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Unformatted text preview: Chapter 38 CORPORATIONSFormation and Financing 1: The Nature and Classification of Corporations A corporation is a creature of statute, an artificial person. Most states follow the Model Business Corporation Act (MBCA) or the RMBCA, that are model corporation laws. The shares (stock) of a corporation are owned by at least one shareholder (stockholder). Corporate Personnel Individual shareholders own corporation. Shareholders elect board of directors to manage corporation. Board of directors hires officers to run corporation on a daily basis. Body of shareholders can change constantly without affecting the continued existence of the corporation. Shareholder can sue corporation and be sued by corporation and bring suit for corporation in some instances (derivative action). Limited Liability of Shareholders The corporation substitutes itself for the natural persons in conducting corporate business and incurring liability, but its authority and liability are separate and apart from the shareholders. In certain situations, the corporate veil of limited liability can be pierced, holding the shareholders personally liable. Corporate Taxation Corporate profits can either be kept as retained earnings or passed on to the shareholders as dividends . Corporate profits are taxed under federal and state law as a separate person from itsshareholders. Regular C corporations are taxed twice: at the corporate level and at the shareholder level. Constitutional Rights of Corporations A corporation is an artificial person and has constitutional rights to: Equal protection; Access to the courts, can sue and be sued; Right to due process before denial of life, liability or property. Corporations rights ( contd ): Freedom from unreasonable search and seizure and double jeopardy. Freedom of speech. Only officers and directors have protection against self-incrimination. However, corporations do not have full protection of privileges and immunities clause....
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