NEEDS TO ANSWER ALL QUESTION NO ERRORS AND NO PLAGIARISM DO NOT RUSH MAKE SURE IT'S CORRECT
lizypooh123
miller-hollowell-7e_30.pdf_applied_business_law_2.pdf
CHAPTER 30 FORMATION AND
TERMINATION OF A CORPORATION
Learning Outcomes
LO1
LO2
•Set out the differences among the classifications of corporations.
•Summarize incorporation procedures and corporate powers.
•Define the methods of corporate financing.
LO3
Learning Outcomes
LO4
LO5
•Identify the basic steps in a merger, consolidation, and purchase of assets or stock.
•Discuss the phases involved in the termination of a corporation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Domestic, Foreign, and Alien Corporations. – Domestic: corporation that does
business in, and is organized under the laws of, that state.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Domestic, Foreign, and Alien Corporations. – Foreign: corporation that does
business in one state but is incorporated in another.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Domestic, Foreign, and Alien Corporations. – Alien: corporation doing business
in the United States but formed in another country.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Public Corporation. – Formed by the government to
meet some political or governmental purpose.
Private Corporation. – Created either wholly or in part for
private benefit.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Nonprofit (or Not-for-Profit) Corporations: – Usually private, they can be used in
conjunction with an ordinary (for- profit) corporation to facilitate making contracts with the government.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
Close Corporation. – Shareholders are limited to a small
group of persons, often including only family members.
– The rights of shareholders are restricted regarding the transfer of shares to others.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
S-Corporations. – A business corporation that has
met certain requirements as set out by the Internal Revenue Code and thus qualifies for special income tax treatment.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
S-Corporations. – S-corporations are taxed the same
as a partnership, but shareholders enjoy the privilege of limited liability.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
S-Corporations. – Requirements:
1. The corporation must be domestic. 2. Must not be a member of an
affiliated group of corporations. 3. Shareholders must be individuals,
estates, or certain trusts.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
S-Corporations. – Requirements:
4. The corporation must have no more than 100 shareholders.
5. Must have only one class of stock. 6. No shareholder of the corporation
may be a nonresident alien.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate
Classifications
S-Corporations. – Benefits: • Losses can be used to offset other
income. • If a shareholder’s tax bracket is lower
than the corporation’s, it is taxed at the lower rate. • Income is not taxed twice.
LO1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Formation of a Corporation
Preliminary Activities.
Incorporation Procedures.
Certificate of Incorporation.
First Organizational Meeting.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Preliminar y Activities
In the past, creating a corporation took time and the incorporators (promoters) could be personally liable for pre-incorporation activities.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Preliminar y Activities
Promoters: – Personally liable on pre-
incorporation contracts. – Liability continues after
incorporation until corporation accepts and creates a novation with third party.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Incorporation
Procedures
State Chartering. – Articles of Incorporation filed with
the appropriate governmental agency, usually the secretary of state, who issues the corporate
charter.
LO2
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Incorporation
Procedures
Articles of Incorporation. – Corporate Name. – Nature and purpose. – Duration. – Capital Structure. – Registered office and agent. – Incorporators.
LO2
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Incorporation
Procedures
Certificate of Incorporation. – Evidences corporate existence
(referred to as articles of incorporation in some states).
LO2
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Incorporation
Procedures
First Organizational Meeting. – Board of Directors elected, who
then hire officers (in small companies these may be the same).
– Adoption of Bylaws: set of governing rules or regulations adopted by a corporation.
LO2
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Defects in Formation and
Corporate Status
De Jure. – Because a de jure corporation is
one that is properly formed, neither the state nor a third party can attack its existence.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Defects in Formation and
Corporate Status
De Facto. – Can only be challenged by the
state.
Corporation by Estoppel. – If business holds itself out as a
corporation, then neither party can raise the issue of corporate status.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Piercing the Corporate Veil
Shareholders can be held personally liable if: – Party is tricked or misled into
dealing with corporation instead of an individual.
