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business law chapter 41

business law chapter 41 - Chapter 41 History and Nature of...

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Chapter 41: History and Nature of Corporations Classifications of Corporations Corporations may be divided into three classes: o Corporations for profits o Corporations for nonprofits o Government owned Most business corporations are for profit corporations o Issue stock to their shareholders, who invest in their corporation with the expectation that they will earn a profit on their investment Nearly all for profit corporations are incorporated under the general incorporation law All states require professionals who wish to incorporate under professional corporation acts A corporation in which its shares are generally available to public investors is a public ally help corporation o Managed by professional managers who own small percentages of the corporation Corporations with very few shareholders whose shares are not available to the general public are called close corporations o Controlling shareholders are the only managers of the business Usually close and publicly held corporations are subject to the same rules under state corporation law Many states however allow close corporations greater latitude S Corporation: special type of close corporation-shareholders report the earnings or losses of the business on their individual federal income tax returns o Profits are taxed only once at shareholders level o All shareholders must consent o One class of shares and 100 or fewer shareholders o Shareholders may be only individual or trusts Non for profit corporations do not issue stock and do not expect to make a profit o Provide services that eliminates any profit motive o Have members, not shareholders o None of the surplus revenue can be distributed to members o Can invest a larger share of their incomes in the business than can for profit corporations because they do not pay any income tax A municipality is a government owned corporation Regulation of for profit corporations To become a corporation, a business must incorporate by complying with an incorporation statue State Incorporation Statutes Set out the basic rules regarding the relationship between the corporation, its shareholders, and its managers Model Business Corporation Act (MBCA): improve the rationality of corporation
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law Regulation of Nonprofit Corporations Regulated primarily by the states May be created only by complying with a nonprofit incorporation statute Incorporation under state law requires delivering articles of incorporation to the secretary of state Existence begins when the secretary of state files the articles
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