Chapter Seven

Introduction to Corporations

Corporation

CorporationCorporation: : 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

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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

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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

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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

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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

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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