Business Law - Chapter 20

  1. Define Corporation
    A legal entity formed in compliance with statutory requirements that is distinct from its shareholder-owners
  2. What are the duties of the board of directors
    Overall management of the firm
  3. Who elects the board of directors
  4. What are the duties of corporate officers
    Run the corporation's daily business operations
  5. Key advantage of a corporation
    Limited liability of its shareholders, beyond the extent of their investments
  6. Define Dividends
    A distribution of corporate profits to the corporation's shareholders in proportion to the number of shares held
  7. Define Retained Earnings
    The portion of a corporation's profit that has not been paid out as dividends to shareholders
  8. What is a disadvantage of a corporation
    Double taxation
  9. Define Holding Company
    A company whose business activity is holding shares in another company
  10. What are the different types of corporations
    • Domestic, Foreign, and Alien Corporations
    • Public and Private Corporations
    • Nonprofit Corporations
    • Close Corporations
    • S Corporation
  11. Define Domestic Corporation
    In a given state, a corporation that is organized under the law of that state
  12. Define Foreign Corporation
    In a given state, a corporation that does business in that state but is not incorporated there
  13. Define Alien Corporation
    A corporation formed in another country but doing business in the United State
  14. What is a certificate of authority
    Permission to do business in a state
  15. Define Public Corporation
    One formed by the government to meet some political or governmental purpose (US Postal service)
  16. Define Publicly held corporation/Public company
    Any corporation whose shares are publicly traded in securities markets
  17. Define Private Corporation
    Created for private benefit. Owned by private person
  18. Define Non-profit or not-for-profit corporation
    Formed for purpose other than making a profit
  19. Define Close Corporation
    A corporation whose shareholders are limited to a small group of persons, often family members
  20. Define S corporation
    A close corporation that has most corporate attributes, including limited liability, but qualifies under the Internal Revenue Code to be taxes as a partnership.
  21. Requirements of an S corporation
    • Domestic corporation
    • not a member of an affiliated group of corporations
    • Shareholders of the corporations must be individuals, estates, or trusts
    • No more than 100 shareholders
    • one class of stock
    • shareholder cannot be a nonresidential alien
  22. What are the procedures for incorporation
    • Select a state for incorporation
    • secure the corporations name
    • prepare the articles of incorporation
    • file the articles of incorporation with the secretary of state and pay the specified fees
  23. Define Articles of Incorporation
    A document containing basic information that is filed with the appropriate state official, usually the secretary of state, when a business is incorporated
  24. Define Bylaws
    The internal rules of management adopted by a corporation at its first organizational meeting.
  25. In what circumstances might a court disregard the corporate entity ("pierce the
    corporate veil") and hold the shareholders personally liable
    • A party is tricked or misled into dealing with the corporation rather than the individual
    • The corporation is set up to never make a profit or always to be insolvent, or it is too thinly capitalized (insufficient capital at the time of formation to meet its prospective debts or other potential liabilities)
    • Statutory corporate formalities, such as holding required corporation meetings are not followed
    • Personal and corporate interests are commingled to such an extent that the corporation has no separate identity
  26. Define Piercing the Corporate veil
    The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations
  27. Define Commingle
    To put funds or goods together into one mass to such a degree that they no longer have separate identities, as when personal and corporate interests are mixed to the extent that the corporation has no separate identity
  28. Define Securities
    Generally, stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation
  29. Define Stock
    An ownership interest in a corporation, measured in units of shares
  30. Define Bond
    A security that evidences a corporate or government debt
  31. Define Bond Indenture
    The agreement between the issuer of a bond and the bondholder that sets out the terms and features of the bond issue
  32. What are the two major types of stocks
    • Common Stock
    • Preferred Stock
  33. Define Common Stock
    Shares of ownership in a corporation that give the owner of the stock a proportionate interest in the corporation with regard to control, earnings, and net assets. Common Stock is lowest in priority with respect to payment of dividends and distribution of the corporation's assets and dissolution.
  34. Define Preferred Stock
    Stock that has priority over common stock as to payment of dividends and distribution of assets on the corporation's dissolution
  35. Define Venture Capital
    Financing provided by professional, outside investors (venture capitalists) to new business ventures
  36. Define Private Equity Capital
    Funds invested in an existing corporation by a private equity firm, usually to purchase and reorganize the corporation
  37. Define inside director
    A person on the board of directors who is also an officer of the corporation
  38. Define an outside director
    A person on the board of directors who does not hold a management position in the corporation
  39. Define Quorum
    The minimum number of members of a decision-making body that must be present before business may be transacted
  40. What are some rights of directors
    • the right to participation: directors are entitled to participate in all board of directors' meetings and to be notified of these meetings.
    • Right of Inspection: Each director can access the corporation's books and records, facilities, and premises.
  41. Define the business judgment rule
    A rule that immunizes corporate directors and officers from liability for decisions that result in corporate losses or damages as long as the decision makers took reasonable steps to become informed, had a rational basis for their decision, and did not have a conflict of interest with the corporation
  42. When can a business judgment rule apply to a director?
    • Take reasonable steps to become informed about the matter
    • Had rational basis for his/her decision
    • Did not have conflict between his/her personal interest and that of the corporation
  43. What are the duties of corporate directors and officers
    • Duty of care
    • Duty of Loyalty
  44. Define stock certificate
    A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation
  45. Define Preemptive Rights
    Rights that entitle shareholders to purchase newly issued shares of a corporation's stock, equal in percentage to shares already held, before the stock is offered to outside buyers. Preemptive rights enable shareholders to maintain their proportionate ownership and voice in the corporation
  46. Define shareholder's derivative suit
    A suit brought by a shareholder to enforce a corporate cause of action against a third person.
  47. Define Merger
    The legal combination of two or more corporations in such a way that only one corporation (the surviving corporation) continues to exist, having acquired all of the assets and liabilities of the other corporation.
  48. Define consolidation
    The legal combination of two or more corporations in such a way that the original corporations cease to exist and a new corporation emerges with all their assets and liabilities.
  49. Define Share Exchange
    A transaction in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but both corporations continue to exist.
  50. Define Target corporation
    The corporation to be acquired in a corporate takeover
  51. Define Takeover
    The acquisition of control over a corporation through the purchase of a substantial number of the voting shares of the corporation
  52. Define Tender Offer
    An offer made by one company directly to the shareholders of another (target) company to purchase their shares of stock.
  53. Define Dissolution
    The formal disbanding of a corporation, which can take place by 1) an act of the state, 2) an agreement of the shareholders and the board of directors, 3) the expiration of a time period stated in the certificate of incorporation, or 4) a court order
  54. Define Receiver
    In a corporate dissolution, a court-appointed person who winds up corporate affairs and liquidates corporate assets.
Card Set
Business Law - Chapter 20
Business Law Today