The modern corporation is the most important form of business in the history of the world. It has facilitated the rapid economic development of the last 150 years by permitting businesses to attain economies of scale. Businesses organized as corporations can attain such economies because they usually have a greater capacity to raise capital, a capacity created by corporation law. Corporation law allows people to invest their money in a corporation and become owners without imposing unlimited liability or management responsibilities on themselves. Many people are willing to invest their savings in a large, risky business if they have limited liability and no management responsibilities. Far fewer people are willing to invest in a partnership or other business form in which owners have unlimited liability and management duties. Show
Corporations are the form of business organization most often associated with the term business. Most large businesses are corporations. Corporations are creations of the state, with methods of creation dictated by state statute. Businesses are generally required to file their articles of incorporation with the Utah Division of Corporations and Commercial Code. Upon approval, the incorporators designate the board of directors and issue stock. The directors are subsequently elected by the shareholders and are responsible for establishing corporate policy. They have a fiduciary duty to preserve the corporation. The board is empowered to hire managers to operate the business and conduct its affairs. The shareholders are the owners of the corporation. They enjoy limited liability, but do not participate in the day-to-day management of the business. In the words of Chief Justice Marshall in Dartmouth v Woodward (1819): The Principal Characteristics of Corporations
Creating a CorporationA corporation is formed in the state of Utah by filing Articles of Incorporation in duplicate with the Division of Corporation and Commercial Code, together with the appropriate fee. The following information may be of assistance to you - we encourage you to consult an attorney to ensure your fullest legal protection and benefit.
SPECIAL NOTE: The Utah Division of Corporations and Commercial Code provides a step-by-step guide to preparing articles of incorporation. The guide is located here on the web site. Corporation BylawsUnder Utah law, corporations are not required to adopt bylaws. However, they can be very helpful and are viewed by some as necessary. The function of the bylaws is to supplement the articles of incorporation by defining more precisely the powers, rights and responsibilities of the corporation, its managers, and its shareholders and by stating other rules under which the corporation and its activities will be governed. The bylaws usually state the authority of the officers and the directors, specifying what they may do and may not do; the time and place at which the annual shareholder's meetings will be held; the procedure for calling special meetings of shareholders; and the procedures for shareholders' and directors' meetings. The bylaws may make provisions for special committees of the board, defining their membership and the scope of their activities. They set up the machinery for the transfer of shares, the maintenance of share records, and for the declaration and payment of dividends. Financing the Corporation: Corporate SecuritiesAny business needs money to operate and to grow. One advantage of incorporation is the large number of sources of funds that are available to businesses that incorporate. One such source is the sale of corporate securities, including shares, debentures, bonds, and long-term notes payable. Besides obtaining funds from the sale of securities, a corporation may be financed by other sources. A bank may lend money to the corporation in exchange for the corporation's short-term promissory notes, called commercial paper. Retained earnings provide a source of funds once the corporation is operating profitably. In addition, the corporation may use normal short-term financing, such as accounts receivable financing and inventory financing. A corporate security may be either:
These two kinds of securities are called equity securities and debt securities. Every business corporation issues equity securities, which are commonly called stock or shares. The issuance of shares creates an ownership relationship: the holders of the shares-called stockholders or shareholders-are the owners of the corporation. Utah statutes permit corporations to issue several classes of shares and to determine the rights of the various classes. Subject to minimum guarantees contained in the state business corporation law, the shareholders' rights are a matter of contract and appear in the articles of incorporation and usually appear in the bylaws, in a shareholder agreement, and on the share certificates. The Board of Directors IntroductionTraditionally, the board of directors has had the power and the duty to manage the corporation. Yet in a large, publicly held corporation, it is impossible for the board to manage the corporation on a day-to-day basis, since many of the directors are high-ranking officers of other corporations and devote most of their time to their other business interests. Therefore, the law permits a corporation to be managed under the direction of the board of directors. Consequently, the board of directors delegate major responsibility for management to committees of the board, such as an executive committee, to individual board members such as the chairman of the board, and to the officers of the corporation, especially the chief executive officer (CEO). In theory, the board supervises the actions of its committees, the chairman, and the officers to ensure that the board's policies are being carried out and that the delegates are managing the corporation prudently. The Major Functions of Modern Boards of Directors
Officers of the CorporationAppointment of Officers Authority of Officers Directors and officers must act within their authority and within the powers given to the corporation. They also have the duty to act with due care. Their duty of loyalty requires them to act in the best interests of the corporation as a whole. Most management actions are protected from judicial scrutiny by the business judgement rule: absent bad faith, fraud, or breach of a fiduciary duty, the judgement of the managers of a corporation is conclusive. Which of the following is the advantage of the corporate form of business limited liability of stockholders?The advantages of the corporation structure are as follows: Limited liability. The shareholders of a corporation are only liable up to the amount of their investments. The corporate entity shields them from any further liability, so their personal assets are protected.
Which of the following statements is correct One of the advantages of the corporate form of organization is that it avoids double taxation?TF: One advantage of the corporate form of organization is that it avoids double taxation. False: Corporations have double taxation. Proprietorships and partnerships do not have double taxation.
What is the greatest advantage of forming a corporation?Secure your assets, gain tax breaks. Corporation owners enjoy limited liability protection, and are typically not personally responsible for business debts. So creditors can't pursue your home or car to pay business debts.
Which of the following is an advantage of the corporate form of business?Answer and Explanation: An advantage of the corporate form of business organization is c. limited liability. A corporation is a separate legal entity and shareholders are only liable to the extent of their ownership.
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