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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
Slide 1 of 3
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
Slide 2 of 3
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
Slide 3 of 3
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
Slide 1 of 2
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
Slide 2 of 2
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