supervising who render professional services. A stockholder in a professional corporation is by and large protected from contractual liability and can non be held apt for the civil wrongs that are committed by other professional at the house.
2. – Corporate Formation
One of the most common grounds for making a corporation is the demand for extra capital to finance enlargement. Incorporation may be the best pick for an spread outing concern organisation because a corporation can obtain more capital by publishing portions to stock.
Persons seldom engage in preliminary promotional activities. It is of import for bourgeoiss to understand that they are personally apt for all preincorporation contracts made investor. comptrollers. or others on behalf of the future corporation.
Exact processs for incorporation differ among provinces. but the basic stairss are as follows: 1 ) Select a province of incorporation.
2 ) Procure the corporate name.
3 ) Fix the articles of incorporation.
4 ) File the articles of incorporation with the secretary of province.
Choosing the province of incorporation
Because Torahs differ from province to province. States fees are considered excessively.
Procuring the corporate name
The pick of a corporate name is capable to province blessing to guarantee against duplicate or misrepresentation. All the provinces require the corporation name to include the word corporation ( Corp. ) . Incorporated ( Inc. ) . company ( Co. ) . or limited ( Ltd. ) .
Fixing the articles of incorporation
The primary papers needed to integrate a concern is the articles of incorporation. must include the undermentioned information ; 1 ) The name of the corporation.
2 ) The figure of portions the corporation is authorized to publish. 3 ) The name and reference of the corporation’s initial registered agent. 4 ) The name and reference of each incorporator.
*Shares of the corporation
The articles must stipulate the figure of portions of stock the corporation is authorized to publish. A company might province that the aggregative figure of portions that the corporation has the authorization to publish is 5k.
*Registered office and agent
The corporation must bespeak the location and reference where of it registered office within the province.
Each incorporator must be listed by name and reference.
*Duration and intent
A corporation has a ageless being unless the articles province otherwise. The proprietors may desire to order a maximal continuance. nevertheless. after which the corporation must officially regenerate its being. A corporation can be formed for any lawful intent.
Articles can depict the corporation’s internal direction construction. although this is normally included in the bylaws adopted after the
corporation is formed.
Filing the articles with the State
Once the articles of incorporation have been prepared and signed by the incorporators. they are sent to the appropriate province functionary. normally the secretary of State.
FIRST ORGANIZATIONAL Meeting TO ADOPT BYLAWS
Normally. the most of import map of this meeting is the acceptance of bylaws. If the articles of incorporation named the initial board of managers. so the managers. by bulk ballot. name the meeting to follow the bylaws and finish the company’s organisation.
DEFECTS IN FORMATION AND CORPORATE STATUS
The processs for incorporation are really specific. If they are non allowed exactly. others may be able to dispute the being of the corporation. When the corporation seeks to implement a contract against a defaulting party that party may be able to avoid liability on the land of a defect in the incorporation process.
De Jure and De Facto corporations
If a corporation has well complied with all conditions precedent to incorporation. a corporation is said to hold de jure being. Because a de jure corporation is one that is decently formed. neither the province nor 3rd party can assail its being. Sometimes. there is a defect in following with statutory authorizations. under these fortunes the corporation may hold de facto position. significance that it will be treated as a legal corporation despite the defect in its formation. The undermentioned elements are required for de facto position ;
1 ) There must be a province legislative act under which the corporation can be incorporated. 2 ) The parties must hold made a good religion effort to follow with the legislative act. 3 ) The endeavor must already hold undertaken to make concern as a corporation.
Corporation by Estoppel
If a concern holds itself out to others as being a corporation but has made no effort to integrate. the house usually will be stopped from denying corporate position case by a 3rd party. When justness requires. the tribunals treat an alleged corporation as if it were an existent corporation for the intent of finding the rights and liabilities in peculiar fortunes. A corporation by estoppels is therefore determined by the state of affairs. Corporate Powers
When a corporation is created. the express and implied powers necessary to accomplish its intent besides come into being. The undermentioned order of precedence is used if a struggle arises among the assorted paperss affecting a corporation ; 1 ) U. S. Constitution.
2 ) Fundamental law of the province of incorporation.
3 ) State legislative acts.
4 ) Articles of incorporation.
5 ) Bylaws.
6 ) Resolutions of the board of managers.
To borrow financess. the corporation acts through its board of managers to authorise the loan.
ULTRA VIRES DOCTRINE
The term extremist vires means “beyond the power” . Most instances covering with extremist vires Acts of the Apostless have involved contracts made for unauthorised intents. In some provinces. when a contract is wholly executor. either party can utilize a defence of extremist vires to forestall contract enforcement.
