Lifting the Veil

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The concept of a corporate personality traces its roots to Roman Law and found its way to the American colonies through the British. After gaining independence, the states, not the federal government, assumed authority over corporations. Although corporations initially served only limited purposes, the Industrial Revolution spurred their development. The corporation became the ideal way to run a large enterprise, combining centralized control and direction with moderate investments by a potentially unlimited number of people. The corporation today remains the most common form of business organization because, theoretically, a corporation can exist forever and because a corporation, not its owners or investors, is liable for its contracts. But these benefits do not come free. A corporation must follow many formalities, is subject to publicity, and is governed by state and federal regulations. Many states have drafted their statutes governing corporations based upon the Model Business Corporation Act. This document, prepared by the American Bar Association Section of Business Law, Committee on Corporate Laws, and approved by the american law institute, provides a framework for all aspects of corporate governance as well as other aspects of corporations. Like other Model Acts, the Model Business Corporation Act is not necessarily designed to be adopted wholesale by the various states, but rather is designed to provide guidance to states when they adopt their own acts. Types of Corporations

Corporations can be private, nonprofit, municipal, or quasi-public. Private corporations are in business to make money, whereas nonprofit corporations generally are designed to benefit the general public. Municipal corporations are typically cities and towns that help the state to function at the local level. Quasi-public corporations would be considered private, but their business serves the public's needs, such as by offering utilities or telephone service. There are two types of private corporations. One is the public corporation, which has a large number of investors, called shareholders. Corporations that trade their shares, or investment stakes, on Securities exchanges or that regularly publish share prices are typical publicly held corporations. The other type of private corporation is the closely held corporation. Closely held corporations have relatively few shareholders (usually 15 to 35 or fewer), often all in a single family; little or no outside market exists for sale of the shares; all or most of the shareholders help run the business; and the sale or transfer of shares is restricted. The vast majority of corporations are closely held. Getting a Corporation Started

Many corporations get their start through the efforts of a person called a promoter, who goes about developing and organizing a business venture. A promoter's efforts typically involve arranging the needed capital, or financing, using loans, money from investors, or the promoter's own money; assembling the people and assets (such as land, buildings, and leases) necessary to run the corporation; and fulfilling the legal requirements for forming the corporation. A corporation cannot be automatically liable for obligations that a promoter incurred on its behalf. Technically, a corporation does not exist during a promoter's pre-incorporation activities. A promoter therefore cannot serve as a legal agent, who could bind a corporation to a contract. After formation, a corporation must somehow assent before it can be bound by an obligation that a promoter has made on its behalf. Usually, if a corporation gets the benefits of a promoter's contract, it will be treated as though it has assented to, and accepted, the contract. The first question facing incorporators (those forming a corporation) is where to incorporate. The answer often depends on the type of corporation. Theoretically, both closely held and large public corporations may incorporate in any state....
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