New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here


by: Dominic Erdman

LegalEnvironmentofBusinessOrganizations FRL302

Marketplace > California State Polytechnic University > Finance,Real Estate&Law > FRL302 > LegalEnvironmentofBusinessOrganizations
Dominic Erdman
CSU Pomona
GPA 3.91


Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Class Notes
25 ?




Popular in Course

Popular in Finance,Real Estate&Law

This 12 page Class Notes was uploaded by Dominic Erdman on Saturday October 3, 2015. The Class Notes belongs to FRL302 at California State Polytechnic University taught by Staff in Fall. Since its upload, it has received 17 views. For similar materials see /class/218191/frl302-california-state-polytechnic-university in Finance,Real Estate&Law at California State Polytechnic University.

Similar to FRL302 at CSU Pomona

Popular in Finance,Real Estate&Law


Reviews for LegalEnvironmentofBusinessOrganizations


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/03/15
CH 40 Corporate Directors Officers and Shareholders Roles of Directors and Officers Ultimate authority policymaking decisions selects and removes corporate officers determines capital structure and declares dividends Majority rules each has one vote Directors cannot act as agents Election of Directors Preselected number of directors Historically required 3 now fewer Initial board elected by incorporators and serve until first annual shareholder meeting where majority vote elects new ones Removal of Directors Removed for cause failing to perform required duty Vacancies on the Board Resignation death or creation of new position through amendment Compensation of Directors Board itself may set directors39 compensation RMBCA 811 unless stated otherwise Inside director also serves as manager others are outside directors Board of Directors Meetings Time and dates established in articles or bylaws formal meetings with recorded minutes can be done overtelecommuting RMBCA 820 majority must be present to constitute a quorumminimum number of members for business to be validly transactedRMBCA 824 Rights of Directors Right to participation entitled to participate in all meetings and right to be notified Special meetings require notice unless waived RMBCA 823 Right to inspection access corporations books and records facilities premises Cannot be restricted by bylaws articles or votes Right to indemnification reimbursement if involved in litigation purchase liability insurance RMBCA 851 Committees of the Board of Directors Typically created to avoid too many people at once Focus on individual subjects to increase efficiency Executive Committee interim management decisions between board meetings cannot declare dividends authorize new shares or initiate any actions requiring shareholder approval Audit Committee selection compensation and oversight of the independent public accountants who audit the corporations financial records Required by SarbanesOxley Act of 2002 Nominating Committee chooses candidates for board of directors Only nominate RMBCA 825 Compensation Committee decides salaries bonuses stock options and other benefits for top executives Litigation Committee decides whether corp should pursue requests by shareholders to file a lawsuit Corporate Officers and Executives Officers carry out duties in bylaws articles etc but also are agents of the corporation Board of directors can remove officers with or without cause Same fiduciary duties of care and loyalty Duties and Liabilities of Directors and Officers Duty of Care act in good faith to exercise the care that an ordinarily prudent person would exercise RMBCA 830a 842a Duty to make informed decisions educate themselves and can make decisions based on reliable people RMBCA 830b Duty to Exercise Reasonable Supervision can be held liable for acts of subordinates if not supervising Dissenting Directors if a director disagrees with a board decision it must be put into the minutes of the meeting to show dissent f missed meeting registers dissent with secretary The Business Judgment Rule corporate officers and directors are not liable for honest mistakes ofjudgment and bad business decisions Applies if director took reasonable steps to be informed had rational basis for decision no conflict of interest between director and corporation Duty of Loyalty Subordinate personal interests forthe welfare of the corporation comes up when competing with the corp usurping corporate opportunity having conflicting interest using information not available to the public authorizing a corporate transaction detrimental to minority shareholders selling control of corp Disclosure of Potential Conflicts of Interest Required by RMBCA 860 full disclosure abstain from voting Liability of Directors and Officers Can be held liable for negligence crimes and torts committed by employees themselves The Role of Shareholders Shareholders Powers Approval to amend articles of incorporation or bylaws conduct a merger dissolve sell all or substantially all corporations assets also vote to elect or remove directors Inherent power to remove directorfor cause breach of duty or misconduct Shareholders39 Meetings Must occur at least annually Notice of Meetings between 1060 days RMBCA 705 