Corporations

1
Corporations
The corporate entity is the most complex, the
most administratively burdensome type of all
business organizations. It also has the greatest
variance, coming in small, medium, and large, and
from one to one million owners.

• OBE118, Fall 2004
• Professor McKinsey

2
Corporations

• Shareholder/Board Member/ Officer/ Employee

• Corporations must comply with specific laws
  (often Corporate Code) of the state incorporated
  in.

• Corps must also comply with own Articles of
  Incorporation and Bylaws (if any).

• Securities Laws apply to publicly traded
  corporations and sometimes other corps and other
  business organizations

3
Types of Corporations

• Small or S Corporation

Single taxation, but limited to 75 shareholders
who are United States citizens or residents.

• Close Corporation.

Closely held often no Securities laws, other
lesser requirements on a state by state basis.

• Public Corporation

Defined more by securities laws than anything
else. Publicly traded More restricted than
other corporations..
4
Securities Laws

• If you offer ownership interests to others you
  are most likely subject to federal and state
  securities laws.
• Security potential for profit or loss
  dependent on actions of others, you just provide
  
• Must meet strict procedural requirements when
  offering investment to others
• Initial public offering (IPO) versus trading
• Prospectus, etc

5
Securities Laws (cont)

• Must be very careful when making statements about
  status or prospects of company, no misleading or
  inaccurate or incomplete disclosures. (No fraud)
• Cannot allow profit by insiders with non-public
  information. (No insider trading)
• Must disclose material information including
  required quarterly and annual reports. (No
  secrets)

6
Insider Trading from Investor Perspective

• Cannot trade on material, non-public information
  unless obtained legitimately with out the
  violation of laws or obligations.
• Criminal versus civil
• Digging through trash cans?
• Electronically enhanced surveillance in public
  settings?

7
Incorporation

• Promoters precede the corporation and have
  liability that is not erased by incorporating.
• File a charter, forms and fees in a State.
• Charter is a public document that has basic
  information about the corporation.
• Initial stock allocation and characteristics
• Agent for service
• Name of entity

8
Initial Steps to Get Corporation Going

• Elect or establish Directors and Officers.
• Hold first meeting.
• Adopt bylaws.
• When where shareholder and director meetings will
  be held
• Procedures and requirements for meetings
• Establish more detail on officers and directors

9
Going Public

• Dont confuse going public with creating a
  corporation.
• When you offer the public investment in the
  corporation for the first time you are said to be
  going public
• This marks a significant change in the way a
  company will be operated and the obligations of
  the directors and officers.
• Rarely will happen at time of creation but can
  and occasionally does.