Chapter Seven
Introduction to Corporations
Corporation
Corporation: A legal entity created by a
state to carry out business (if a for-profit
entity).
Model Business Corporation Act
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MBCA: act on which individual state statutes
governing corporations are based
Corporate Powers
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List of activities enumerated by a state in which a
corporation can engage
Powers Typically Granted to a
Corporation By State Law
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To sue and be sued and to defend in the corporation’s
own name
To make and amend bylaws for regulating the
business of the corporation
To purchase, acquire, own, hold, improve, sell, lease,
or mortgage real or personal property
To enter into contracts, incur liabilities, borrow money,
issue bonds, and lend money
To elect directors and appoint officers
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Powers Typically Granted to a
Corporation By State Law
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To establish pension and other benefit plans for its
directors, officers, agents, and employees
To make donations for the public welfare
To make payments or donations that further the
business of the corporation
To purchase and hold shares or other interests in
entities
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Powers Typically Granted to a
Corporation By State Law
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To be a member or manager of a partnership or
other entity
To have and use a corporate seal
To transact any lawful business
To exist perpetually
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Types of Corporations
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Domestic corporations
Foreign corporations
Federal or state
corporations
Public corporations
Privately held
corporations
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Nonprofit corporations
Close corporations
Professional
corporations
S corporations
C corporations
Parent and subsidiary
corporations
Advantages of a Corporation
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Limited liability
Corporate deductions
Continuity of existence
Transferability of share ownership
Disadvantages of a Corporation
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Double taxation
Formalities of organization and operation
Centralized management
Double Taxation
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Concept in corporate law in which money earned
by a corporation is taxed; when remainder is
distributed to shareholders, they are also taxed
Key Features of Corporations
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Corporations are persons and exist separate and
apart from their owner-shareholders
Offer limited liability for their shareholders, officers,
and directors, because the corporation itself is liable
for its own debts and obligations
Can exist perpetually
Ownership is easily transferred
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Key Features of Corporations
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Corporations are subject to double taxation: the
income of a corporation is taxed, and when profits
are distributed to shareholders, they also pay tax
Can be expensive to form and maintain
Management of corporations is centralized in a
board of directors; the owner-shareholders do not
manage the typical large business corporation
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