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T TYPE OF CORPORATION
DO YOU HAVE?
As we form business relationships, the question arises to whether a sole proprietorship or corporation is needed. For a definition purpose [link widoczny dla zalogowanych], a corporation is a legal entity, separate from its shareholders, created under the authority of the legislature. As an entity, a corporation is responsible for its debts. The shareholders are not responsible for the corporate debts. Shareholders risk is limited to the amount of their investment. The ownership interests of the corporation are represented by shares, which are freely transferable.
Management control of a corporation is centralized in the board of directors and officers acting under the direction of the boards authority. Shareholders generally elect the board, but they cannot control the activities of the board and have no power in management of corporate business.
Corporations have distinct differences than partnerships. Partnerships are governed by the Uniform Partnership Act (UPA). Partnerships are not legal entities, but aggregates of two or more persons engaged in a business. With corporations, shareholders are limited their investments. In partnerships, each partner is subject to l\unlimited personal liability for all debts of the partnership. Know your goals in what you want and research each before deciding on a partnership or corporation (refer to my March 2003 article in Chiropractic Products Partnerships).
A corporation, as a legal entity notwithstanding the death or incapacity of its shareholders can have a perpetual duration. Partnerships are not able to perpetuate. If a corporation goes bankrupt, any debts owed by the corporation may, under certain circumstances be subordinated to the debtors. This means the debts would have to be paid before the shareholders get any money. This came about in a case (Taylor vs. Standard Gas and Electric Corp.) and is called Deep Rock Doctrine.
Formation or organization of a corporation is completed under general corporate law or business law statutes of the state in which you are incorporating. Usually a corporation is organized by the execution and filing of the certificate of articles of incorporation by the person or persons forming the corporation. The articles must show the names of the shareholders, address and name of the corporations registered agent, name and the address of each person forming the corporation. Optional provisions may include:
1.Purpose of the incorporation
2. Names of board of directors and management powers
3. Par value of shares or class of shares.
Corporations can engage in any legal business without spelling out a long list of corporate purposes. Most states confer certain powers for every corporation whether of not those powers are stated in the articles, Typically a corporation is grated the following:
1.Purpetual existence
2.To have the ability to sue and be sued
3.Have a corporate seal
4.To acquire, hold, dispose of personal and real property
5.Appoint officers
6.Adopt and amend by-laws
7.Conduct business in and out of state
8.To make contracts
9.To make donations
When A corporation acts beyond the purpose and powers it is called Ultra Vires. This is not a defense in tort law or liability to escape civil damages by claiming the corporation had no legal power to commit a wrongful act. This also applies to criminal liability. A corporation must act within its powers and purpose as stated in state statues.
Most state statutes prohibit the use of Ultra Vires as a defense in a suit between contracting parties. However, if a contract has been performed and has resulted in a loss to the corporation, the corporation can sue the officers or directors for damages for exceeding their authority. If the corporation refuses to sue [link widoczny dla zalogowanych], a shareholder may bring a derivative suit. States may sue to enjoin the corporation from transacting unauthorized business. If the prevailing party wins, they may be entitled to compensatory damages.<b