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blaw > ch 18: corps > Flashcards

ch 18: corps Flashcards

1
Q

what is corp

A

legal entity created and recognized by state law

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2
Q

what does corp consist of

A

1 or more owners which are shareholders

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3
Q

who can be shareholders in corp

A

Individuals and other businesses can be share holders

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4
Q

is corp considered a person

A

yes- artificial legal person

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5
Q

what is true of corp rights since they are a person

A

they are allowed the same rights as ppl such as free speech, freedom of unreasonable searchs, due process

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6
Q

The responsibility for mgmt is w

A

the board of D

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7
Q

who elects board of d

A

share holders

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8
Q

who does BOD hire to run daily operations

A

corporate officers

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9
Q

when an individual purchases stock in a corp, what happens

A

they become a shareholder / owner of the org

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10
Q

what is the advantage of limited liability for corp as a shareholder

A

Corp shareholders liability is limited to the amt of their investments

Not liable of the debts of the corp

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11
Q

corporate profits n sharing w shareholders

A

When a corp earns profits it can either pass it to shareholders in dividends or retain them as profits (retained earnings) and reinvest this which can gain more profits in the future rising stock price in which shareholders will reap benefits more since itll be more $$ when they sell their stock

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12
Q

corp tax disadvantage

A

Corps can be subject to double taxation if profits are passed thru dividends

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13
Q

Domestic corp

A

term used by state where corp was formed - ex if ulta set up in VA, the VA considers it a domestic corp

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14
Q

foreign corp

A

if a corp operates in a diff state, ex if ulta does in texas, then textas views ulta as foreign corp

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15
Q

align corp

A

corp formed in another country (ex ulta formed in mexico) but doing BUS in US, it is an align corp

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16
Q

do corps have automatic right to do business in other states

A

no, they might need a certificate of authority unless its thru digital.

failing to adhere may result in fines

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17
Q

Public corp + examples

A

formed by the govt to meet political/govt purpose

AMTRACK, postal servic

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18
Q

diff btw public corp vs public company

A

pub company/publicly held corp -shares are publicly traded thru NY stock exchange , etc

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19
Q

Private corp

A

created either in wholly or in part for private benefit

Most are private

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20
Q

non profit corp + examples

A

formed without profit making purpose
-Ex charities, schools, religious orgs

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21
Q

Close corporations who are shares held by?

A

Corp in which shares are held by very few- usually family

22
Q

Since number is so small in close corp there is no trading market for the shares

t or f

A

t

23
Q

what is a + for close corps

A

Flexibility in determining their operating rules- for ex if they all agree they can operate without directors

24
Q

Mgmt in close corps + how to avoid giving too much power

A

Mgmt is similar to sole p or partnership in which one shareholder or small group takes on role of directors/officers

To avoid giving power to majority shareholder, close corps require more than simple majority vote for some decisions

25
Q

Transfer of shares dilemma in close corps + how to avoid

A

Since close corp is alr small, transferring shares could have a major affect on the corp

To avoid this, corp could restrict transferring to outside person or require them to offer shares to corp or other shareholders before selling to an outsider

26
Q

Misappropriation of Close Corporation Funds

A

Maj shareholder might misuse position by taking comp funds for personal benefit - fix this by giving minority shareholders shares valued at fair market price

27
Q

S corp

A

comp avoids paying taxes at corp level
and passes profits to SH to pay inc tax on that

(avoids double taxation)
Taxed like a partnership

28
Q

Professional corps + types + requirement

A

Bus formed by professionals such as lawyers which allow them to incorporate their practice while retaining benefits as a corp

S.C. (Service Corporation)
P.C. (Professional Corporation)
P.A. (Professional Association)

shareholders must generally be licensed professionals

29
Q

t or f
Many states allow businesses to incorporate via the Internet.

A

t

30
Q

Incorporation procedures (1-4)

A

1- select state of incorporation
2- secure an appropriate corp name
3- prepare articles of incorporation
4- file articles of incorporation

31
Q

selecting state of inc

A

Most corp looks at the states that offer the most advantage tax laws, for example delaware bc it has the least restrictive laws and good favor of corporate management

32
Q

select appropriate name

A

Requires state approval to prevent duplication

Crucial to secure a name available as a domain

Can not be identical or super similar to an existing corp name

33
Q

3 - prepare articles of incorporation

A

primary doc needed to incorporate which include basic info abt the corp

34
Q

4 - file it

A

Once the articles of incorporation have been prepared and signed
they are sent to the appropriate state official.

35
Q

Securities

A

stocks and bonds that represent ownership in corp

36
Q

Bonds and its details

A

Represents borrowing of funds (evidence of funds borrowed from investors)

Have a maturity date in which it has to be returned

Details specified in a landing agreement

Bondholders also receive fixed-dollar interest payments, usually semiannually, during the period of time before maturity. - For that reason, bonds are sometimes referred to as fixed-income securities

37
Q

Preferred stock advantage

A

Holders of preferred stock usually have priority over holders of common stock

38
Q

what is true ownership

A

common stock

39
Q

Piercing the corporate veil

A

Courts may “perice the corp viel” if the corp is used for illegal purposes in which it exposes shareholders to personal liabilities

40
Q

t or f

If a shareholder uses the corporation to evade personal responsibility, resulting in significant injustice, the court may hold the shareholder personally liable for corporate debts.

A

t

41
Q

t or f
BOD = ultimate authority in every corp

A

t

42
Q

Duties include BOD

A

selecting/removing corp officers
Determining cap structure
Declaring dividends

43
Q

t or f
One person cannot hold multiple roles and can be an officer and director

A

f- they can

44
Q

Directors and officers considered fiduciaries
t or f

A

t

45
Q

Duty of care for directors/officers

A

Standard of due care requires dictors/officers to act in good faith and honestly and do it reasonably

Act in a way they consider the best interests for the corp

46
Q

t or f

A

directors/officers who fail to exercise due care may be held liable for negligence

47
Q

Duty to make informed reasonable decisions

A

Expected to be informed on corporate matters and conduct a reasonable investigation of the situation before making a decision

They must do what is necessary to keep informed such as attending meetings and asking for info from those who have it

They cant make decisions without research

48
Q

Business judgment rule

A

Protects dir/off from liabilities for judgments made in good faith/honest mistakes

dir/off must use best judgment in managing a corp

49
Q

When the business judgement rule applies

A

If the officer took reasonable steps to be informed on the matter

Had rational basis for decision

Did not have conflict btw personal interests and interests of the corporation

50
Q

Duty of loyalty of dir/off

A

Requires dir/off to subordinate their personal interests to the welfare of the corp

Cannot use corp funds or info for personal advantage

51
Q

Shareholder derivative suit

A

Idf a 3rd party harms a corp, directors can file lawsuit on corps behalf

If directors don’t take action, shareholders can file a shareholder’s derivative suit to pursue the claim on behalf of the corporation

blaw (16 decks)

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