special meeting notice must include purpose Proxies stockholders appoint another person as their agent to vote their shares at the meeting valid for 11 months RMBCA 6 Shareholder Proposals submit to board SEC rule 14a8 shareholders worth 1000 ormore may submit ShareholderVoting Preferred stock can39t vote RMBCA 721 Quorum Requirements at least 50 percent of outstanding shares present Voting Lists keep alphabetical voting list of shareholders and addresses and number of votes must be available for inspection RMBCA 720 Cumulative Voting allowed number of voting shares times number of members to be elected can be casted towards one or spread among a Other Voting Techniques vote by shareholder voting agreement or proxy voting trust right to vote assigned to trustee ownership is not transferred RMBCA 730 Rights of Shareholders Stock Certificates Evidence of ownership specifying number of shares now most are uncertificated RMBCA 626 Preemptive Rights Purchase percentage issuance of new stock equal to current ownership RMBCA 630 do not exist unless outlined in articles do not apply to treasury shares Preemptive Rights in Closely Held Corporations particularly important but could limit new capital Stock Warrants right to buy stock at a stated specified price and date Dividends paid from retained earnings net profitsfew states surplusmore states Illegal Dividends shareholders must return only ifthey knew they were illegal board of directors personally liable The Directors39 Failure to Declare a Dividend shareholders can ask a court to compel directors to declare dividend if the lack of dividend is an abuse of their discretion Inspection Rights RMBCA 720 1602 inspect corporate records voting lists limited for a proper purpose and request must be submitted in advance Transfer of Shares not valid until corporation is notified and the entry is complete Rights on Dissolution remaining assets after debt are proportionally distributed to shareholders The Shareholder39s Derivative Suit directors can bring a lawsuit in the name of the corporation against third party ifthey fail to do so stockholders can bring lawsuit in name of corporation against directors First submit written demand to directors RM BCA 740 then directors have 90 days damages collected go to corporation Liability of Shareholders Watered Stock issue shares for less than fair market value shareholder receiving must pay difference to corporation Duties of Majority Shareholders fiduciary duty to corporation and minority shareholder owns sufficient number to exercise de facto control over corporation Can be sued by minority if breach duties Chapter41 Corporate Merger Consolidation and Termination Merger Legal combination of two or more corporations Surviving corporation is absorber automatically acquire all property and assets preexisting legal rights and obligations Consolidation Two or more corporations combine to form a brand new organization Rights same as merger New corporation issues new shares or pay fair consideration to shareholders of dissolved corporations Share Exchange Some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation but both corporations exist Often used to create holding companies Merger Consolidation and Share Exchange Procedures RMBCA 11011107 board of directors of each corp must approve plan must specify terms and conditions majority of shareholders of each corp must vote to approve surviving corporation files plan with appropriate official state issues a certificate of merger or certificate of consolidation ShortForm Mergers RMBCA 1104 simplified procedure for substantially owned subsidiary corporation into parent company Aka parentsubsidiary merger without approval of shareholders Own 90 Appraisal Rights dissenting shareholder has statutory right to be paid fair value for number of shares Appraisal Rights and Procedures corp must notify shareholder of rights RMBCA 1320 dissenting shareholders must submit written intent to demand payment before shareholders vote RMBCA 1321 fair value is value day prior to date of vote RMBCA 1321 corp makes written offer including balance sheet and income statement Appraisal Rights and Shareholder Status automatically lose shareholder status RMBCA 1323 Purchase of Assets Corp acquires all or substantially all assets of another corp simply extending its ownership and control over more assets Acquiring corp does not need shareholder approval Sales of Corporate Assets corp selling assets must obtain approval from board and shareholder RMBCA 1202 dissenting shareholders can demand appraisal rights RMBCA 1302 Successor Liability in Purchases of Assets purchaser not liable for selling corp39s obligations they will be if purchaser impliedly or expressly assumes the seller39s liabilities sale transaction is a merger or consolidation purchaser continues the seller39s business and retains same personell when sale is entered into fraudulently to avoid liability Pu rchase of Stock Purchase substantial number of voting share of stock acquiring corporation controls target corp aka corp takeover Tender Offers proposal to buy shares of stock from a target corp39s shareholders for cash or corp security Usually above market value Offering company does not need to notify SEC