1 / 38

Basic Business Forms

Basic Business Forms. Corporations Class 6. Forming a Business. The first question: What form should the business take? Sole proprietorship Partnership Corporation Limited liability company. Choosing the Form. Consider: Formation issues Filing/formation requirements?

gwidon
Télécharger la présentation

Basic Business Forms

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Basic Business Forms Corporations Class 6

  2. Forming a Business • The first question: • What form should the business take? • Sole proprietorship • Partnership • Corporation • Limited liability company

  3. Choosing the Form • Consider: • Formation issues • Filing/formation requirements? • Liability protection • Management structure • Taxation issues • Exit strategies/transferability of interests

  4. Corporations • A corporation is a creature of statute, an artificial “person.” • The corporation is a “person” for the purpose of conducting a business and can • Own property • Enter into contracts • Sue and be sued • Ownership of corporation is shared by shareholders (or stockholders).

  5. Rights of the Corporation • Because a corporation is a legal “person,” it has constitutional rights. • Equal protection; • Access to the courts, can sue and be sued; • Right to due process; • Freedom from unreasonable search and seizure and double jeopardy. • Freedom of speech.

  6. Torts and Criminal Acts • A corporation is liable for the torts committed by its agents or officers within the course and scope of their employment under the doctrine of respondeat superior. • Corporation can be liable for criminal acts, but only fined. Responsible officers may go to prison.

  7. Advantages • The personal liability of shareholders (the owners) for corporate obligations is normally limited to the individual’s investment. • The business has a perpetual existence

  8. Disadvantages • Complexity of formation. • Double taxation.

  9. Corporate Powers • A corporation may act and enter into contracts as any natural person, except as limited by: • U.S. Constitution. • State constitutions. • State statutes. • Its own articles of incorporation. • Its own corporate bylaws. • Resolutions by its own board.

  10. Corporate Powers • The express powers of a corporation are found in the corporation’s articles of incorporation, the laws of the state of incorporation, and in the state and federal corporations. • Corporate by-laws may also grant or limit a corporation’s express powers.

  11. Corporate Powers • Corporation has implied powers to perform all acts reasonably necessary to accomplish its corporate purposes: • Borrow and lend money. • Extend credit. • Make charitable contributions. • A corporate officer can bind corporation in contract in matters connected with the ordinary business affairs of the corporation.

  12. Ultra Vires Doctrine • Corporate acts that are beyond the express or implied powers of the corporation are considered to be “ultra vires” and unlawful. • Shareholders can bring action for injunction. • Corporation can recover damages from its officers and directors. • Attorney general of state may bring action to dissolve corporation for ultra vires acts.

  13. Classification of Corporations • Domestic corporation does business in its state of its incorporation. • Foreign corporation from another state doing business in Washington. • Alien Corporation: formed in another country doing business in United States.

  14. Kinds of Corporations • Public and Private. • Nonprofit. • Close Corporations. • Shares held by few shareholders. • More informal management – similar to a partnership. • Restriction on transfer of shares.

  15. Kinds of Corporations • “S Corporations” – IRS classification that enables corporation to avoid “double taxation” – only dividends to the shareholders, not corporate profits, are taxed. IRS requirements: • Corporation is domestic, with fewer than 75 shareholders, only one class of stock, no shareholder can be a non-resident alien. • Professional Corporations.

  16. Basics of Formation • The corporation is created by Articles of Incorporation • These must include • Name of the corporation • Purpose • List of incorporators and directors • Name and address of registered agent • Share structure • The Articles are filed with the Secretary of State

  17. First Organizational Meeting • After the corporation is “chartered” (created) it and can do business. • First, shareholders should have the first organizational meeting to: approve the bylaws, elect directors, hire officers and adopt pre-incorporation contracts and activities.

