Quiz 24: Corporate Formation, Financing, and Termination


Facts: Company A sells goods via the internet. The law of the city, NY states that company A is required to collect tax on the sales to the NY residents. Company A filed a suit stating that the law was unlawful. The court was in the favor of the NY law. Tax payments: All the corporations are required to pay taxes on the profits earned. Whether the corporations retain the profits or distribute them to shareholders, the profits are subject to tax by the government. Failure to pay the tax can lead to severe punishments or heavy fines. However, the goods sold via the web are subject to tax is a debatable topic. Outcome: Nowadays people shop online which saves the time and effort of the consumers, but online tax can be a little confusing as it is mandatory to pay tax on some site while no tax on other sites, in some of the cities there is any tax. The Supreme Court has stated that the tax can be collected only if the retailer has the physical presence in the state. However, since the business is inclined more towards online, the government will incur huge losses if it will not charge tax on the sales via the internet. Since an out of State Corporation is dealing directly with consumers via its website then the customers should pay the taxes for the services received.

They can form a holding company and get it registered in the country, town, place where the taxes are low. Then the company N can transfer it profits earned to the holding company. The holding company would pay all taxes but the rate of tax become applicable where the company was registered. The rate of tax applicable will always be lower in the place where the company is registered in comparison to where it is operating. Then holding company can transfer profits to its shareholders.

The formation of corporation is different in countries and their states. However, basic steps of forming a corporation are similar. They are: 1. Select a state where the Incorporation has to be formed. As the laws of that, state will be applicable with the formation of corporation. 2. A name is required for the corporation. It will be a legal identity by which organisation will be known and will do the business. This name should not exist with any other corporation. 3. An Article of Incorporation will be required which contains the following information: • Corporation Name which has been selected in step 2 and does not belong to any other corporation • Corporation has some shares initially which can be issued. • Address where organisation will be registered and can receive all legal documents on that address. • Details of the Incorporators like their Name and Address. 4. In final step the Article of Incorporation will be deposited with Fee with the Secretary of the State. After completing all the formalities, the documents with the required fee are deposited with the Secretary of State whom: • Check and Verify Papers, • Deposit the fee, • stamp the article, • mark it as "Filed" and, • Return the Article to Incorporators. Now the corporation is into existence and it is a legal identity. Afterwards, a meeting of the incorporators can be called and they can adopt the bylaws.

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