Corporations Step-By-Step

by Minars, David

• ISBN13: 9780764121876
• ISBN10: 0764121871
• Edition: 2nd
• Format: Paperback
• Copyright: 2003-10-01
• Publisher: Barrons Educational Series Inc

Summary

This book is a hands-on manual that guides business owners through the legal and practical details of forming and operating a corporation. Among the most important topics explained in depth are methods of financing a corporation, setting up management structure, recognizing the rights and privileges of shareholders, paying dividends, carrying out stock splits and repurchases, keeping accounting records, and filing corporate taxes. Appendixes include blank forms that can be photocopied and used for setting up and maintaining a corporation. Barron_s Legal Ease books guide users through business details that are often put in the hands of lawyers, but which can be dealt with by practical men and women who have no formal legal training. Legal-Ease titles present advice and instruction from accredited legal and business experts, and serve as reliable guides for owners of small-to-mid-sized business firms and private individuals. They also make good supplementary texts for business students.

Table of Contents

1 INTRODUCTION
What This Book Is All About	1	(1)
Starting Out; Laws and Regulations Affecting Your Corporation	1	(1)
Searching for Capital in Your Growing Business	2	(1)
Acting As Your Own Lawyer	3	(1)
Selecting a Lawyer	3	(2)
2 WHY THE CORPORATION IS BEST FOR YOU
Forms and Factors in Selection	5	(1)
The Individual (or Sole) Proprietorship	6	(1)
The General Partnership	7	(2)
The Limited Partnership	9	(1)
The Limited Liability Partnership (LLP)	10	(1)
The Corporation	10	(1)
The Limited Liability Company (LLC)	11	(1)
The Closely Held (or Family) Corporation	12	(1)
Professional Service Corporations (PSCs)	13	(1)
Which Type of Entity Is Best for You?	13	(2)
3 OPERATING AS A CORPORATION
Introduction	15	(1)
The Corporation As a "Person"	15	(1)
The Corporation As "Citizen and Resident of a State"	16	(1)
4 SELECTING A STATE IN WHICH TO SET UP YOUR CORPORATION
Introduction	17	(1)
What Factor to Consider When Incorporating	17	(3)
Delaware: The Best Stet for Incorporating	20	(1)
The Model Business Corporation Ac(MBCA) and the Later Revised Model Business Corporation Act (RMBCA)	20	(1)
5 PROMOTERS AND PREINCORPORATION TRANSACTIONS
What Is a Promoter	20	(1)
Corporate Liability for a Promoter's Contracts	20	(1)
Drafting the Preincorporation Agreement to Avoid Problems	21	(1)
6 INCORPORATION
Steps in the Formation of the Corporate Entity	22	(1)
Domestic Versus Foreign Corporations	22	(1)
A De Jure Corporation Versus a De Facto Corporation	22	(1)
The Role of the Incorporator	23	(1)
The Articles or Certificate of Incorporation	23	(4)
Completing the Organization of the New Corporation	27	(1)
Functions and Purposes of the Initial Corporate Meeting	27	(1)
Drafting and Adopting Bylaws	28	(1)
The Mechanics of Issuing Stock Certificates	28	(2)
7 RECOGNITION OR DISREGARD OF THE CORPORATE ENTITY
Introduction	30	(1)
Personal Liability Due to Defective Incorporation	30	(1)
Operating as a Professional Service Corporation	31	(1)
8 FINANCING THE CORPORATION
Introduction	32	(2)
Paid-In Capita	34	(1)
Common Stock	34	(1)
Preferred Stock	35
Tax Aspects Regarding the Issuance and Sale of Corporate Stock	30	(9)
Treasury Shares	39	(1)
Stock Subscriptions and Stock Option Plans	39	(1)
Preemptive Right	39	(1)
Consideration for Which Capita Stock Can be Issued	40	(1)
The Sale of Debt Instruments to Finance the New Corporation	41	(1)
Convertible Shares and Debt Instrument	42	(1)
Executing and Issuing the Shares	42	(1)
The Duty of the Issuing Corporation to Register Stock Certificates	42	(1)
9 CORPORATE MANAGEMENT STRUCTURE: THE ROLE OF DIRECTORS
Introduction	43	(1)
Relationship of Directors to Corporation	44	(1)
Number and Qualification of Directors	45	(1)
Directors: How Chosen	45	(1)
Principal Duties and Powers of Directors	46	(1)
Time and Place of Directors Meetings	47	(1)
How a Board of Directors Meeting Functions	47	(1)
Directors' Compensation	48	(1)
Liability of Directors for Individual and Board Actions	48	(1)
How to Avoid Directors' Deadlock	49	(1)
Unauthorized Acts: The Ultra Vires Doctrine	50	(1)
10 COPORATE MANAGEMENT STRUCTURE: THE ROLE OF THE OFFICERS
Introduction	51	(1)
Election of Officers: Period of Service	51	(1)
Qualifications of a Corporate Officer	52	(1)
Designation of Corporate Officers	52	(1)
Resignation or Removal of Officers	53	(1)
Compensation of the Officers	53	(1)
Transactions With the Corporation	54	(1)
Liability for Negligence	54	(1)
Liability Based Upon Personal Guarantee of a Corporate Officer	55	(1)
Determining Reasonable Compensation Under the IRC: Payments to Shareholder-Employees	55	(1)