ortarget corp until after offer is made Responses to Tender Offers generally board opposes offer hostile takeover Self tender target corp offers to acquire stock from its own shareholders Can also offer more stock or campaign against Takeover Defenses and Directors Fiducian Duties Directors must act in best interest of corp and shareholders Courts apply businessjudgment rule to analyze whether directors acted reasonably in resisting takeover and actions taken are equal to threat Takeovers and Antitrust Law Target corp files that aggressor will gain substantial market power Termination Volu ntan Dissolution shareholders unanimously vote or board of directors proposal submitted to shareholders Must file articles of dissolution with the state and notify creditors Must establish date 120 days at least after dissolution that claims against corp must be received RMBCA 1406 Involuntan Dissolution state can dissolve corp for unpaid taxes orfile annual reports RMBCA 1420 or commits fraud mismanagement RMBCA 1430 or shareholder files for dissolution if directors are deadlocked in management of corp affairs and corp is suffering irreparable injury directors are acting illegally oppressive or fraudulent assets misapplied or wasted shareholders deadlocked in voting power and have failed fortwo terms to elect new directors Winding up Voluntary dissolution results in board members acting astrustees making them personally liable Involuntary or members refuse court appoints receiverto wind up affairs First pay creditors then distribute to shareholders respective of stock rights preferred first then common Ch 42 Securities Law and Corporate Governance The Securities and Exchange Commission created in 1934 independent regulatoryagency interprets federal securities laws and investigates violations issues new rules and amends existing rules oversees the inspection of securities firms brokers investment advisers and rating agencies coordinates US securities regulation with federal state and foreign authorities Updating the Regulatory Process requires companies submit electronically so they can post data to EDGAR electronic data gathering analysis and retrieval database The SEC39s Expanding Regulatory Powers expanded by Securities Enforcement Remedies and Penny Stock Reform Act of 1990 The Securities Acts Amendments of 1990 The National Securities Markets Improvement Act of 1996 granted power for SEC to exempt people from requirements SarbanesOxley Act of 2002 required SEC to adopt new rules relating to corporate disclosure and created an oversight board to regulate public accounting firms The Securities Act of 1933 Governs initial sales of stock by businesses Requires disclosure What is a Security Section 21 definition common stocks treasury stocks bonds debentures stock warrants stock options puts calls other types of privilege on a security or on the right to purchase a security or a group of securities notes instruments or other evidence of debenture undivided interest in oil gas or mineral rights investment contracts transaction whereperson invests in common enterprise reasonably expecting profits derived primarily or substantially from others39 managerial or entrepreneurial efforts Registration Statement Section 5 security must be registered before it is offered to the public Also must provide prospectus disclosure document outlining type of security financial operations of issuing corp and investment risk Contents of Registration Statement securities being offered corp properties and business management of corp intent for proceeds pending lawsuits or special risk factors Registration Process must be viewed and approved bythe SEC during prefiling period issuer cannot advertise or sell security Waiting period 20 days from submission during which advertisements can be made distribute preliminary prospectus aka red herring prospectus usually doesn39t include price Posteffective Period after waiting period now offer and sell security without restriction must provide final prospectus Restrictions Relaxed for Wellknown Seasoned Issuers 2005 revision based on size and presence in market issued at least a billion in securities in last 3years or has at least 700 million in outstanding stock Exempt Securities and Transactions Regulation A Offerings offering of up to 5 million in securities in any twelvemonth period is exempt from registration Allows small businesses lessthan 25 million to simplify registration Regulation D Offerings Rule 504 most small businesses noninvestment company offerings up to 1 million in any 12 month period are exempt Rule 505 private noninvestment company offerings up to 5 million in any 12 month period to accredited investors and up to 35 unaccredited investors Rule 506 private noninvestment company offering unlimited amount as long as offering is not generally solicited or advertised Aka private placement exemption Same investors as rule 505 Resales and Safe Harbor Rules don39t need to be registered can39t resell rule 505 or 506 securities without registering unlessthe party sellingthem complies with rule 144 or 144a Rule 144 adequate current public information about the issuer seller has owned them at least 6 months issuer is subject to the 1934 act39s reporting requirement