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Mgmt 429 > Chapter 44 > Flashcards

Chapter 44 Flashcards

Shareholder Rights in Corporations

1
Q

What are the two most common instruments used to provide funds for a corporation?

A

Stocks and bonds

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2
Q

Ownership of a corporation is represented by?

A

Stock

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3
Q

What is a corporate debt?

A

A bond

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4
Q

Name for shares of a company that have been issued to stockholders.

A

Outstanding

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5
Q

Declared money value of the outstanding stock of the corporation.

A

Capital stock

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6
Q

Specified monetary amount assigned by an issuing corporation for each share of its stock.

A

Par value

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7
Q

Value found by dividing the value of the corporate assets by the number of shares outstanding.

A

Book Value

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8
Q

Does a shareholder own or have interest in any specific property of the corporation?

A

No, the corporation is the owner of all of its property.

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9
Q

What is another word for stock?

A

Share, stock, and share of stock all mean the same thing.

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10
Q

Capital refers to?

A

The net assets of the corporation

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11
Q

Shares that have been issued to holders are said to be?

A

Outstanding

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12
Q

What term refers to the value received by the corporation for its outstanding stock?

A

Capital stock

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13
Q

Corporate stock may have a specified?

A

Par value

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14
Q

Can shares be issued with no par value?

A

Yes, share may be issued with no par value. In that case, no amount is stated in the certificate, and the amount the subscriber pays the corporation is determined by the board of directors.

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15
Q

The Revised Model Business Corporation Act (RMBCA) eliminates the concept of?

A

Par value, so stock issued by corporations in states following the RMBCA is always no par.

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16
Q

The market value of a share of stock is the price at which?

A

That stock can be voluntarily bought or sold in the open market.

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17
Q

Document evidencing a shareholder’s ownership of stock issued by a corporation.

A

Certificate of stock

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18
Q

Stock that has no right or priority over any other stock of the corporation as to dividends or distribution of assets upon dissolution.

A

Common stock

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19
Q

Stock that has a priority or preference as to payment of dividends or upon liquidation, or both.

A

Preferred stock

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20
Q

A corporation ordinarily issues what as evidence of the shareholder’s ownership of stock?

A

Certificate of stock or share certificate

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21
Q

A certificate of stock is also known as?

A

Share certificate

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22
Q

Registered owners/stockholders may have either?

A

Physical certificates or uncertified ownership.

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23
Q

The stock a corporation may be divided into?

A

Two or more classes

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24
Q

What is ordinary stock that has no preferences?

A

Common stock

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25
Q

Each share of common stock usually entitles the holder to have?

A

One vote, receive a share of the profits in the form of dividends when declared, and to participate in the distribution of capital upon dissolution of the corporation.

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26
Q

What kind of stock has priority over common stock?

A

Preferred stock

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27
Q

Preferred stock is ordinarily?

A

Nonvoting

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28
Q

Sometimes the preferred stock is given?

A

The right of participation

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29
Q

A debt investment; a loan to a corporation or government entity usually for a defined period of time at a fixed interest rate.

A

Bond

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30
Q

Date that a corporation is required to repay a loan to a bondholder.

A

Maturity date

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31
Q

Unsecured bond of a corporation, with no specific corporate assets pledged a security for payment.

A

Debenture

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32
Q

Bonds held by owner whose names and addresses are registered on the books of the corporation to ensure proper payment.

A

Registered bonds

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33
Q

Instrument by which the grantor (owner of land) conveys or transfers the title to a grantee.

A

Deed

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34
Q

Usually a commercial banking institution, to represent the interests of the bondholders and ensure that the terms and covenants of the bond issue are met by the corporation.

A

Indenture trustee

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35
Q

Fixed amount of money set aside each year by the borrowing corporation toward the ultimate payment of bonds.

A

Sinking fund

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36
Q

Contract or agreement to buy a specific number and kind of shares when they are issued by the corporation.

A

Stock subscription

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37
Q

Unqualified assent to the act or proposal of another; as the acceptance of a draft (bill of exchange), of an offer to make a contract, of goods delivered by the seller, or of a gift or deed.

