Term
| What are the basic characteristics of a C corp? |
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Definition
| Limited liability, formal creation, perpetual life, ease of transfer, double taxation, centralized management |
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Term
| What are the basic types of corporations? |
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Definition
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Term
| Max number shareholders in cBolosely held corp? |
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Definition
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Term
| What is a "foreign" corporation? |
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Definition
| One that operates in a STATE other than that it which it was chartered |
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Term
| What are basic characteristics of S corps? |
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Definition
| Limited liability, formal creation, max 100 shareholders (but H/W count as one unit until divorced), only indivs can be shareholders, must be "domestic" (in-state), all s/h citizens or residents of UC, pass through taxation, only one class of stock |
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Term
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Definition
| the person who organizes and gets a corporation going. Acts BEFORE the company exists so is NOT an agent of the co. They have a fiduciary duty to the co but aren't entitled to compensation |
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Term
| Can a promoter enter a new company into a contract? who is liable for the performance of the contrct? |
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Definition
| Yes, a promoter can strike a contract on behalf of the new co, but it is the promoter who is personally liable unless the BofD issues a novation. BoD can ADOPT but not RATIFY the contract--ratification requires existence & the contract existed before the co did. |
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Term
| What must be included in the articles of incorporation? |
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Definition
| 1. Name of co; 2. nature & purpose; 3. life of co (gen perpetual); 4. name & address of each incorporation; 5. # & type & amt of authorized shares; names of initial BoD; name of registered agent |
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Term
| What is a registered agent? |
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Definition
| The place where the state may send a court order if corp needs legal notification (eg being sued). Usually a lawyer |
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Term
| What is a stock subscription? |
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Definition
| When a co is being formed, these are shares of the future co--subscribers agree to buy a certain # of shares at a certain price to get the co going. Noncancellable for 6 months. |
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Term
| What is the difference between ratifying & adopting a contract? |
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Definition
| Ratify = sign & liable initially; adopt = take over and become liable for an existing contract |
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Term
| Are members of BoD agents of the corporation? |
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Definition
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Term
| What can the Board of Directors do? |
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Definition
| in charge of general operations, but indirectly via hiring management. Only acts as GROUP. Issue stock, Adopt bylaws, select officers = managers of company (Prez etc); can reacquire treasury stock and declare dividends. |
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Term
| What do officers of corp do? |
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Definition
| these are the managers in charge of day to day (as opposed to "overall" operations). Officers unlike BoD are Agents of corp. |
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Term
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Definition
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Term
| How is a corporation formed? |
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Definition
| The state must reeive and accept the articles of incorporation. The state then issues a cerficiate of incorporation = corporate charter. |
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Term
| What are the two values at which common stock can be issued? |
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Definition
| Par = value set in certificate of incorporation; Stated = set by BoD for non-par stock (where no par value was included in charter). Often minimal (.0001). gives a minimum value for stock. |
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Term
| When are corporate tax returns due? |
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Definition
| 3/15 or 2.5 months after end of fiscal year |
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Term
| Distinguesh between officers and directors of a company. Which do shareholders elect? |
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Definition
| Directors = members of BoD; officers = day to day managers (prez et al). Shareholders elect board, board selects officers. If shareholders don't like officers they have to go thru board to try to get rid of them. |
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Term
| What is needed for a corporation to voluntarily dissolve? |
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Definition
| A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote. |
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Term
| What is "piercing the corporate veil"? |
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Definition
| Disregarding the corporate entity and imposing personal liability upon shareholders |
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Term
| Fox is a promoter, hires PwC to do accting for XYZ, which it does for one year. XYZ doesn't pay the bill. Who is liable for it? |
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Definition
| Both Fox & XYZ. Fox has EXPRESS liability; XYZ has IMPLIED liability b/c they accepted the benefits of the contract |
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Term
| Sam bought a tract of land in 20x0, thinking he might put a motel on it some day. In 20x5, Sam formed the ABC Motel Corporation. During formation of the corporation, Sam sold the land to the fledgling corporation for $100,000. After the corporation was formed, the new shareholders learned that Sam had paid only $40,000 for the land back in 20x0. The shareholders sued to recover the difference. Sam proved that the land was worth $120,000 at the time of the sale to ABC. Has Sam violated his fiduciary duty to ABC? |
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Definition
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Term
| What optional items are often included in the articles of incorporation? |
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Definition
| Nature & purpose of co; duration (typically perpetual); capital strcuture, minimum capiitalization (typ $1000); directors, management provisions such as quorum reqs, annual meeting date, voting provisions etc |
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Term
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Definition
| An express release from a legal obligation by a third party |
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Term
| For what kind of corporations can the corporate veil be pierced? When? |
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Definition
| Only for closely held corps, generally when there is some form of intermingling of assets of persons & corp or trying to use the co as a shell to get rid of liabilities/co-mingling personal & company assets/UNDERCAPITALIZING the co |
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Term
| Distinguish between notes, bonds, & debentures. |
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Definition
| Note = ST unsecured debt; Bond = LT debt secured by co assets; Debenture = LT unsecured debt |
