Chapter 9 Lesson

Chapter 9 Lesson - Chapter 9 Lesson Chapter 9 Lesson...

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Chapter 9 Lesson Chapter 9 Lesson Chapter 9 Lesson - Corporations OBJECTIVES: After completing this lesson, the required reading, and the assignments, learners will be able to: 1. Understand the steps involved in establishing a corporation. 2. Explain the legal structure of a corporation and the responsibilities and liabilities of the owners. 3. Describe the roles and duties of the various groups governing the corporation, including shareholders, the board of directors, and the corporate officers. 4. Discuss the process of capital formation. 5. List the ways in which corporations can be terminated. 6. Describe the characteristics of special types of corporations (S-Corp. and non-profit). 7. Understand the requirements and attributes of a limited liability company. Introduction According to your book, "corporations are the most important form of business organization in the world today." Unlike a sole proprietorship and a partnership, a corporation is completely separate from its owners. Corporations are fully separate legal "persons" in the eyes of the law. The following are some significant differences between corporations and partnerships. 1. Corporations pay taxes on profits. Partnerships do not. 2. The corporation's owners (shareholders) have limited liability, which means they have no personal liability for the corporation's debts. As you've already learned, partners are personally liable for partnership debt. 3. The corporation has a perpetual existence. When an owner dies or sells her shares, the corporation continues its existence. When a partner dies or withdraws, the partnership dissolves. 4. A corporation cannot be formed by accident. Anyone wishing to incorporate a business must comply with state requirements. (As you already learned, it is possible to form a partnership without the knowledge of any of the partners - it depends on how they operate their business and share management responsibilities and profits and losses.) However, similarly to a partnership, a corporation is an intangible entity and cannot act on its own. It can act only through agents, so all the agency principals you learned in Chapter 8 apply to corporations. Establishing a Corporation I'll make just one point here. The promoters (those who take the initiative in founding and organizing the corporation) are personally liable for all actions taken before the corporation is formed. They are acting on behalf of a future business, but because the corporation is not yet formed, it cannot be a principal. Therefore, the promoter is not an agent. After the corporation is formed, the promoter typically seeks to have the corporation adopt all contracts the promoter entered into before corporation formation (which will remove the promoter's personal liability so long as the third party to the contract is willing to hold the corporation liable instead). We use the term "adopt" rather than "ratify" because only a principal can ratify an agent's
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This note was uploaded on 09/02/2011 for the course GEN BUS 202 taught by Professor Parks during the Fall '11 term at Boise State.

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Chapter 9 Lesson - Chapter 9 Lesson Chapter 9 Lesson...

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