3. – PIERCING CORPORATE VEIL
Occasionally. the proprietors use a corporate entity to commit a fraud. besiege the jurisprudence. or in some other manner accomplish an illicit aim. In these state of affairss. the tribunal will disregard the corporate construction and pierce the corporate head covering. The followers are some of the
factors that often cause of the tribunals to pierce the corporate head covering ; 1 ) A party is tricked into a dealing.
2 ) The corporation is set up ne’er to do a net income or ever to be insolvent. Not adequate money when it formed. 3 ) Statutory corporate formalities. such a keeping needed corporation meeting. are non allowed. 4 ) Personal and corporate involvements are assorted together.
THE COMINGLING OF PERSONAL AND CORPORATE ASSETS
The possible for corporate assets to be used for personal benefit its particularly great in a close corporation. in which the portions are held by a individual individual or by few persons. In such a state of affairs. the separate position of the corporate entity and the stockholder must be carefully preserved. Certain patterns invite problem “family owned corporation” . the comingling of corporate and personal financess. the failure to remit revenue enhancements. including paysheet. and the stockholders uninterrupted personal usage of corporate belongings.
Loans TO THE CORPORATION
Corporation Torahs normally do non specifically forbid a stockholder from taking financess to her or his corporation. Any dealing has to be made in a good religion and for just value.
4. – DIRECTORS. OFFICERS. AND Stockholders
ROLE OF DIRECTORS
The board of managers is the ultimate authorization in every corporation. Directors have duty for all policymaking determinations necessary to the direction of all corporate personal businesss. Just as stockholders can non move separately to adhere the corporation. the managers must move as a organic structure in transporting out everyday corporate concern. The board selects and removes the corporate officers.
Election of managers
Can be less than three. managers are elected by a bulk ballot of the
*Removal of managers
A manager can be removed for cause ( neglecting to execute ) .
*Vacancies on the board of managers
Can happen because of decease or surrender or when a new place is created through amendment of the articles or bylaws.
Compensation of managers
Director normally are compensated for clip. attempt. etc. In many corporations managers are besides main corporate officers and receive compensation in their managerial places.
Board of managers meetings
The board of managers behaviors concern by keeping formal meetings with recorded proceedingss. The day of the month of regular meetings are normally established in the articles or by board declaration.
Rights of managers
A corporate manager must hold rights to work decently in that place.
COMMITTEES OF THE BOARD OF DIRECTORS
1 ) Executive commission. The board members frequently elect an executive commission of managers to manage the interium direction determinations between board of managers meetings. 2 ) Audit commission. Is responsible for the choice. compensation. and inadvertence of the independent public comptrollers who audit the corporations fiscal records. 3 ) Nominating commission. This one chooses the campaigners for the board of managers that direction wishes to subject to the stockholders in the following election. 4 ) Compensation commission. Reviews and decides the wages. fillips. stock options and other benefits. 5 ) Litigation commission. Decides whether the corporation should prosecute petitions by stockholders to register a case against some party that has allegedly harmed the corporation.
Corporate Military officers AND EXECUTIVES
Military officers and other executives are hired by the board of managers.
DUTIES AND LIABILITIES OF DIRECTORS AND OFFICERS
Are deemed to be fiduciaries of the corporation because their relationship with the corporation and its stockholders is one of trust and assurance.
Duty of attention
Directors and officers must exert due attention in executing their responsibilities. they need to move in a good religion. If managers and officers failed to exert due attention consequences in injury to the corporation can be held apt for carelessness.
*Duty to do informed and sensible determinations
Directors and officers are expected to be informed on corporate affairs and to carry on a sensible probes of this state of affairss before doing a determination.
*Duty to exert sensible supervising
Directors are besides expected to exert a sensible sum of supervising when they delegate work to corporate officers and employees.
Directors are besides expected to go to board of managers meetings. and their ballots should be entered into the proceedingss. Unless a dissent is entered in the proceedingss. the manager is presumed to hold assented. Dissenting managers are seldom held separately apt to the corporation.
*The concern judgement regulation
Directors and officers are expected to exert due attention and to utilize their best judgement in steering corporate direction. but they are non insurance companies of concern success. Under the concern judgement regulation. a corporate manager or officer will non be apt to the corporation or to its stockholders errors of judgement and bad concern determinations.
Duty of trueness
Defined as fidelity to one’s duties and responsibilities. Typically involve ; 1 ) Competing with the corporation.
2 ) Assuming a corporate chance
3 ) Having an involvement that conflicts with the involvement of the corporation. 4 ) Engaging in insider trading.
5 ) Authorizing a corporate dealing that is damaging to minority stockholders. 6 ) Selling control over the corporation.
Conflicts of involvement
Corporate managers frequently have many concern associations. and a manager may sit on the board of more than one corporation. Sometimes engage personal involvement excessively.