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Term
| Distinguish between common, preferred, and treasury stock. |
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Definition
| In comparions to common stock, preferred stockholders may have preference in issuance of dividends and return of capital. Treasury stock is issued stock that is bought back by co--often reissued to shareholders as a "stock dividend." |
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Term
| What are the consequences of "piercing the corporate veil"? |
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Definition
| Creditors can sue the board, officers AND shareholders to recover their losses |
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Term
| What's the difference between "redeemable" and "callable" shares? |
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Definition
| Redeemable means that the CORP. has to repurchase the shares at a set price if the s/h desires; callable means that the s/h has to SELL the shares back to the co at the set price |
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Term
| What are warrants, rights & options? |
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Definition
| legal entitlements to buy equity at a specified price & time at the request of the holder. |
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Term
| What protection do s/h have that a board doesn't simply give shares away? |
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Definition
| There must be "consideration." There are both quality & quantity tests for consideration, but uness the board is clearly acting in bad faith, its actions are usually accepted |
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Term
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Definition
| face value. Old concept, still applies in some states, but in others, stated value applies instead. Currently if a stock is issued at par, par is minimal (.00001) |
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Term
| Who is liable for new stock sold below par? |
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Definition
The board who allowed the sale;
The buyer who paid too little;
Transferees who know the buyer paid too little and who pay too little themselves |
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Term
| When can s/h sue the board to force an issue of dividends? |
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Definition
| If they can show that a. the board acted in bad faith, and b. the money to pay the dividends existed in a legally available source |
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Term
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Definition
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Term
| When can dividends NOT be issued? |
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Definition
| If it would force the company into debt; if it would make the companies liabilities exceed its assets |
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Term
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Definition
| Stock originally issued for less than par value |
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Term
| What is typical for common and preferred stock with respect to voting rights? |
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Definition
| Common stock typically but not always has it; preferred generally doesn't |
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Term
| What is a liquidating dividend? |
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Definition
| Liquidating dividends occur when a corporation's distribution to shareholders exceeds the company's retained earnings, requiring that capital accounts be decreased to make up for the remaining dividend to be paid to shareholders. Although a liquidating dividend is considered to be a return of investment instead of profits, it is nonetheless a distribution to shareholders. |
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Term
| What is required to dissolve a corporation? |
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Definition
| Internally: BoD proposes and approved by officers & S/H (majority under RUPA, some states req 2/3); Externally by courts for failures to meet legal obligations |
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Term
| When can an owner of common stock have liability beyond their actual investment? |
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Definition
| If they purchased ORIGINAL issue stock directly from the company (not on the market) at below par value (but it's ok to reissue treasury stock at below par); also if corp veil is pierced |
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Term
| Distinguish between common law and statutory inspection rights of S/H |
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Definition
| Common law is inspection at reasonable time & place and for reasonable purpose; burden of proof is on S/H to prove purpose. Statutory rights kick in when S/H has 5%+ of stock or has held it for > 6 m; burden is on Co to prove that S/H has an improper purpose for inspection |
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Term
| What are 3 important dates for dividends? Define each |
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Definition
| Date of declaration (b/c liability to co; JE dr RE cr DP); Date of record (det who gets $, no JE); Date of distrib (JE dr DP cr Cash) |
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Term
| Two advantages of preferred stock over common? |
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Definition
| paid dividends first when declaredk; preference if co. liquidated |
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Term
| Distinguish cumulative preferred vs noncumulative preferred stock |
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Definition
| Cumulative: If co doesn't declare a dividend, then there is a "dividend in arrears" (which is NOT yet a liability to the co) and IF/when a dividend is declared, company will have to catch up for years when dividend was not issued; noncumulative = each year separate, if one year no dividend, it is lost forever |
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Term
| Distinguish participating vs nonparticipating preferred stock |
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Definition
| Participating = if a dividend is declared for common stock that is higher than the par value, preferred S/H must get this rate too; nonparticipating = not true |
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Term
| Who has a fiduciary duty to the corporation? |
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Definition
| Promoter, BoD, Officers (=mgmt), controlling S/H |
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Term
| what are the three main things the BoD does? |
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Definition
| Elect managers (and thus indirectly control co); buy back treasury shares; issue dividends |
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Term
| Do the managers of a corporation have limited liability? |
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Definition
| Not for their axns as managers. If they are also s/h, then that interest is protected, but they are still liable for their axns as mgrs |
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Term
| What is an ultra vires act? who does it? |
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Definition
| An ultra vires act is an act by the BoD or mgmt that goes beyond the purpose of the corporation. Those directors who voted for it can be sued individually |
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Term
| What is the doctrine of respondent superior? |
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Definition
| It provides that an employer is responsible for TORTS (but not crimes) committed by their employees |
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Term
| What is the "business judgment rule"? |
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Definition
| It provides that BoDs are not liable for errors of judgment (bad business decisions); they *are* liable for gross negligence & fraud |
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Term
| What acts must officers of a company avoid? |
