A corporation is a separate legal entity. It holds property, can sue and be sued and pays taxes. Advantages of a corporation Disadvantages of a corporation Shareholder liability Piercing the corporate veil in order to promote justice and prevent inequity, the courts sometimes ignore the separateness of a corporation and its shareholders. Generally two conditions: domination of a corporation by its shareholders and use of a domination for an improper purpose. For example, in cases of inadequate capitalization, failure to hold regular shareholders and directors meetings, failure to record minutes of meetings, co-mingling of corporate and personal assets. This is also called the alter ego theory. Promoters and pre-incorporations transactions A promoter incorporates a business, organizes its initial management and raises its initial capital. If s/he acts before incorporation, s/he may be personally liable on the contracts. The corporation may adopt the promoters contracts, expressly or by implication. RKO-Stanley Warner Theatres Inc.v. Graziano (page1547) Incorporation Process: prepare articles of incorporationfile the articles with the Secretary of State and pay feesreceipt of the articles of incorporation stamped filedholding an organizational meeting to adopt the by-laws, elect the directors and transact other businesses Articles of incorporation ( = certificate of incorporation = charter): lay down the rules between the corporation and the outside world. They contain the corporate name, shares to be issued, purpose, duration etc. They are public. By-laws: supplement the articles of incorporation and concern internal management (quorum requirements, notice requirements, shareholders and directors meetings, procedures for share transfer etc.).
Chapter 43 Corporations: General Characteristics and Formation
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