Corporation Formation and Types

Corporation Formation

• Incorporation: The process of creating a corporation by filing articles of incorporation with the state government.
• Types of Corporations:
  • C Corporation: A corporation that is taxed separately from its owners, with profits taxed at the corporate level and again at the individual level.
  • S Corporation: A corporation that passes corporate income, losses, deductions, and credits to shareholders for tax purposes.
  • Non-Profit Corporation: A corporation that is exempt from federal income tax and is formed for charitable, educational, or religious purposes.
• Corporate Structure:
  • Shareholders: Own the corporation and elect the board of directors.
  • Board of Directors: Responsible for making major business decisions and overseeing the corporation's management.
  • Officers: Responsible for the day-to-day operations of the corporation.

Shareholder Rights

• Voting Rights: Shareholders have the right to vote on major corporate decisions, such as electing the board of directors and approving mergers and acquisitions.
• Dividend Rights: Shareholders are entitled to receive dividends, which are portions of the corporation's profits.
• Inspection Rights: Shareholders have the right to inspect the corporation's books and records.
• Derivative Suits: Shareholders can bring lawsuits on behalf of the corporation to enforce the corporation's rights.

Director's Duties

• Duty of Care: Directors must act with the care that an ordinarily prudent person would exercise in a similar situation.
• Duty of Loyalty: Directors must act in the best interests of the corporation and avoid conflicts of interest.
• Duty of Good Faith: Directors must act in good faith and make decisions based on the corporation's best interests.
• Business Judgment Rule: Directors are protected from liability for their business decisions as long as they have acted in good faith and with due care.

Corporate Governance

• Role of the Board of Directors: The board of directors is responsible for overseeing the corporation's management and making major business decisions.
• Audit Committee: A committee of the board of directors responsible for overseeing the corporation's financial reporting and internal controls.
• Executive Compensation: The board of directors is responsible for setting the compensation of the corporation's executives.
• Stakeholder Engagement: The corporation's management and board of directors should engage with stakeholders, such as shareholders, employees, and customers.

Insolvency Law

• Bankruptcy: A legal process where a corporation is unable to pay its debts and seeks protection from creditors.
• Types of Bankruptcy:
  • Chapter 7: Liquidation bankruptcy, where the corporation's assets are sold to pay off creditors.
  • Chapter 11: Reorganization bankruptcy, where the corporation restructures its debt and continues to operate.
• Insolvency Tests: Tests used to determine whether a corporation is insolvent, including the balance sheet test and the cash flow test.
• Creditor's Rights: Creditors have the right to file claims against the corporation in bankruptcy and to receive payment for their claims.

Corporation Formation

• Incorporation is the process of creating a corporation by filing articles of incorporation with the state government.
• There are three main types of corporations: C Corporations, S Corporations, and Non-Profit Corporations.
• C Corporations are taxed separately from their owners, with profits taxed at the corporate level and again at the individual level.
• S Corporations pass corporate income, losses, deductions, and credits to shareholders for tax purposes.
• Non-Profit Corporations are exempt from federal income tax and are formed for charitable, educational, or religious purposes.

Corporate Structure

• The corporate structure consists of shareholders, a board of directors, and officers.
• Shareholders own the corporation and elect the board of directors.
• The board of directors is responsible for making major business decisions and overseeing the corporation's management.
• Officers are responsible for the day-to-day operations of the corporation.

Shareholder Rights

• Shareholders have the right to vote on major corporate decisions, such as electing the board of directors and approving mergers and acquisitions.
• Shareholders are entitled to receive dividends, which are portions of the corporation's profits.
• Shareholders have the right to inspect the corporation's books and records.
• Shareholders can bring lawsuits on behalf of the corporation to enforce the corporation's rights.

Director's Duties

• Directors have a duty of care to act with the care that an ordinarily prudent person would exercise in a similar situation.
• Directors have a duty of loyalty to act in the best interests of the corporation and avoid conflicts of interest.
• Directors have a duty of good faith to act in good faith and make decisions based on the corporation's best interests.
• The business judgment rule protects directors from liability for their business decisions as long as they have acted in good faith and with due care.

Corporate Governance

• The board of directors is responsible for overseeing the corporation's management and making major business decisions.
• The audit committee is a committee of the board of directors responsible for overseeing the corporation's financial reporting and internal controls.
• The board of directors is responsible for setting the compensation of the corporation's executives.
• The corporation's management and board of directors should engage with stakeholders, such as shareholders, employees, and customers.

Insolvency Law

• Bankruptcy is a legal process where a corporation is unable to pay its debts and seeks protection from creditors.
• There are two main types of bankruptcy: Chapter 7 (liquidation bankruptcy) and Chapter 11 (reorganization bankruptcy).
• Insolvency tests are used to determine whether a corporation is insolvent, including the balance sheet test and the cash flow test.
• Creditors have the right to file claims against the corporation in bankruptcy and to receive payment for their claims.