– Company is thinly capitalized, setup to lose money.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Piercing the Corporate Veil
Shareholders can be held personally liable if: – Corporate formalities are not
followed. – Personal and company funds are
commingled so the corporation has no separate financial identity.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Powers
Express Powers: found in its articles of incorporation, in the law of the state of incorporation, and in the state and federal constitutions.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Powers
Implied Powers: upon formation, a corporation has legally implied powers to do what is reasonably necessary – and legal – to accomplish its corporate goals.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Powers
Ultra Vires: – Activities of a corporation’s
managers that are outside the scope of the power granted them by the corporation’s charter or the laws of the state of incorporation are ultra vires (illegal) acts.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Financing
To obtain financing, corporations issue securities. – Stocks: to finance its tocks
(purchase of ownership in the firm).
– Bonds (debentures; long-term borrowing of funds by the firm).
LO3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Stocks
Stock. – In corporation law, an equity or
ownership interest in a corporation, measured in units of shares. • Common: true ownership. • Preferred: priority dividends.
LO3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Stocks
Common Stock. – Shares in a corporation that are
lowest in priority with respect to payment of dividends and distribution of the corporation’s assets on dissolution.
LO3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Stocks
Preferred Stock. – Classes of stock that have priority
over common stock both as to payment of dividends and distribution of assets on the corporation’s dissolution.
LO3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Corporate Bonds
Bond. – Certificate evidencing a corporate
debt, that has no ownership interest in the issuing corporation.
– Bond Indenture: contract between the issuer of a bond and the bondholder.
LO3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Merger
and Consolidation
A merger involves the legal combination of two or more corporations, so that only one survives.
LO4
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Merger
and Consolidation
In a consolidation, two or more corporations combine so that each corporation ceases to exist, and a new one emerges.
LO4
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Procedures
Board of directors and all shareholders must approve the plan.
The plan is filed with the secretary of state.
State issues a certificate of merger or consolidation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Procedures: Shor t Form
A merger between a subsidiary corporation and a parent corporation that owns at least 90 percent of the outstanding shares of each class of stock issued by the subsidiary corporation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Procedures: Shor t Form
Short-form mergers can be accomplished without the approval of the shareholders of either corporation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Procedures: Appraisal
Appraisal Rights. – A dissenting shareholder’s right, if
he objects to an extraordinary transaction of the corporation, to have his shares appraised and to be paid the fair market value of his shares by the corporation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Procedures: Approval
Shareholder Approval. – Extraordinary matters, such as
merger or sale, requires approval by shareholders.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase of Assets or Stock
U.S. Department of Justice has issued guidelines that significantly constrain, and often prohibit, mergers that could result from a purchase of assets.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase of Assets or Stock
Generally, a corporation that purchases the assets of another corporation is not responsible for the liabilities of the selling corporation.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase of Assets
Purchasing corporation extends its ownership and control over more assets.
Since there is no change in the legal entity, shareholder approval is not required.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase of Stock
Target corporation: – The acquired corporation in a
corporate takeover; a corporation to whose shareholders a tender offer is submitted.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase of Stock
Tender offer: – An offer made by one company
directly to the shareholders of another company to buy the shareholders’ shares in that company.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Termination of
a Corporation
Dissolution of a Corporation: 1. An act of the legislature in the
state of incorporation. 2. Expiration of the time provided in
the articles of incorporation. 3. Voluntary approval by
shareholders and board of directors.
LO5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Termination of
a Corporation
Dissolution of a Corporation: 4. Unanimous action by all
shareholders. 5. Court decree.
LO5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Termination of
a Corporation
Liquidation or Winding Up. – The sale of the assets of a business
or an individual for cash and the distribution of the cash received to creditors, with the balance going to the owner(s).
LO5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Termination of
a Corporation
Liquidation or Winding Up. – Receiver is appointed when
creditors force a liquidation of the corporate assets.
LO5
