37: Corporate Formation and Financing

Question 1

general corporation statutes

Answer 1

state statutes that permit corporations to be formed without the separate approval of the legislature

Question 2

corporation codes

Answer 2

state statutes that regulates the formation, operation, and dissolution of corporations

Question 3

model business corporation act / MBCA

Answer 3

a model act, drafted in 1950, that was intended to provide a uniform law for the formation, operation, and termination of corporations

Question 4

characteristics of a corporation

Answer 4

legal existence, free transferability of shares, perpetual existence, centralized management, and limited liability of shareholders

Question 5

corporate officers

Answer 5

employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation

Question 6

limited liability of shareholders

Answer 6

a general rule of corporate law that provides that generally shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation

Question 7

professional corporation

Answer 7

a corporation formed by lawyers, doctors, or other professionals

Question 8

model nonprofit corporation act (MNCA)

Answer 8

a model act the provides comprehensive and modern law for the formation, operation, and dissolution of nonprofit corporations

Question 9

alien corporation

Answer 9

a corporation that is incorporated in another country

Question 10

holding company

Answer 10

a corporation that owns and operates a variety of other corporations and entities as subsidiaries

Question 11

promoter

Answer 11

a person or persons who organize and start a corporation, negotiate and enter into contracts in advance of its formation, find the initial investors to finance the corporation, and so forth

Question 12

promoters’ contracts

Answer 12

a collective term for such things as leases, sales contracts, contracts to purchase property, and employment contracts entered into by promoters on behalf of the proposed corporation prior to its actual incorporation

Question 13

promoters’ liabiity

Answer 13

the liability of a person for the debts and obligations he or she has entered into on behalf of a proposed corporation prior to the formation of the corporation

Question 14

novation agreement

Answer 14

an agreement that substitutes a new party for one of the original contracting parties and relieves the exiting party of liability on the contract

Question 15

articles of incorporation / corporate charter

Answer 15

the basic governing documents of a corporation. they must be filed with the secretary of state of the state of incorporation

Question 16

articles of amendment

Answer 16

a document filed with the secretary of state’s office that amends to the articles of incorporation of a corporation, the articles of organization of a LLC, ot the articles of LLP

Question 17

general-purpose clause

Answer 17

a clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law

Question 18

limited-purpose clause

Answer 18

a clause that can be included in the articles of incorporation that stipulates the activities that a corporation can engage in. the corporation can engage in no other purposes or activities

Question 19

model benefit corporation legislation (MBCL)

Answer 19

a model act that provides for the creation and operation of benefit corporations

Question 20

general public benefits

Answer 20

benefits, such as the advancement of social issues, that are taken into consideration by directors and officers of benefit corporations when making corporate decisions

Question 21

close corporation

Answer 21

a small corporation that has met specified requirements and may choose this designation under state law. as such, the corporation may dispense with some corporate formalities and operate without a board of directors, without bylaws, and without keeping minutes of meetings

Question 22

organizational meeting

Answer 22

a meeting that must be held by the initial directors of a corporation after the articles of incorporation are filed

Question 23

C corporation

Answer 23

a corporation that does not qualify for or has not elected to be taxed as an S corporation. where there is a C corporation, there is double taxation–that is, a C corp pays taxes at the corporate level, and shareholders pay taxes on dividends paid by the corporation

Question 24

subchapter S revision act

Answer 24

a federal statute that allows shareholders of qualifying corporation to avoid double taxation by electing S corporation status

Question 25

S corporations

Answer 25

a corporation that has met certain requirements and has elected to be taxed as an S corporation for federal income tax purposes. it pays no federal income tax at the corporate level. its income or loss flows to the shareholders and must be reported on the shareholders' individual income tax returns

Question 26

form 2553

Answer 26

a form that is filed with the IRS to elect subchapter S federal income tax status for a qualifying corporation

Question 27

certificate of authority

Answer 27

a formal document that must be issued by the secretary of state before a foreign corp/company may conduct business in that state

Question 28

express powers

Answer 28

powers given to a corporation by (1) the us constitution, (2) state constitutions, (3) federal statutes and state statutes, (4) corporation codes, (5) articles of incorporation, (6) bylaws, and (7) resolutions of the board of directors

Question 29

ultra vires act

Answer 29

an act by a corporation that is beyond its express or implied powers

Question 30

arrearages

Answer 30

the amount of unpaid cumulative dividends

Question 31

treasury shares

Answer 31

issued shares that have been repurchased by the corporation. treasury shares may not be voted by the corporation. they may be resold by the corporation

Question 32

debenture

Answer 32

a long-term (often 30 years or more) unsecured debt instrument that is based on a corporation's general credit standing

Question 33

indenture agreement

Answer 33

a contract between a corporation and a holder that contains the terms of a debt security

Question 34

voluntary dissolution

Answer 34

dissolution of a corporation that has begun business or issued shares, upon recommendation of the board of directors and a majority vote of the shares entitled to vote

Question 35

administrative dissolution

Answer 35

involuntary dissolution of a corporation that is ordered by the secretary of state if a corporation has failed to comply with certain procedures required by law

Question 36

judicial dissolution

Answer 36

dissolution of a corporation through a court proceeding instituted by the state--orders a decree of dissolution

Question 37

winding up

Answer 37

the process of liquidating the assets and distributing the proceeds to satisfy claims against the business

Question 38

termination of a corporation

Answer 38

an act that occurs after the winding up of the corporation's affairs, the liquidation of its asstes, and the distribution of the proceeds to the claimants