  18. Corporate Status • De Jure: substantial statutory requirements are met; cannot be attacked by state or 3rd parties. • De Facto: statutory requirements not met, but promoters made good faith effort to comply with corporate law; corporate status can only be attacked by state. • By Estoppel: if it acts like a corporation, it cannot avoid liability by claiming that no corporation exists.

  19. Piercing the Corporate Veil • Where the corporate form is used solely to shield individuals from liability • Generally, owner co-mingles personal and corporate assets • Sometimes no stock is issued or • Formation or regulatory rules are ignored

  20. Corporate Financing Bonds v. Stocks Debt Ownership/equity Fixed ROI Dividends (variable) No votes Vote for Management Optional Required Priority over stock Paid last • Stocks: Common vs. Preferred

  21. Merger and Consolidation • Corporations can grow and expand by: • Mergers. • Consolidation. • Purchase of another corporation’s assets. • Purchases of a controlling interest in another corporation.

  22. Termination • Termination of a corporation, like a partnership, consists of two phases: • Dissolution (voluntary or involuntary); and • Liquidation.

  23. Liquidation • Voluntary Dissolution. • Board liquidates and acts as trustees of assets. • Court will appoint a receiver if: • Board refuses; or • Creditors want a receiver. • Involuntary Dissolution. • Court appoints receiver.

  24. Corporate Hierarchy

  25. Corporate Structure • The owners of the corporation are the shareholders. • Create the capital of the corporation • Have no management authority • Elect board of directors • Must approve changes in articles of incorporation and other major changes

  26. Corporate Structure • The Board of Directors • Elected by the shareholders • Have management responsibility • Appoint, supervise, remove officers of the corporation • The Directors have a fiduciary relationship with shareholders www.theyrule.net

  27. Corporate Structure • Officers and Executives • Elected or appointed by the board of directors • Responsible for carrying out board’s policies and directives • Responsible for management of business • Have a fiduciary duty to act in the best interests of the shareholders and the corporation

  28. Duties of Directors and Officers • Directors and officers are fiduciaries of the corporation. They owe ethical and legal duties to the corporation and shareholders: • Duty of Care : They are expected to act in good faith and the best interests of the corporation. • Duty of Loyalty: Subordination of personal interests to the welfare of the corporation.

  29. Conflicts of Interest • Full disclosure of any potential conflicts of interest and abstain from voting on any transaction that may benefit the director or officer personally.

  30. Liability of Board/Officers • Directors and officers may be liable for: • Their own negligent acts. • Crimes and torts committed individually as well as those committed by employees under their supervision. • Shareholder derivative suits where shareholders sue directors on behalf of corporation.

  31. Regulations and Requirements • Corporations are required to: • Hold annual meetings of shareholders. • Give reasonable notice of meetings. • Provide reasonable access to books and records to shareholders.

  32. Business Ethics • What is Business Ethics? • Legal compliance is the moral minimum. • Laws regulating business. • “Gray” areas in the law.

  33. Securities Regulation • Two major securities laws • Securities Act of 1933 • Securities Exchange Act of 1934

  34. Securities Act • The Act requires corporations to file a registration statement with the SEC and provide a prospectus to investors before offering or selling the security to the public. • A security is a transaction in which the buyer • Invests money in a common enterprise and • Expects to earn a profit predominantly from the efforts of others.

  35. Securities Exchange Act • Requires corporations to file certain documents regarding the financial health and the control of the corporation.

  36. Insider Trading • “Definition of insider trading: Stealing too fast.” Calvin Trillist • Occurs when someone with reliable secret information uses that information to benefit from stock trades. • Is a crime, punishable by fine and imprisonment.

  37. Sarbanes-Oxley Act • Enacted after the Enron accounting scandal to require additional protections for investors.

  38. Additional Regulations • Sherman (Antitrust) Act • Prohibits price fixing and illegal monopolies • Clayton Act • Prohibits anticompetitive mergers • Robinson-Patman Act • Prohibits price discrimination aimed at putting small competitors out of business

More Related