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Corporations
N/A
45
Law
Undergraduate 4
10/25/2008

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Term
Public Corporations
Definition
Created by legislation to administer some types of legislation ex: CTA, Board of Education
Term
Closely Held Corporations
Definition
Owned by low number of shareholders; sale of stock restricted
Term
Publicly Held Corporations
Definition
National exchange traded
Term
Subchapter S
Definition
Federal tax issue, not state issue. Allows taxation as flow through entity
Term
Promoter
Definition
In charge of finding investors and building for corporation. Has fiduciary duties (just no secret profits)
Term
Subscriber
Definition
promises to buy stock in corporation, irrevocable for 6 months
Term
What must be included in Articles of Incorporation?
Definition
1) Name of corporation 2) Duration 3) Company Purpose 4) Registered Agent (signs and files articles) 5) Name and Address of Corporation 6) Number of shares authorized to issue and value of shares (usually no par value) 7) Signature of Incorporators
Term
County Recorder of Deeds
Definition
Must be filed after articles of incorporation
Term
What should go in the corporate record book?
Definition
Articles, Bylaws, minutes (who said and did what during meeting), stock ledger
Term
What happens at the organizational meeting?
Definition
1) Stockholders elect BOD 2) Director appoints officers 3) Directors write company bylaws (in the future, directors do not need approval to change)
Term
Corporation de jury
Definition
Corporation formed by following the law
Term
Corporation de facto
Definition
If company has made good faith attempt abiding the law informing and conduct business as if it is a corporation then
Term
Piercing the Corporation
Definition
Under the right circumstances a creditor can pierce the corporate veil and go after shareholders as if they were personally liable
Term
Ways to pierce corporation
Definition
1) Under capitalization, a corporation is to retain sufficient capital as to cover reasonable expenses 2) Failure to follow corporate formalities 3) Commingling of funds and assets 4) Fraud
Term
Corporate Powers and Duties
Definition
1) Can sue and be sued in its own name 2) take out mortgage 3) Doctrine of Ultra Vires ( acts attempted by a corporation that are beyond the scope of powers granted by the corporation) 4) Tort liability - respondeat superior
Term
Debt instruments
Definition
1) Indenture: agreement that typically has promissory note and description of collateral 2) Secured Bonds: secured by specific corporate property 3) Income bond: a formula that ties in payment with corporate income 4) Convertible debt: debt instrument issue with convertibility option, debt to equity
Term
Equity Securities
Definition
1) Common stock: greatest risk 2) Preferred Stock: has liquidating preference, received div payments before common 3) Cumulative Preferred: if dividends aren't received, accumulate 4) Cumulative if earned: dividends accumulate only if there are earnings 5) Cumulative Participating Preferred: gets cumulative dividend and part of common dividends
Term
Traditional Lenders
Definition
Bank, cheapest money. Lower interest rate but most impatient
Term
Non-Traditional Lenders
Definition
Non-traditional banks, more expensive than banks but also more patient
Term
Mezzanine Lender
Definition
Much more expensive that tradition and non-traditional lenders, high interest, might ask for bond with convertibility. Want to be represented on BOD, but very patient
Term
Classic Venture Capital
Definition
Most patient lender, most expensive and might have to give up control of company
Term
Types of dividends that can be declared by BOD
Definition
1) Cash dividends 2) Property dividends (although hard to figure out value) 3) Stock dividends 4) Stock split (shareholders still own same value of stock) 5) Liquidating dividends (distribution of capital assets of company)
Term
State Restrictions on Dividends
Definition
1) If company is insolvent, or declaring dividends would make them insolvent 2) Once dividend is declared it cannot be rescinded (unless it is a stock dividend)
Term
Record Date
Definition
Date you should be a shareholder by in order to receive a dividend
Term
Payment Date
Definition
The day the dividend is to be paid
Term
Liability for Declaring Improper dividend
Definition
1) Directors who declare dividend knowing insolvency are held personally liable to corporation 2) Directors in good faith are not liable
Term
Shareholder's voting rights
Definition
1) Can vote for directors (in or out) and do not need a cause 2) Can vote on extraordinary matters 3) Vote at annual meetings, or special meetings called by BOD
Term
Proxy
Definition
Statement from stockholder giving his vote to somebody else, freely revocable. Expires after 11 months
Term
Voting Trust
Definition
A group of shareholders get together and put together their stock. The trustee has title to the trust but shareholders have say. If majority of members of trust agreement vote one way, trustee must vote ALL shares that way.
Term
Termination of voting trust
Definition
1) by agreement of all members of trust 2) after 10 years 3) when trust agreement says so
Term
Lettered Shares
Definition
If shareholders accept agreement to restrict transfer of shares, you must write on the back of the stock certificate that they are subject to restrictions, or else stock is transferable.
Term
Valuation Formula
Definition
Should be made for cases such as a death or incapacity of a shareholder, and written by a lawyer. If you don't understand agreement tell them to rewrite it until you do.
Term
Shareholder's right to info
Definition
Has right to see records if showing proof of proper purpose and make written demand. SELF AGGRANDIZING IS NOT PROPER PURPOSE
Term
Director's job
Definition
1) manage day to day operation 2) determine capital and financial structure 3) value and consideration of new shares 4) authorize bonds and notes 5) buy/sell/lease assets in ordinary course of business 6) Declare dividends 7) Executive compensation 8) Pass resolutions
Term
Vacancy on Board
Definition
When there is a vacancy, the board can leave vacancy empty until annual meeting or surviving board fills vacancy all on their own until annual meeting
Term
Business Judgment Rules
Definition
You elect them, they can be dumb just not recklessly or willfully make mistakes
Term
Duty of Loyalty
Definition
Fiduciary duty to subordinate personal interest to interest of company. Full disclosure fixes conflict of interest problems, so does abstaining from voting.
Term
Interlocking Directors
Definition
If on 2 conflicting boards, abstain from voting
Term
Loans to directors
Definition
Corporations can make loans to directors only if the are 1) small or 2) a SOX company
Term
Corporate Opportunity Doctrine
Definition
You are not allowed to usurp (wrongfully take for yourself) a corporate opportunity
Term
Examples of extraordinary acts
Definition
Amending articles of incorporation, increase authorized shares, sell/buy/lease assets out of ordinary course of business, effectuate merger needs both BOD and shareholders approval, liquidation of company
Term
Officers
Definition
Serve at pleasure of board, can have as many officers as you'd like, act as agents of corporation
Term
Dissenter's Rights
Definition
1) Give notice of dissent 2) get approval of shares
Term
Involuntary Termination
Definition
1) Attorney general asks to dissolve company 2) Have 60 days to be resurrected
Term
Corporate Litigation
Definition
Shareholder derivation action: if you win, money goes to company Direct Action: individual sues company and individual wins and gets money
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