To form a company, the founders of the company must file the articles of associationA legal document that incorporates a company if it is filed and approved by the competent authority of the state. the public authority responsible for the management of business units. These laws may vary from state to state, but generally contain a number of issues. First, the founders must provide the name of the company and indicate whether the company is for-profit or not. The name must be unique and distinctive and usually includes the words “Incorporated”, “Company”, “Corporation” or “Limited”. Founders must state their identity, how long the company must exist and what purpose the company pursues. Under the older common law, shareholders could sue a corporation that carried on business outside the scope of its articles of incorporation (these acts are called ultra vires, an act that goes beyond the intended legal authority), but most modern by-laws allow the articles to simply state that the corporation can do “all lawful acts.” thus making ultra vires prosecutions obsolete in the United States. Founders must also specify the number of units of account of a financial instrument, such as shares. The Company will initially issue, and the face value of a security, as determined by the Company. The face value is disproportionate to the market value. of these actions.
(Of course, the company may issue more shares or buy them back from shareholders in the future.) Not all shareholders of a corporation are necessarily equal. U.S. corporate law allows for the creation of different types or classes of shareholders. Shareholders of different classes may benefit from preferential treatment when it comes to securities transactions such as the payment of dividends or voting at shareholders` meetings. For example, the founders of a corporation may reserve for themselves a special class of shares with subscription rights, sometimes called preferential rights, rights granted to existing shareholders of a corporation to purchase newly issued shares in order to receive the same proportion of their existing interests. These rights give shareholders the right of first refusal if the company decides to issue more shares in the future, so that shareholders retain the same percentage of the company`s stake, thus preventing dilution, the result when a company issues additional shares, resulting in a reduction in the percentage of the company held by shareholders. of their stock. Take, for example, Steve Jobs, a technology entrepreneur and co-founder of Apple (Figure 11.4 “Steve Jobs, co-founder of Apple”). As a young man, he dropped out of college without much computer engineering skills. If a sole proprietor business was its only option, Apple wouldn`t exist today. However, Jobs met a talented software engineer named Steve Wozniak, and the two decided to pool their talents to launch Apple Computer in 1976. A year later, the company was foundedorganized and turned into a legal company.
and went public in an initial public offering (IPO) in 1980, the first time a company sold its shares to members of the public. The establishment allowed Jobs much more flexibility in carrying out business operations than a simple sole proprietorship. This allowed him to bring in other people with different skills and abilities, raise funds in the early stages of business activity by promising shares in the new company, and eventually become very wealthy by selling sharescapital raised by a company by issuing shares entitling the owners to a stake in the capital. as a bond or share., in the company. If the lawsuit costs $25,000, your bet is $6,250 for litigation ($25,000 x 25%). Most large corporate organizations operate as corporations, despite tax incentives to use the partnership or LLC form of doing business. The main attractions of the corporate form are the limited liability it offers to its shareholders, its familiarity and well-understood governance laws, and the ability to transfer shares of the corporation more easily than the shareholdings of partnerships or LLCs (especially in the public securities markets). Many venture capital funds and other mutual funds cannot invest in partnerships and LLCs because their primary investors are pension and profit-sharing funds and other tax-exempt companies that are subject to certain tax restrictions. The company is also the best known business entity and is subject to the most developed laws. Partnerships, owners and increasingly LLCs are often used for small businesses when tax and other considerations warrant it. Overall, it is the flexibility of an LLP for a particular type of professional that makes it a superior option for an LLC or other business entity. As an LLC, the LLP itself is a flow-through entity for tax purposes.
This means that shareholders receive untaxed profits and have to pay taxes themselves. An LLC and LLP are preferable to a corporation that is taxed as a unit, and then its shareholders are taxed again on distributions. A corporation is a separate legal entity that differs from its owners in rights, duties, powers and responsibilities in and of themselves. The Company may enter into contracts, own personal and immovable property and sue and be sued. As a result, the shareholders of a corporation do not assume any personal responsibility for the corporation`s debts. Risk is limited to the amount of investment the owners make in the business. The limitation of personal liability is one of the main advantages of setting up a company. A shareholder may sell his or her interest in the corporation without first obtaining the consent of the other shareholders, unless they have agreed otherwise. A business can continue to exist indefinitely, whether the investors or owners cease to exist, die or declare bankruptcy. Board members have a great deal of leeway to make business decisions that they believe are in the best interest of the company. According to the Business Judgment Rule, a legal assumption that prevents courts or juries from questioning directors` decisions unless they are proven to be acting with malicious or corrupt motives.
Directors have a fiduciary duty to the Corporation and its shareholders and are therefore required to use their best business judgment when making decisions on behalf of the Corporation. When you open a business, you decide what business structure you want to have. And this decision determines what the legal requirements are for your business. But is your company a separate legal entity (SLE)? And what is a separate legal entity? One of the most important functions for shareholders is the election of a company`s board of directors. Shareholders always elect a director; There is no other way to become a director. The board of directors is responsible for important decisions that affect a company, such as the declaration and payment of a corporate dividend, a portion of a company`s net income, which is determined by the board of directors and returned to shareholders per share. shareholders; approval of major new decisions, such as a new plant or factory or entry into a new foreign market; appointment and removal of senior officers; Determination of employee compensation, in particular bonus and incentive plans; and issuance of new shares and corporate bondsCorporate debt obligation to raise funds without selling shares. As the Board does not meet as often, the Board may delegate these tasks to committees, which then report to the Board at Board meetings. Shareholders may elect any person they wish to a board of directors, up to the number of authorized directors specified in the corporation`s documents.
Most large companies have board members who are both inside and outside the company. External board members may come from other private companies (but not competitors), former government officials or academia. It is not uncommon for the company`s CEO to also hold the position of chairman of the board, although the recent trend has been to appoint different people for these functions. Many shareholders are now actively vying for at least one seat on the board to represent the interests of shareholders, and some companies with large numbers reserve a seat on the board for a union representative. Unlike sole proprietorships, businesses can be quite complicated to manage and usually require lawyers and accountants to keep the company`s books in order.