Liability of managers and officers
Corporate managers and officers are personally apt for their ain civil wrongs and offenses. Additionally they may be held personally apt for the civil wrongs and offenses committed by corporate forces under their direct supervising.
THE ROLE OF SHAREHOLDERS
The acquisition of a portion of stock makes a individual an proprietor of and stockholder in a corporation. stockholders own the corporation but have no right to pull off it. Basically the stockholders ownership control is limited to voting to elect or take members of the board of managers and make up one’s minding whether to O.K. cardinal alterations in the corporation. Stockholders are non agents of the corporation. nor do they hold legal rubric to the corporations belongings. such as its edifice and equipment. they merely have an just ( ownership ) in the house.
Stockholders must O.K. cardinal alterations impacting the corporations before the alterations can be implemented. Shareholder blessing usually is required to amend the articles of incorporation or bylaws. to carry on a amalgamation or fade out the corporation. and to sell all or well all of the corporations assets. Stockholders have the power to vote to elect or
take members of the board of managers.
At least yearly and proper notice need to be direct it.
The jurisprudence allows shareholders to either ballot in individual or appoint another individual as their agent to vote their portions at the meetings. The signed assignment signifier authorising an agent to vote the portions is called placeholder.
Stockholders exercises ownership control through the power of their ballots. Corporate concern affairs are presented in the signifier of declarations. which stockholders vote to O.K. or disapprove.
At least 50 % demand to be present. Extraordinary corporate affairs. such as a amalgamation. consolidation. or the disintegration of the corporation require blessing by a higher per centum of representatives of all corporate portions entitled to vote.
The RMBCA requires a corporation to keep an alphabetical vote list of stockholders.
Most provinces permit and some require. stockholders to elect managers by cumulative vote. a vote method designed to let minority stockholders to be represented on the board of managers.
*Other vote techniques
A vote trust is an understanding under which stockholder transportations the portions to a legal guardian. normally for a specified period of clip. The legal guardian is responsible for voting the portions on behalf of the beneficiary-shareholder.
Right OF Stockholders
Is a certification issued by a corporation that evidences ownership of a specified figure of portions in the corporation. In legal power that require the issue of stock certifications. stockholders have the right to demand that the corporation issue certifications and enter their names and references in the corporate stock record books.
With pre-emptive rights a stockholder receives a penchant over all other buyers to subscribe to or buy a prorated portion of a new issue of stock. Which means a stockholder who is given pre-emptive rights can buy the same per centum of the new portions being issued as she or he already holds in the company. This regulation does non use to treasury portions. portions that are authorized but have non been issued.
Are rights to purchase stock at a declared monetary value by a specified day of the month that are given by the company.
Is a distribution of corporate net incomes or income orders by the managers and paid to the stockholders in proportion to their several portions in the corporation.
*Sources of financess for dividends
Depending on the province jurisprudence. dividends may be paid from the undermentioned beginnings ; 1 ) Retained net incomes
2 ) Internet net incomes
3 ) Excess
*Directors failure to declare a dividend
Stockholders can inquire the tribunal to oblige the managers to run into and declare a dividend. To win the stockholders must demo that the managers have
acted so unreasonably in keep backing the dividend that their behavior is an maltreatment of their discretion.
Stockholders in a corporations enjoy both jurisprudence and statutory review right ( but limited ) . This include inspect vote lists. specified corporate records.
Transportation of portions
Corporate stock represents an ownership right in intangible personal belongings. The jurisprudence by and large recognizes the right of an proprietor to reassign belongings to another individual unless there are valid limitations on its transferability.
Rights on disintegration
When a corporation is dissolved and its outstanding debts and the claims of its creditors have been satisfied. the staying assets are distributed on a pro rata footing among the stockholders.
The stockholders derivative suit
When the corporation is harmed by the actions of a 3rd party. the managers can convey a case in the name of the corporation against that party.
LIABILITY OF SHAREHOLDERS
One of the trademarks of the corporate organisation is that stockholders are nor personally apt for the debts of the corporation. If the corporation fails the stockholder can lose their investing but that is the bound of their liability.
When a corporation issued portions for less than their just market value. the portions are referred as moire stock. Normally the stockholder who receives the moire stock must to pay the difference to the corporation.
Duties of bulk stockholders
A bulk stockholder is regarded as holding a fiducial responsibility to the corporation and to the minority stockholders. This occurs when a individual stockholder owns a sufficient figure of portions to exert de facto control over the corporation. In these instances the bulk stockholders owe a fiducial responsibility to the minority stockholders. A breach of fiducial responsibilities by those who control a closely held corporation usually constitutes what is known as oppressive behavior.
5. – MAJOR BUSINESS FORMS COMPARED