one year if not Rule 144a securities at the time of issue were not of the same class as securities listed on a national securities exchange or quoted in a US automated interdealer quotation system may be resold to qualified institutional buyers and seller must make buyer aware of reliance on exemption 144a Violations of the 1933 Act selling securities before effective registration date or false exemption fined up to 10000 civil private parties sue signers of prospectus for omissions or false info Defenses prove statement or omission was not material plaintiff knew about misrepresentation exercised due diligence The Securities Exchange Act of 1934 Provides regulation and registration of securities exchanges brokers dealers national securities associations Continuous periodic disclosures by publicly held corps Applies to companies with assets exceeding 10milion and five hundred or more shareholders Section 12 companies required to register under section 12 Must file annual and quarterly reports with SEC Section 10b SEC Rule lob5 and Insider Trading 10b prohibits use of any manipulative or deceptive mechanism in violation of SEC rules and regulations 10b5 prohibits commission of fraud in connection with the purchase or sale of any security applies to all cases concerningtrading of securities Insider Trading 10b and 10b5 apply to anyone who has access to or receives info not public Disclosure Under SEC rule 10b5 key to liability is whether info omitted or misrepresented is material ex Fraudulent trading of company stock dividend change contract for sale of corp asset new discovery significant change in firm39s financial condition potential litigation against company The Private Securities Litigation Reform 10b5 deterred disclosure of forward looking information to rectifythis congress passed the Private Securities Litigation Reform Act of 1995 protected those making statements from fraud as long accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forwardlooking statement The Securities Litigation Uniform Standards Act 1998 limit ability of plaintiffs to bring classaction suits in state courts against irms Outsiders and SEC Rule 10b5 10b and 10b5 apply to those trading on insider information obtained indirectly TipperTippee Theory liability falls on both info gained from someone39s breach of fiduciary duties only applies if there is a breach of duty to not disclose inside information and the disclosure is made in exchange for personal benefit and the tippee knows or should know of the situation Misappropriation Theory individual wrongfully obtains info and trades on it Insider Reporting and Trading Section 16b Provides the recapture by the corp of all profits realized by certain insiders on any purchase and sale of the corps stock within six months Regulation of Proxy Statements Section 14a regulates solicitation of proxies from shareholders of Section 12 companies Must submit proxy statement and disclose everything Violations of the 1934 Act criminal and civil liability scienter must exist the violator must have had intent to defraud or knowledge of his misconduct Liability under 16b is strict does not require scienter or negligence may be fined 5 million imprisoned for 20 years Civil Sanctions SEC can bring civil action against anyone violating 1934 act May charge triple losses gained or losses avoided The Insider Trading and Securities Fraud Enforcement Act of 1988 enlarged class of persons with civil liability Private parties may also sue violators Had to rely on information State Securities Laws Corporate securities laws aka blue sky laws regulate offer and sale of securities Concurrent regulation must follow state and federal rules exemption from federal did not mean state National Securities Markets Improvement Act of 1996 eliminated redundancies Corporate Governance Relationship between corp and shareholders Aligning interest of officers and shareholders provide officers with stock options encouraged some to cook books The Goal is to Promote Accountability audited reporting of financial conditions at the corp so that managers can be evaluated legal protections for shareholders so that violators of the law can be punis e Governance and Corporate Law SEC vowed in 2010 to modernize voting for shareholders Level playing field between shareholders39 candidates and company39s nominees The SarbanesOxley Act of 2002 increase corporate accountability by imposing strict disclosure requirements and harsh penalties Large companies must have an independent auditorfile a report with SEC reports filed earlier with SEC section 302 and 404 require high level managers to establish and maintain effective system of internal controls Section 906 CEO and CFO certify accuracy of info in corp docs Ch 43 Law for Small Business The importance of legal counsel negotiating franchise agreement creating standard business forms buying or selling real property or business negotiating licenses for intellectual property rights obtaining new outside investors Retain an attorney pay a retainer every month to use attorney Hire an Accountant Selection of the Business Organization limit liability tax considerations continuity of life after owner legal formality and expense Requirements for all