Negotiating a Comprehensive Employment Agreement	56	(1)
11 THE CORPORATE OWNERSHIP: THE ROLE OF THE SHAREHOLDERS
Introduction	57	(1)
A Quick Overview of the Rights and Privileges of a Shareholder	57	(1)
Basic Records Relating to Stock: The Stock Certificate and Stock Transfer Book	58	(1)
The Exercise of Direct and Indirect Control of the Corporation by Shareholders	58	(1)
Convening Shareholders Meetings	59	(1)
Place and Time of Meetings	59	(1)
Who Is Eligible to Vote	59	(1)
What Is a Proxy?	60	(1)
Voting Trust Agreements	60	(1)
Voting Agreements	60	(1)
Restricting the Transferability of Shares: The Right of First Refusal	61	(1)
How Many Shares Does it Take to Hold a Valid Shareholders Meeting?	61	(1)
How Cumulative Voting Works	62	(1)
The Right to Inspect the Corporation's Books and Records	62	(1)
The Rights of a Minority Shareholder	63	(1)
Minority Shareholders' Suits	63	(1)
Personal Liabilities Applicable to the Shareholders	64	(1)
Dividend Distributions	65	(1)
12 DIVIDENDS, DISTRIBUTIONS, STOCK SPLITS, AND STOCK REPURCHASES
Introduction	66	(1)
Understanding Accounting Principles Governing the Payment of Dividends	66	(2)
Stock Splits and Reverse Stock Splits	68	(1)
Fractional Shares (or Scrip)	69	(1)
Discretion of the Directors to Declare a Dividend	69	(1)
Who Is Entitled to a Dividend?	69	(1)
When Shareholders Are Entitled to Payment of a Dividend	69	(1)
Who Is Entitled to the Dividend If No Date of Record Is Specified?	70	(1)
The Right of a Corporation to Repurchase Its Own Outstanding Shares	70	(1)
13 TERMINATING THE CORPORATION: DISSOLUTION, MERGERS AND CONSOLIDATIONS, AND BANKRUPTCY
The Sale of Corporate Assets	71	(1)
Dissolution	71	(2)
Mergers and Consolidations	73	(1)
Bankruptcy	74	(2)
14 ESTABLISHING THE ACCOUNTING RECORDS
Setting Up the Corporate Records	76	(1)
Choosing the Right Tax Year	76	(1)
Business Purpose Tax Year	77	(1)
Choosing the Right Accounting Method	77	(1)
Accrual Versus the Cash Basis of Accounting	78	(1)
How to Support All the Entries Made in the Corporate Books	78	(1)
How to Get an Employer Identification Number (EIN)	78	(1)
Payroll Records	78	(2)
Payroll Taxes	80	(1)
Miscellaneous Fringe Benefits	81	(2)
15 TAXATION OF CORPORATIONS
Organizations Taxed as Corporations	83	(1)
Avoiding Double Taxation: The S Corporation	84	(2)
Transferring Property to the Corporate Entity: How to Create a Tax-Free Transfer	86	(1)
Leasing Property to the Corporation Instead of Transferring It	87	(1)
The Use of Debt in the Capital Structure: Thin Incorporation	87	(1)
Assuring Ordinary Loss Deductions Under Section 1244	88	(1)
Partial Capital Gain Exclusion for Small Business Stock Held for Five Years	88	(1)
Election to Amortize Organization Costs	89	(1)
Election to Amortize Business Start-Up Expenses	89	(1)
Limited Deductions: Charitable Contributions and Capital Gains and Losses	90	(1)
Personal Holding Company Tax	90	(1)
Accumulated Earnings Tax	91	(1)
The Use of Foreign Subsidiaries	91	(1)
The Use of Multiple Corporations to Reduce Taxes and to Protect Corporate Assets	91	(1)
Dividends and the Redemption of Stock	92	(1)
"Death Tax" Redemptions: Corporate Buy-Sell Agreements	92	(1)
Estate Taxation	93	(2)
Finding Help Online	95	(1)
16 HOW TO BUY AND/OR SELL AN ONGOING BUSINESS
Introduction
Checklist of Differences Between a Large and Small Business As a Determinant Factor in Selecting a Valuation Technique	96	(1)
How to Value an Ongoing Business	97	(1)
Sales of Corporate Shares and Assets	98	(1)
Sale of Stock of a Regular C Corporation	99	(1)
Sale of Assets of a Regular C Corporation	99	(1)
Selling S Corporation Stock	99	(1)
How to Handle the Installment Sale of a Business	100	(1)
What an Effective and Comprehensive Buy-Sell Agreement Should Contain	100	(2)
Frequently Asked Questions Regarding Corporations	102	(13)
Glossary	115	(7)
Appendix 1: Where to File Incorporation Papers and Applicable Filing Fees	122	(7)
Appendix 2: Sample Tax Forms	129	(91)
Form 940-EZ	130	(2)
Instructions for Forms 1 120 and 1120-A	132	(24)
Form 1120	156	(4)
Schedule D (Form 1120)	160	(2)
Form 1120-A	162	(2)
Instructions for Form 11205	164	(32)
Form 1120S	196	(4)
Schedule D (Form 1120S)	200	(1)
Instructions for Schedule D (Form 1120S)	201	(4)
Form 941	205	(2)
Schedule K-1 (Form 1120S)	207	(2)
Shareholder's Instructions for Schedule K-1 (Form 1120S)	209	(8)
Stock Certificate	217	(1)
The X Corporation Exhibit: Stock Ledger	218	(2)
Appendix 3: Blank Legal Forms	220	(69)
Form 1: Certificate of Incorporation	221	(6)
Form 2: Sample By-laws	227	(28)
Form 3: Minutes of Organization Meeting of Board of Directors	255	(8)
Form 4: Shareholders Agreement	263	(20)
Form 5: Form of Voting Agreement	283	(6)
Appendix 4: Stock Certificates	289	(16)
Index	305