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CPA CORPS-1 - CORPORATIONS I CHARACTERISTICS NOTE the...

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CORPORATIONS I. CHARACTERISTICS NOTE: the characteristics of a corporation are to be distinguished from those of partnerships, limited partnerships & LLPs: 1. Continuous life 2. Transferability of interest 3. Separate entity (a PERSON in the eyes of the law) 4. LIMITED LIABILITY for the owners/shareholders 5. Management- generally managed by board of directors , rather than shareholders/owners. II. TYPES OF CORPORATIONS 1. DOMESTIC: a corporation doing business in its state of incorporation . 2. FOREIGN: a corporation doing business outside of its state of incorporation. III. FORMATION A. STATE STATUTES 1. There must be an enabling act permitting the existence of the corporate entity. 2. Articles of incorporation form a CONTRACT between the corp and the state. 3. Ultra Vires Acts: acts engaged in by the corporation that exceed what is authorized in their Articles of Incorporation or acts that violate the law. ONLY the corp’s shareholders and/or the State of incorporation can challenge (sue) re: ultra vires acts. B. ARTICLES OF INCORPORATION Must be filed w/ the state and must contain the following: 1. corp name 2. name & street address of registered agent 3. name(s) & address(es) of incorporators. 4. number & class(es) of authorized shares of stock These four requirements are universally req’d & must be memorized. Some states also require: 5. corp purpose (broadly defined) 6. corp powers 7. par value of authorized stock B. BY LAWS
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Not legally required, but corps will frequently have by-laws, which govern how the corp will be run. 1. cannot conflict w/articles 2. can be amended by EITHER Bd of Directors OR Shareholders C. CONSIDERATION FOR STOCK 1. corp may accept cash , property, or services in consideration for its shares. 2. PAR VALUE stock must be sold for the stated par value, o/wise it’s “watered” stock (see shareholder liability below). 3. NO PAR stock may be sold at a price set by the board of directors. D. PROMOTER 1. Individual responsible for forming the corp. 2. Is in a unique situation in that they act as agents for not-yet-formed corps (i.e. non-existent principals). a) have a fiduciary duty b) have continuing personal liability on all agreements unless the K states they’re not liable or a novation occurs. 3. Contract Liability - general rule is that corp is not liable on pre-incorporation Ks. Corp becomes liable through Adoption which may occur as follows: a) some states have statutes requiring corps to adopt some of these Ks b) corp & promoter may expressly agree to adoption of Ks c) implied agreement occurs if corp accepts benefits of Ks. NOTE: even if adoption occurs, promoter remains liable (see above). 4. Stock subscriptions are pre-incorporation promises to buy future shares of stock in a not-yet-formed corp. These promises are enforceable against the subscriber even though no consideration was received. The promise to buy share subscriptions in enforceable for 6 months .
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