Business Forms business name registration occupational licensing state tax registration health and environmental permits zoning and building codes importexport regulations If employees are present then there are more laws Formalize the Business written agreements help business continue in unforeseen events The Limited Liability Company easier to form limited liability without double taxation structure parallels corp articles of organization operating agreement owners are members not shareholders Flexibility in Determining Members39 Rights default rules exist where an operating agreement doesn39t choose managers no annual meeting Extent of Fiduciary Duties same duties as corp managers unless expressly limted in agreement Converting an LLC into a Corporation thriving LLC seeks outside capital through public offerings retaining earning for growth rather than distributing so no double taxation requires consent of all members file articles of dissolution How to Form a Business Entity Corporate Name choose name and file with appropriate state office different from existing name must include corp co inc only protects name in state national businesses need to protect name undertrademark law Articles of Incorporation Bylaws and Initial Meeting see ch 39 Corporate Record Books Intellectual Property Trademarks can39t be similarto cause confusion or the same First to register with US Patent and Trademark Office PTO First use still takes some precedence if you used the name 2 years you have common law rights but only in geographic region Trademark Selection Trademark Registration both state and federal register both name and image Trademark Protection you may use with your mark If you have not registered you may use quot with your mark Renew registration with PTO after 5 years Renew every 10 years after that Constantly monitor for use of your trademark and document letters sent Trade Secrets info concerning product development production processes and techniques customer lists Nondisclosure and Noncompete Agreements Misappropriation can sue if stolen Financial Capital Loans retain full ownership banks may require personal guaranty contracts putting the owner39s assets at risk US Small Business Administration SBA provides loans Venture Capital Ch39 Creation of Business Plan describe company products anticipated future performance Fewer than 50 pages Securities Regulation Ch 42 Private Offerings Public Offerings ShareholderAgreements and KeyPerson Insurance Shareholder Agreement relative ownership rights and interests BuySell agreement CH 37 KeyPerson Insurance top executive software designercompany relies on them Contract Law and Small Business Contract Law incorporated then enter contract as agent of corp not yourself Employment Issues Businesses with fewer employees are exempt from federal laws prohibiting discrimination and Family and Medical Leave Act of 1993 OSHA is always enforceable though Hiring Employees don39t promisejob security protect trade secrets determine screening tests immigration laws Employment Contracts Verification of Applica nts39 Credentials Workers Compensation must have insurance employee can39t sue you Firing Employees usually atwill employment but document good reasons for firing so they can39t sue you for unlawful discrimination or other law Employee Files application performance reviews Severance Pay payment in addition to wages Sign release promising not to sue Wrongful Discharge be aware of promises made to employees Independent Contractors not employees Benefits don39t withhold taxes no matching SS and Medicare no premium for worker39s comp or unemployment not subject to laws governing employment relationships Liability for misclassification of Workers cannot exercise significant amount of control over them or they will be seen as employee Chapter 38 Limited Liability Companies and Special Business Forms The Limited Liability Company Hybrid form that combines the limited liability aspects of corporation and tax advantages of partnership 1995 issued Uniform Limited liability Company Act ULLCA Taxation of the LLC Taxed as partnerships must meet certain criteria Unincorporated businesses are taxed as partnerships unless indicated otherwise LLC39s allow foreign investors with limited liability and tax benefits The Nature of the LLC Must be created and operated in compliance with state statute Owners enjoy limited liability ULLCA 303 Legal entities separate from owners can be sued sue enter contracts hold property ULLCA 201 Foreign LLC if operating in different state The Formation of the LLC Articles of organization must be filed with a central state agency ULLCA 202 Include all info about business ULLCA 203 Name must include LLC ULLCA 105a Preincorporation contracts personsforming a corporation may enter into contracts during the process of incorporation but before the corporation becomes a legal entity Jurisdictional Requirements LLCs are citizens of the states their customers are citizens of Advantages of the LLC Limited Liability Occasionally court will pierce the corporate veil and hold a shareholder liable for a corporate obligation Flexibility in Taxation Two or members can choose either partnership or corporate taxation Corporation pay taxes on profits