A corporation is a legal entity created and recognized by state law. It can consist of one or two persons identified under a common name. CORPORATE PERSONNEL When an individual purchases a share of stock in a corporation, that person becomes a shareholder and owner of the corporation. Shareholder and corporations are liable. THE LIMITED LIABILITY OF SHAREHOLDER One of the key advantages of the corporate forms is the limited liability of its owners. Corporate shareholders normally are not personally liable for the obligations of the corporation beyond the extent of their investments.
CORPORATE TAXATION
Corporate profits are taxed, and do not receives tax deduction for dividends distributed to shareholders. Profits that are not distributed are retained by the corporation. These retained earnings if invested properly, will yield higher corporate profits in the future. 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. Corporation may be held liable for criminal acts of its agents and employees, provided the punishment is one that can be applied to the corporation, corporation can be fined.
CORPORATION SENTENCING GUIDELINES Penalties depend on factors and executives involvement. Corporate lawbreakers can face fines smaller amounting or to hundreds of millions of dollars. When a company has taken substantial steps to prevent, investigate, and punish wrongdoing, such as by establishing and enforcing crime prevention standards, a court may impose less serious penalties. Corporate sentencing guidelines require corporations to train employees on how to comply with relevant laws.
CLASSIFICATION OF CORPORATIONS
Domestic, foreign, and alien corporations * Domestic corporation; by its home state (the state in which it incorporates). * Foreign corporation; corporation formed in one state but doing business in another state. * Alien corporation; corporation formed in another country but doing business on the E. E. U. U. In some instances, the corporation must obtain a certificate of authority in any state which plans to do business. But the foreign corporation does not need this certificate to sell goods over the internet.
Public and private corporations * Public corporation, is one formed by the government to meet some political purpose, such a U. S. Postal service, AMTRAK. A public corporation is not the same as a publicly held corporation. A publicly held corporation is any corporation whose shares are publicly 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 serve a public purpose. Nonprofit corporation
Corporation formed for purposes other making a profit are called nonprofit or not-for-profit corporations. Private hospitals, educational institutions, charities, and religious organizations for example, are organized as nonprofit organization. Close corporations A close corporations is one whose shares are held by members of a family or by relatively few persons. Referred also as closely held, family, or privately held corporations. Usually the members of the small group constituting a close corporation are personally know to each other.
A close corporation is often operated like a partnership. *Management of close corporations To prevent a majority shareholder from dominating a close corporation, the corporation may require that more than a simple majority of the directors approve any action taken by the board. *Transfer of shares in close corporations The transfer of one shareholder’s shares to someone else can cause serious management problems. Control of a close corporation can also be established through the use of shareholder agreement. S corporations
A close corporation that meets the qualifying requirements specified in subchapter S of the Internal Revenue Code can operate as an S corporation. If a corporation has a S corporation status, it can avoid the imposition of income taxes at the corporate level while retaining many of the advantages of a corporation, particularly limited liability. *Qualification requirement for S corporations 1) The corporation must be a domestic corporation. 2) The corporation must not be a member of an affiliated group of corporations.
3) The shareholders of the corporation must be individuals, estates, or certain trusts. 4) The corporation must have no more than one hundred shareholders. 5) The corporation must have only one class of stock, although all shareholders do not need to have the same voting rights. 6) No shareholder of the corporation may be a nonresident alien. *Benefits of a S corporations 1) When a corporation has losses, the S election allows the shareholders to use the losses to offset other taxable income. 2) When the shareholder’s tax bracket is lower than the tax bracket for regular corporations.
The S election causes the corporation’s entire income to be taxed in the shareholder’s bracket, whether it is distributed. Professional corporation Professional corporation such as physician, lawyers, dentists, and accountants can incorporate. There is generally no limitation on liability for acts of malpractice or obligations incurred because of a breach of duty to a client of a PC. In many states, professional persons are liable not only for their own negligent acts, but also for the misconduct of persons under their direct supervision who render professional services.
A shareholder in a professional corporation is generally protected from contractual liability and cannot be held liable for the torts that are committed by other professional at the firm. 2. – CORPORATE FORMATION One of the most common reasons for creating a corporation is the need for additional capital to finance expansion. Incorporation may be the best choice for an expanding business organization because a corporation can obtain more capital by issuing shares to stock. PROMOTIONAL ACTIVITIES Persons rarely engage in preliminary promotional activities.
It is important for businesspersons to understand that they are personally liable for all preincorporation contracts made investor, accountants, or others on behalf of the future corporation. INCORPORATION PROCEDURES Exact procedures for incorporation differ among states, but the basic steps are as follows: 1) Select a state of incorporation. 2) Secure the corporate name. 3) Prepare the articles of incorporation. 4) File the articles of incorporation with the secretary of state. Selecting the state of incorporation Because laws differ from state to state. States fees are considered too.
Securing the corporate name The choice of a corporate name is subject to state approval to ensure against duplication or deception. All the states require the corporation name to include the word corporation (Corp. ), Incorporated (Inc. ), company (Co. ), or limited (Ltd. ). Preparing the articles of incorporation The primary document needed to incorporate a business is the articles of incorporation, must include the following information; 1) The name of the corporation. 2) The number of shares the corporation is authorized to issue. 3) The name and address of the corporation’s initial registered agent.
4) The name and address of each incorporator. *Shares of the corporation The articles must specify the number of shares of stock the corporation is authorized to issue. A company might state that the aggregate number of shares that the corporation has the authority to issue is 5k. *Registered office and agent The corporation must indicate the location and address where of it registered office within the state. *Incorporators Each incorporator must be listed by name and address. *Duration and purpose A corporation has a perpetual existence unless the articles state otherwise.
The owners may want to prescribe a maximum duration, however, after which the corporation must formally renew its existence. A corporation can be formed for any lawful purpose. *Internal organization Articles can describe the corporation’s internal management structure, although this is usually 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 state official, usually the secretary of State.
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