Corporations. 2 Corporate Personnel Who owns corporation? Who runs the company: Stock holders can sue corporation and be sued by corporation in rare instances.

Corporations Corporations

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Corporate PersonnelCorporate Personnel

• Who owns corporation?Who runs the company:

Stock holders can sue corporation and be sued by corporation in rare instances

Corporations are recognized as legal “persons” and enjoy virtually same rights and privileges under our Constitution as natural persons.

CorporationsCorporations

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Responsibility for overall management of company rests with board of directors (elected by shareholders).

Board of directors makes policy decisions and hires officers to run corporation on a daily basis.

Corporate PersonnelCorporate Personnel

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ShareholdersShareholders

Shareholders liability – stocks?

Piercing the “corporate veil = when can sue and get stock holders. Typically something illegal going on where stockholders or owners part of corruption.

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Torts and Criminal ActsTorts and Criminal Acts

• What is a tort? • A corporation is liable for the torts committed by

its agents or officers within the course and scope of their employment (CALLED - respondeat superior.)

• Corporation can be liable for criminal acts, but only fined.

• Ex: BP Oil

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Incorporation Process-WebsiteIncorporation Process-Website

Name SearchName Search

File Articles of Incorporation

File Articles of Incorporation

Prepare docts

Prepare docts

1st Organiza-tional Meeting1st Organiza-tional MeetingPay feesPay fees

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Incorporation ProceduresIncorporation Procedures

• 1st – Decide a State

• 2nd – Decide a name.– What must name have in it? – What is assumed name?

• 3rd - Articles of Incorporation – – who file with Tn Secretary State– Cost to file $100

TN - NameTN - Name

A name for the new corporation must meet the requirements of TCA §48-14-101•name must contain the word Inc, Corp

•A corporation’s name must be distinguished from any other name on file with the Division of Business Services.

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Reserve/Assume NameReserve/Assume Name

What is reserve name?

4 months $20

VS.

What is assumed name?

5 years $20

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The charter or “articles of incorporation” :

1. A corporate name that satisfies the name requirements

2. The number of shares the corporation is authorized to issue;

3. Registered agent

4. Principal office

5. Shares, classes stock and

6. A statement that the corporation is for-profit.

Articles of IncorporationArticles of Incorporation

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First Organizational MeetingFirst Organizational Meeting

• Must be chartered

• First organizational meeting asap with

• shareholders

• And elect board of directors

• Must meet 1 a year

S CorporationS Corporation

• Why form S corporation instead of C corporation:

• TAXES - S can be taxed as partnership vs.

• C which is taxed like corp

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• No foreign investor (v. LLC)

• Profits divided by investment

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S corporationsS corporations

No more than 100 shares of one type stock

Cannot be nonresident aliens vs. LLCProfits divided like corp.

An S corporation is operated in the same way as a corp. An S corp. must follow the same formalities and record keeping procedures. The directors or officers of an S corp. manage the company.

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S CORP v. LLCS CORP v. LLC

• S corp LLCShareholders Member

US resident Non resident alien

Split according to investment split according to agreement

SIMILARITIES

File with SOS File with SOS

Limited Liability Limited Liability

Tax partnership Tax partnership

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DefectsDefects

• If messed up in forming corporation – can individuals be sued?

• What if do not hold self out as a corporation

• No Protection!!! (Previous Case)

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Powers that are not writtenPowers that are not written

• Corporation can: • Borrow and lend money.• Extend credit.

• A corporate officer can bind corporation in contract in matters connected with the ordinary business affairs of the enterprise.

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Duty of Care : Directors/officers are expected to act in good faith and the best interests of the corporation.

Failure to exercise due care may subject individual directors or officers personally liable.

Tyco:

Duties and Liabilities of Directors and OfficersDuties and Liabilities of Directors and Officers

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Business Judgment RuleBusiness Judgment Rule

• consequences of a business decision that turned sour – are directors or officer immunized?

• Honest mistakes of judgment and bad decisions vs. bad faith, fraud - Business Judgment Rule