and shareholders pay personal income on profits distributed Preferto be taxed as partnership and avoid double taxation if distributing profits Default is partnership taxation f LLC wants to reinvest profits they might prefer corporate taxation Corporate tax rate may be lower than personal One member LLC is taxed by default as sole proprietorship Management and Foreign Investors Disadvantages of the LLC LLC statutes are not uniform Operation and Management of an LLC The LLC Operating Agreement Operating agreement ULLCA 103a dividing profits management transfer of interest A Writing is Preferred Operating agreement not required in most states and need not be in writing Profits are divided equally if not agreed upon Partnership Law May Apply f authority of members is an issue and not covered by operating agreement Management of an LLC Member managed or Manager managed Unless stated in articles of organization assumed member managed Decisions made by majority vote ULLCA 404a Manager managed designate a group consisting of members members and nonmembers or nonmembers Managers owe fiduciary duties duty of loyalty and care to the LLC and its members ULLCA 409a 409h Some states require duties only to LLC Operating Procedures ULLCA 404b3 members may choose and remove managers by majority vote in most cases No provisions around formal meetings If not agreed upon assumed voting rights proportional to capital contributions Some states say each member one vote Dissociation and Dissolution of an LLC Dissociation similarto partnership rules Effects of Dissociation Loses right to participate in management and the right to act as an agent Duty of loyalty ceases duty of care continues for events before dissociation Right to be bought out without agreement must purchase within 120 days of dissociation Can be considered wrongful if violates agreement If dissolved any members not involved in wrongful dissociation may participate in wind up process Special Business Forms Joint Venture Two or more persons or business entities combine efforts or property for a single transaction or project or related series of projects Unless stated share profits and losses equally Similarities to Partnerships Taxed the same Same fiduciary duties Same management rights Differences from Partnerships Members have less implied and apparent authority because only created for one transaction Terminates when project is completed Syndicate Aka investment group several individuals orfirmsjoin together to finance a particular project Vary greatly in organization Joint Stock Company Hybrid of corporation and partnership Ownership represented by transferable shares of stock normally managed by directors and officers perpetual existence Generallytreated as partnership Formed by agreement property held in names o members owners are personally liable Shareholders not agents of eachother Business trust Written trust agreement that sets forth the interests of the beneficiaries and the obligations and powers of the trustees Legal ownership and management of the trust39s property stay with one or more trustees and profits are distributed to the beneficiaries Similar to corporation beneficiaries are not personally responsible for the trust39s debts Coope rat ive Association organized to provide economic service to its members May or may not be incorporated Distribute profits to owners based on transactions and not invested capital Members enjoy limited liability Unincorporated cooperative treated like partnership Formed to take advantage of group rates Chapter 39 Corporate Formation and Financing The Nature and Classifications of Corporations Legal entity created and recognized by state law One or more owners operates under a name distinct from owner39s names Owners may be individuals or natural persons or businesses Recognized as a person Can sue or be sued allowed free speech and freedom from unreasonable search and seizure Corporate Personnel Management entrusted to board of directors elected by shareholders Shareholders are owners change constantly without effecting business operations can sue corporation and be sued by corporation also sue on behalf of corporation Limited Liability of Shareholders Corporate Earnings and Taxation Either distribute as dividends or invest retained earnings forfuture profit gains and increase stock price Corporate Taxation Subject to income tax at various levels of government State can suspend corporate status or dissolve corporation for failure to pay Major disadvantage double taxation pay tax on profit then shareholders pay taxes on passed on profits Holding Companies Aka parent company business activity consists of holding shares in another company Established in no tax or low tax jurisdiction US corporation transfers cash bonds stocks to holding company Holding company pays lower taxes on profits received Torts and Criminal Acts Liable for torts committed by agents or officers within the course and scope of employment Classification of Corporations Domestic Foreign and Alien Corporations Can39tjust operate in different states May file certificate of authority Normally can conduct a transaction but not continued business with no certificate Public and Private Corporations Public formed