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Unformatted text preview: Corps Outline Jennifer Hill – Spring 08 I. Introduction A. The Legal Character of the Corp : Four distinct factors motivate the owners of a business to conduct it as a corp. Possibly fifth might be tax considerations. 1. Limited liability of shareholders : Investors risk only their purchase price paid for their shares and have no additional liability. This also means that corp. creditors can ignore the claims of owner’s personal creditors. 2. Perpetual existence of the corp .: The legal status of a corp. is unaffected by the death, withdrawal, or insolvency of a shareholder. Legal stability may be an important factor in a financial institution’s willingness to extend credit to the enterprise. 3. Easy transferability of owner interests : The use of transferable securities to represent the shareholder’s interest in the enterprise. Free transferability makes possible 2nd markets in which investors can trade ownership interests on a regular, continuing, and impersonal basis – gives investors greater liquidity and makes it easier for the corp. to raise capital. 4. Centralized management : The shareholders elect a board of directors, who like a democracy, are expected to use their own discretion and are not bound by the day-to-day preferences of the electorate. B. A Scorecard of the Players – Public Corps, Directors, and Shareholders : 1. A Corp. Census : Only a few firms fall into the category of “large publicly held corp.” 7,200 of the total 4.85 million corps fall into this category and can be traded on the NYSE, NASDAQ, or Amex. – typically have to have a market capitalization in excess of $50 million. The rest are closely held, or “private firms,” who don’t have the requisite liquidity to support trading. Investments in them are necessarily illiquid. 2. The Individual Participants : Corps require 3 necessary participants: managers, directors, and shareholders. It is possible to have 1 person occupy all these positions. a) Managers/Officers : Do the day-to-day work and are appointed, and can be removed, by the board of directors. Usually has 4 officers: Pres, Vice-Pres, Treasurer and Secretary (can be melded into 1 except Pres and Secretary have to be different). (1) At the top is the CEO who usually serves as chairman of the board. [in Europe the executive officer and chairman of the board are different to keep the exec from being able to dominate the board or control its agenda]. (2) Beneath the CEO is typically the Chief Financial Officer (CFO) and a Chief Operating Officer (COO). They also typically serve on the board of directors, but generally no more than 2 or 3 corp. officers serve on the board. (3) The execs of publicly held corps. rarely have sufficient stock to have a controlling influence and their jobs depend on the happiness of the board – which usually depends on profitability and share price relative to other corps....
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- Spring '10
- Corporation, Types of business entity, Corps, Corp., the corp.