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Business Associations/Corporations
South Texas College of Law Houston
Rosin, Gary S.

Corporations – Rosin
Spring 2007

Note: Can bring statutory books for the exam (can write in the book, but can’t do anything to create extra white space).

I. The Corporate Form
a. Much of corporate law has to do with Constitutional Law (e.g., commerce, and the structure/allocation of rights and powers among various corporate constituencies).
b. Characteristics of the Corporation
i. Publicly held corporation: Ownership interests are held by members of the public (shareholders) as opposed to owner-managers.
1. Limited liability – shareholders are not personally liable for corporate obligations; the shareholder’s liability is normally limited to the amount he or she has invested.
2. Free transferability of ownership interests – equity interests are freely transferable (shares of stock).
3. Continuity of existence – relatively secure against early termination (unless a shorter term is stated in the certificate of incorporation).
4. Centralized management – normally managed by or under the direction of a board of directors.
5. Entity status – a corporation, as a legal entity, can exercise power and have rights in its own name.
a. Federal income tax: the corporation is taxed as a separate entity; it files its own tax return showing profits/losses, and pays its own taxes independently of the shareholders.
i. Firm taxation – if a business firm has income or expenses, those items go into the firm’s taxable income, not into the taxable income of the firm’s owners. If the firm then pays out dividends to its owners, then the owners will pay taxes on those dividends (referred to as “double taxation”).
ii. Flow through taxation –the firm’s total income and expenses are taxable directly to the firm’s owners, and dividends are not taxed, so no “double taxation” (e.g., a partnership is not a taxable entity so the partners only pay income taxes once).
b. Employment taxes – distinguish between income earnings, and income capital. Only have to pay on income from earnings.
ii. Privately held entity: takes on the form of a close corporation, a general partnership, a limited liability partnersh

c. Debt (bank debt, bonds and debentures).
d. Convertibles, classified stock and derivatives.
ii. Review by state official – the charter is reviewed by a state official to determine whether the document is satisfactory. If it is approved, the Sec of State files the charter.
iii. Incorporators – the articles can be signed by an individual known as an incorporator, which may or may not have a connection with the corporation when it comes into existence. In modern legal practice, most incorporating papers are prepared by “corporate service companies” and the incorporator is an employee of the service company.
e. Preincorporation transactions by promoters
i. A promoter is a person who takes initiative in founding and organizing a business or enterprise by:
1. Arranging for necessary capital;
Acquiring necessary assets or personnel;