by government to meet political or governmental purpose Incorporated cities and towns Private created for private benefit Nonprofit corporations formed for purpose other than profit allows groups to own property and form contracts without exposing members to personal liability Closely Held Corporations Not publiclytraded Operated like partnership with unanimous shareholder agreement can operate without directors bylaws annual meetings stock certificates or formal records of decisions RM BCA 732 Management of Closely Held Corporations Similarto partnership or sole proprietorship Transfer of Shares in Closely Held Corporations could be restricted or offer first to existing shareholder Shareholder Agreement to Restrict Stock Transfers S Corporations Avoid imposition of income taxes at the corporate level and retain corporate benefits Must be domestic not be a member of an affiliated group of corporations shareholders must be individuals 100 or less owners one class of stock no nonresident alien owners Taxed like partnership avoid double taxation if corporation has losses owners can use them to offset their own income Professional Corporations Same laws as business corporations For liability treated as partnership partners personally liable for own scope of business Corporate Formation Promotional Activities Individuals personally liable for all preincorporation contracts A promoter will remain liable forthe preincorporation contract until the corporation assumes liabilitythrough a novation Incorporation Procedures Select a state secure the corporate name prepare articles of incorporation file articles with secretary of state Select the State of Incorporation Delaware allows corporations to incorporate there and conduct business in other states Most pick the state where business is conducted Secure the Corporate Name Cannot duplicate or deceive Must include corp inc co or ltd cannot be similar to name in same state Prepare theArtices of Incorporation Incorporators sign it Must include name number of shares RMBCA 202a name and street address name and address of incorporator Has a perpetual existence Can also include internal organization bylaws cannot conflict with the incorporation statute orthe articles of incorporation RMBCA 206 shareholders or board of directors may amend or repeal bylaws RMBCA 1020 File theArtices With the State First Organizational Meeting to Adopt Bylaws elect directors adopt bylaws very specific if not followed others can challenge existence of corporation corporation has de jure if it exists RM BCA 203b enough proof of existence that secretary of state filed forms De facto corporation if state statute exists under which the corporation can be validly incorporated parties have made a good faith attempt to comply with the statute parties have already undertaken to do business as a corporation Other states believe RMBCA did away with de facto corporations Incorporators would be personally liable Corporation by Estoppel Business holds itself out to others as a corporation cannot deny corporate status in lawsuit Corporate Powers Express Powers Found in articles of incorporation law of the state of incorporation and state and federal constitutions Issue stocks bonds execute contracts buy and sell property pay employee benefits charitable contributions Bylaws grant or restrict powers The us constitution state constitutions state statutes articles of incorporation bylaws resolutions of the board of directors Implied Powers Perform all acts reasonably appropriate and necessaryto accomplish its corporate purposes Borrow funds lend funds extend credit Corporate officers bind the corporation in matter directly connected with the ordinary business affairs of the enterprise Ultra Vires Acts beyond the powers of the corporation Shareholders can stop ulta vires acts under RMBCA 304 Piercing the Corporate Veil Expose shareholders to personal liability RMBCA 204 party istricked into dealing with corporation ratherthan individual set up to never make a profit formed to evade an existing legal obligation not following statutory corporate formalities personal and corporate interests commingled A Potential Problem for Closely Held Corporations Consistent usage of company vehicle etc The AlterEgo Theon Courts see that individual and corporate entity are not separate identities Corporate Financing Bonds borrowing from investors maturity date when face value is paid to investor receive interest payments Bond indenture lending agreement for bond issues Stocks issue to secure financing RM BCA 601 common stock true ownership of corporation proportionate interest in control earnings net assets Paid after taxes preferred stock holders bond holders suppliers employees Preferred Stock equity security with preferences Not as risky but not as profitable as common stock Venture Capital and Private Equity Capital Venture Capital startup businesses and highrisk enterprises Give up share of ownership to venture capitalist Private Equity Capital private equity firms obtain capital from wealthy investors in private markets Use capital to invest in existing corporations Buy entire corporation to reorganize as publicly held corporation


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.