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Ch. 4: Corporate Formation and Financing - No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Ch. 4: Corporate Formation and Financing - No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CORPORATE TAXATION
AND OTHER LIABILITY
Corporate Taxation: Corporate profits are taxable to the
corporation when they are distributed in the form of
dividends, but not when they are “reinvested” in the
shareholders.
Holding Company: A company, established in a low-
tax or no-tax offshore jurisdiction, to which a
corporation transfers its cash, stocks, bonds, and other
Criminal Liability: A corporation may be liable for its
agents’ or employees’ criminal acts, as long as the criminal
sanctions can be applied to the corporation (e.g., fines).
Ch. 4: Corporate Formation and Financing - No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
DOMESTIC, FOREIGN, AND ALIEN
CORPORATIONS
Domestic Corporation: A corporation incorporated in a
given state and doing business in that same state.
Foreign Corporation: A corporation doing business in a
given state, but incorporated in another state.
are incorporated. They may be required to obtain a certificate
of authority from any other state in which they want to do
business.
Any particular corporation doing business in several
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PRIVATE, PUBLIC, AND NON-PROFIT
CORPORATIONS
Privately-Held Corporation: A corporation whose
shares are not publicly-traded, and may generally only
be bought from or sold to the corporation.
Ch. 4: Corporate Formation and Financing - No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CLOSELY-HELD CORPORATIONS
partnership, with one or a few of the firm’s owners also
holding positions as officers and directors.
To protect against majority shareholder
domination, a closely-held corporation’s articles of
appraised fair market value of their shares.
Transfer Restrictions: Because transferring shares to a
non-shareholder can fundamentally alter a closely-held
corporation’s nature, closely-held corporation articles of
Ch. 4: Corporate Formation and Financing - No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
S CORPORATIONS AND PCs
corporations,
(3) must be owned by individuals, estates, or certain
trusts (other corporations, partnerships, or
nonqualifying trusts cannot own S Corporation shares),
(4) must have 100 or fewer shareholders,
or architects in an effort to reduce the members’ exposure to
liability compared to what they would face in a partnership.
Ch. 4: Corporate Formation and Financing - No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Corporate Name: The corporation’s proposed name must
indicate its corporate status – by including a word like
Corporation (Corp.), Incorporated (Inc.), etc. – and be neither
the same as, nor deceptively similar to, that of an existing
Articles of Incorporation: The primary document needed to
incorporate, the articles should include, at a minimum, the
corporate name, the number of authorized shares, and the
names and addresses of its registered agent and its
incorporators, and provide authority for its future business
evidencing the corporation’s legal existence.
Ch. 4: Corporate Formation and Financing - No. 2
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CORPORATE TAXATION
AND OTHER LIABILITY
Corporate Taxation: Corporate profits are taxable to the
corporation when they are distributed in the form of
dividends, but not when they are “reinvested” in the
shareholders.
Holding Company: A company, established in a low-
tax or no-tax offshore jurisdiction, to which a
corporation transfers its cash, stocks, bonds, and other
Criminal Liability: A corporation may be liable for its
agents’ or employees’ criminal acts, as long as the criminal
sanctions can be applied to the corporation (e.g., fines).
Ch. 4: Corporate Formation and Financing - No. 3
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
DOMESTIC, FOREIGN, AND ALIEN
CORPORATIONS
Domestic Corporation: A corporation incorporated in a
given state and doing business in that same state.
Foreign Corporation: A corporation doing business in a
given state, but incorporated in another state.
are incorporated. They may be required to obtain a certificate
of authority from any other state in which they want to do
business.
Any particular corporation doing business in several
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
PRIVATE, PUBLIC, AND NON-PROFIT
CORPORATIONS
Privately-Held Corporation: A corporation whose
shares are not publicly-traded, and may generally only
be bought from or sold to the corporation.
Ch. 4: Corporate Formation and Financing - No. 5
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
CLOSELY-HELD CORPORATIONS
partnership, with one or a few of the firm’s owners also
holding positions as officers and directors.
To protect against majority shareholder
domination, a closely-held corporation’s articles of
appraised fair market value of their shares.
Transfer Restrictions: Because transferring shares to a
non-shareholder can fundamentally alter a closely-held
corporation’s nature, closely-held corporation articles of
Ch. 4: Corporate Formation and Financing - No. 6
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
S CORPORATIONS AND PCs
corporations,
(3) must be owned by individuals, estates, or certain
trusts (other corporations, partnerships, or
nonqualifying trusts cannot own S Corporation shares),
(4) must have 100 or fewer shareholders,
or architects in an effort to reduce the members’ exposure to
liability compared to what they would face in a partnership.
Ch. 4: Corporate Formation and Financing - No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Corporate Name: The corporation’s proposed name must
indicate its corporate status – by including a word like
Corporation (Corp.), Incorporated (Inc.), etc. – and be neither
the same as, nor deceptively similar to, that of an existing
Articles of Incorporation: The primary document needed to
incorporate, the articles should include, at a minimum, the
corporate name, the number of authorized shares, and the
names and addresses of its registered agent and its
incorporators, and provide authority for its future business
evidencing the corporation’s legal existence.
