Management Decentralized (default). Centralized (default). Each partner an agent and Directors and officers manage equal participation in the corporation; not mgmt is default; but can shareholders. Separate and use exec comm. and limit specialized functions. authority by agreement and notice to third parties. Cost Zero. Filing fees, typically lawyer fees, franchise fees, etc. But often good idea to hire a lawyer. Default Rules Extensive. More extensive. Very malleable form for Not quite as flexible. Flexibility carrying on business; most rules are default. Tax (single). Taxed as entity, so “Pass-through” shareholders have “double Losses can be passed taxation” on distributed through for use by earnings; losses usable only partners. by corporation. [Exception: S Corporations] 2. A is a who acting alone or [with others], directly or indirectly takes initiative in founding and “promoter” “person, organizing the business or enterprise of an issuer.” E.g., identify and solicit investors, arrange for hire employees for the entity, enter into contracts. Often referred to as the or “founder” “organizer.” Contrast with an who has the limited, mechanical task of preparing the incorporation documents and “incorporator” filing them with the state. Incorporators are often lawyers, paralegals, etc. In contrast to the rules of promoter liability, incorporators are typically not liable for their pre-incorporation acts. Promoter Liability Pre-incorporation Promoters are liable for contracts entered into on behalf of a future corporation, absent a contrary intent. Contrary intent generally requires showing more than just signing a corporation to be “for formed.”
Management Decentralized (default). Each partner an agent and equal participation in mgmt is default; but can use exec comm. and limit authority by agreement and notice to third parties. Centralized (default). Directors and officers manage the corporation; not shareholders. Separate and specialized functions. Cost Zero. But often good idea to hire a lawyer. Filing fees, typically lawyer fees, franchise fees, etc. Default Rules Extensive. More extensive. Flexibility Very malleable form for carrying on business; most rules are default. Not quite as flexible. Tax “Pass-through” (single). Losses can be passed through for use by partners. Taxed as entity, so shareholders have “double taxation” on distributed earnings; losses usable only by corporation. [Exception: S Corporations] 2. A “promoter” is a “person, who acting alone or [with others], directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer.” E.g., identify and solicit investors, arrange for hire employees for the entity, enter into contracts. Often referred to as the “founder” or “organizer.” Contrast with an “incorporator” who has the limited, mechanical task of preparing the incorporation documents and filing them with the state. Incorporators are often lawyers, paralegals, etc. In contrast to the rules of promoter liability, incorporators are typically not liable for their pre-incorporation acts. Promoter Liability Pre-incorporation Promoters are liable for contracts entered into on behalf of a future corporation, absent a contrary intent. Contrary intent generally requires showing more than just signing “for a corporation to be formed.”
Business-Associations-Pollman-20152.docx