Corporations OBE–118, Fall 2004 Professor McKinsey 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.

Corporations Shareholder/Board Member/ Officer/ Employee Corporations must comply with specific laws (often Corporate Code) of the state incorporated in. Securities Laws apply to publicly traded corporations and sometimes other corps and other business organizations Corps must also comply with own Articles of Incorporation and Bylaws (if any).

Types of Corporations Small or “S’ Corporation Close Corporation. Public Corporation Single taxation, but limited to 75 shareholders who are United States citizens or residents. “Closely held” – often no Securities laws, other lesser requirements on a state by state basis. Defined more by securities laws than anything else. “Publicly traded” More restricted than other corporations..

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

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)

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?

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

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

Going Public Don’t 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.