Chapter 39 Corporation Formation and Financing
1. Who creates the legal entity known as a corporation? Who owns a corporation?
Who manages a corporation? What is one of the key advantages of forming a
corporation?
2. Explain the double taxation problem that corporations face? How do holding
companies try to address this and other issues?
3. Define the following: domestic corporation; foreign corporation; alien
corporation. Explain the differences between a public corporation; a publicly-held
corporation; a private corporation; and a non-profit corporation. What are close
corporations?
4. What is the RMBCA? (Revised Model Business Corporation Act) How does the
RMBCA allow closed corporations to operate differently? What are some of the
problems that a closed corporation works to avoid? What usually happens when
there is misappropriation of close corporation funds by a majority shareholder?
5. What restrictions are required in order to form an S corporation? How is an S
corporation taxed?
6. What is a benefit corporation? Name how it is different in terms of its purpose,
accountability, and transparency?
7. Are business people personally liable for expenses and contracts made in
formation of a corporation? If so, how can that personal liability be taken away?
8. What primary document is needed to incorporate a business? What four things
must it generally contain? What are a corporation’s bylaws? Why are general
management issues included in the bylaws and not in the Articles of Incorporation?
9. What is a de facto corporation? Give an example of one. In what situations may a
court recognize a de facto corporation as a de jure corporation?
10. What does the term ultra vires mean? What does it mean to pierce the
corporate veil? What factors lead a court to pierce the corporate veil?
11. Define the following terms: stocks, equity securities, bonds, debt securities,
bond indentures.
12. What rights do owners of common stock have in terms of voting rights and
corporate earnings? What are the primary differences between preferred and
common stocks in terms of both earnings and voting rights?
13. Define the following terms: venture capital and private equity capital.