I.
Formation
II.
Financing the
Corporation
III.
Corporate Structure
IV.
Closely Held
Corporations
V.
Publicly Held
Corporations
VI.
Fiduciary Duties
I.
Formation
A.
Incorporation
1.
Benefits
a)
Limited Liability
b)
Ability to Raise Capital
c)
Liquidity
d)
Continuity of Existence
e)
Centralization of Management
2.
Drawbacks
a)
Double Taxation
b)
No Flow Through Loss
c)
Limits on Earnings Retention
d)
Requires Regular Filing of
Documents
3.
Minimizing Double Taxation
a)
Capital Gains Treatment
b)
Sub Chapter S Corporation
(1)
< 75 Shareholders
(2)
Single Class of Equity Stock
(3)
No Passive Activities Earnings;
Max 25% investment in other activities
(4)
Owners taxed regardless of
distribution.
c)
Zero-out Income
B.
Duty of Care
1.
Shareholders
2.
Consumers
3.
Employees
C.
Ultra Vires
1.
Purpose
2.
Powers
3.
Defective Corporations –
Piercing the Veil
D.
Promoters
E.
Premature & Defective
Corporations
1.
De jure – Papers filed; Inc.
not complete
2.
De facto – Colorable attempt to
Inc.
3.
Estoppel – Suppliers treat
entity as Corp.
F.
Piercing the Corporate Veil –
Generally req. 2 elements
1.
Corporate Form
2.
Disregard/Wrong
3.
Agency
4.
Statute
5.
Insider Advantage
II.
Financing the
Corporation
A.
Equity
1.
Common Stock
a)
Owners of Corporation
b)
Entitled to Pro Rata
Distribution of Dividends
c)
Entitled to residual/net assets
upon dissolution
d)
Voting Stock
e)
Paid off after Dissolution
2.
Preferred Stock
a)
Priority over Common Stock
(1)
Dividends; and/or
(2)
Liquidation
b)
Percentage of Par Value;
Generally Par = $100;
ex) 5% preferred stock = $5 dividend per share
c)
Liquidation rights usually more
than par
d)
Can be Cumulative – Accumulates
value to be paid out at future date.
e)
Partially Cumulative Preferred
– Only accumulates for earnings that year.
f)
Participating v. Not
Participating
3.
Preferred Cumulative
4.
Preferred Participating – MBCA
6.01
a)
Preference AND Right to get
Pool of Residual Profits as Common Stock right
b)
Provides Security of Preferred
Stock
c)
Option to enjoy large stock
growth
d)
Option of Convertible Stock
e)
More expensive Rate of Return
5.
Preferred Partially Cumulative
a)
Generally non-voting; unless
permitted by K
b)
May be redeemable – buyback
option with redemption formula
c)
Less Risky
d)
Less Controlled
e)
Fixed amount of income unless
there is a Participation Right