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Definition
| Competing w/the co., taking adv of co. opportunity for personal gain; intsier training, having an interest in conflict w/co, authorizing tranaxns that harm minority s/h; selling control over co |
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Term
| What voting rights do shareholders have? |
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Definition
| The can vote for BoD, liquidating dividends, dissolution of co, mergers & consolidations, amending articles of incrp, changes in corp structure |
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Term
| What rights other than voting do shareholders have? |
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Definition
| Right to transfer shares w/o approval, right to receive any dividends that have been declared, right to inspect bks & records, appraisal right, right to bring a derivative lawsuit, preemptive right, generally limited liability unless corporate veil is pierced |
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Term
| What is the appraisal right? |
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Definition
| When a merger/consolidation is proposed and an s/h disagrees, they have the right to have their shares appraised and repurchased by the board |
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Term
| What conditions --> involuntary dissolution of a corporation? |
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Definition
| S/h axn if bd has committed fraud or is deadlocked, by state axn if corp exceeds its authority; by M&A, or by expiration of time period set in charter |
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Term
| What are preemptive rights? To what do they apply? |
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Definition
| the preemptive right is the right to first refusal on NEWLY AUTHORIZED shares for existing s/h. Right is proportional to current ownership. Eg., if a co has 5000 sh authorized, 4000 issued/outstdg, and A & B each own 2000 shares. If Bd issues the remaining 1000 shares, there is NO preemptive right...they can sell those to anyone. but if the Bd issues 95000 NEW shares (dropping A & B's stake from 50% to 2%), then A&B each have the right to buy up to half of those shares so that relative control remains the same |
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Term
| What is a derivative lawsuit? |
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Definition
| One in which a shareholder sues ON BEHALF of the corporate name if the board takes axns that harm the corp (or fails to react to harms to the co). The CORP. not the s/h receives any settlement |
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Term
| What is the consequence to a S/H who misuses the right of inspection, eg to find a list of clients to sell to the competition? |
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Definition
| barred from inspecting records for 2 yrs |
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Term
| What conditions --> judicial decisions to "pierce the corporate veil?" |
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Definition
| 1. co. is undercapitalized; 2. s/h fraud; 3. s/h try to run the business directly (w/o bd, or w/o bd meeting at least annuallly); s/h commingle personal assets w/those of corp |
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Term
| What are the consequences of "piercing the corporate veil"? |
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Definition
| S/H lose their limited liability and b/c personally liable for all of the company's debts |
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Term
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Definition
| authorization by s/h to an agent who votes in his stead at a meeting. Must be written, are revocable; can last no more than 11 m unless specifically provided otherwise |
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Term
| Can BoD vote by proxy? Can shareholders? |
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Definition
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Term
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Definition
| separates the voting rights of shares f/ownership. by written agreement amg s/h voting rights go to trustee (who gets to hold the legal title). gen lim to 10 yrs |
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Term
| What are shareholder agreements |
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Definition
| agreements by s/h in advance to vote in a specified manner. not limited in duration. freq used in closely held cos esp in rel to restrictions on transferring shares |
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Term
| What is cumulative voting & why is it used? |
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Definition
| People get to vote for BoD in proportion to shares. E.g if there are 5000 shares and A owns 2000, B owns 3000, and there are 5 seats on BoD, then A gets 10000 votes and B gets 15000 votes. By concentrating their votes A can then elect 2 of the 5 BoD and B can elect 3 (vs plain majority rule, B could elect all) |
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Term
| Does a majority stockholder have a duty to protect the fiduciary interests of minority stockholders? |
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Definition
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Term
| What federal acts protect the environment from corporations? |
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Definition
| EPA law, CERCLA = superfund act, clean water act, clean air & noise pollution acts. |
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Term
| Can a company be dissolved if management is deadlocked? if shareholders are deadlocked and can't elect a BoD? |
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Definition
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Term
| What rights does board have? |
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Definition
| borrow $, sell corp property, hire/fire mgmt etc, declare div or not, make distrib of funds to s/h or not, set salaries, make proposals to S/H for things that need their approval (sale of major assets, M&A, dissolution, ammending charter) |
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Term
| Can the BoD act w/o a meeting? |
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Definition
| if they have unanimously agreed to do so |
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Term
| What is the duty of attention & whose duty is it? |
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Definition
| BoD duty to attend most bd mtgs, gain basic familiarity w/co bus, st F/S |
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Term
| What is the duty of care? |
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Definition
| to act in good faith, as a prudent person in similar position would act, in a manner that s/he reasonably believes to be in best interests of co |
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Term
| What is the "right to rely" and whom does it concern? |
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Definition
| The BoD has the "right to rely" that the officers are acting in good faith, unless they have some reason to be suspicious |
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Term
| What is the duty of loyalty? |
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Definition
| to avoid conflicts of interest. However, just because a BoD member acts in conflict, no necessary penalty IF the transaxn is approved by the majority, who know about the conflict, or the transaxn is fair to the company |
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Term
| What is a professional corporation? |
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Definition
| One where s/h are members of a profession. They have limited liability for corporate debts but still unlimited for malpractice torts assoc/w the practice of their profession |
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Term
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Definition
| newest bus form, limited liability limited partnership. have limited liability and single taxation for all. only in a minority of states so far. |
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