A

Acceptance

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38
Q

System of voting for directors in which each shareholder has as many votes as the number of directors to be elected, and such votes can be distributed for the various candidates as desired.

A

Cumulative voting

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39
Q

Authorizing someone else to vote the shares owned by the shareholder.

A

Voting by proxy

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40
Q

Written authorization by a shareholder to another person to vote the stock owned by shareholder; the person who is the holder of such a written authorization.

A

Proxy

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41
Q

Transfer by two or more persons of their shares of stock of a corporation to a trustee who is to vote the shares and act for such shareholders.

A

Voting trust

42
Q

Shareholder’s right upon the increase of a corporation’s capital stock to be allowed to subscribe to such a percentage of the new shares as the shareholder’s old shares bore the former total capital stock.

A

Preemptive right

43
Q

Corporation designed to exhaust or use up the assets of the corporation, such as by extracting oil, coal, iron, and other ores.

A

Wasting assets corporation

44
Q

Secondary action for damages or breach of contract brought by one or more corporate shareholders against directors, officers, or third persons.

A

Derivative (secondary) action

45
Q

“Net assets of the corporation” refers to a corporation’s?

A

Captial

46
Q

Valuation of stock (three different ways to value stock)

A
  • Par value (price assigned to stock
  • Book value (based on company’s net assets)
  • Market Value (price of stock in the open market)
47
Q

Price assigned to stock

A

Par value

48
Q

Based on company’s net assets

A

Book value

49
Q

Price of stock in the open market

A

Market value

50
Q

A certificate of stock evidences?

A

Ownership (some states allow uncertified shares to be issued)

51
Q

Ordinary stock; entitles the holder to vote, receive dividends, and participate in the distribution of capital upon dissolution.

A

Common stock

52
Q

Non-voting; has priority over common stock regarding dividend and capital distribution.

A

Preferred stock

53
Q

What are the two types of preferred stock?

A

Cumulative preferred and Participating preferred

54
Q

Life of the corporation

A

Duration of shares

55
Q

What kind of stocks/shares may be issued by the corporation?

A

Fractional shares

56
Q

A long-term loan which obligates the company to pay the principal back at the maturity date with interest.

A

Bond

57
Q

Unsecured bonds

A

Debenture bonds

58
Q

Bond’s that are on the corporation’s books

A

Registered bonds

59
Q

Contractual terms for a particular bond issue are set forth in a?

A

Bond indenture or deed agreement

60
Q

Bondholders’ interest are represented by an indenture trustee who is responsible for?

A

Ensuring that the corporation complies with the terms of the bond indenture

61
Q

Under the Statute of Frauds, a contract for sale of shares must?

A

Be in writing

62
Q

Can subscription before incorporation take place?

A

Yes. In some states, it must be accepted by corporation. In other states, it’s automatically a binding contract.

63
Q

In order for subscription after incorporation to take place, the corporation must?

A

Accept the offer

64
Q

Restrictions on the transfer of shares, are they allowed?

A

Restrictions are valid if not unreasonable

65
Q

Interest Transferred: May be absolute, partial or?

A

Done for security

66
Q

Delivery of certificate, endorsed by owner in blank or to a specified person, or via an intermediary are the?

A

Mechanics of transfer (how a transfer works)

67
Q

In order for the transfer to be valid it must?

A

Satisfy requirements of any property transfer

68
Q

In terms of negotiability, various defenses cannot be raised against a person…

A

acquiring the certificate for value in good faith

69
Q

A secured transaction may be used as collateral for?

A

Loans, which is a pledge that does not transfer ownership

70
Q

The corporation is entitled to treat the person whose?

A

Name is on the corporate book as owner of share/stock

71
Q

Lost, Destroyed, and Stolen Share Certificates

A

Owner is entitled to replacement if an indemnity bond is filed and request made in a reasonable time before acquired by a bona fide purchaser.

72
Q

The owner’s of stock are given right to?

A

Certificate(s) of stock and they are allowed to transfer their stock/shares (unless limited by a valid restriction)

73
Q

Who may vote?

A

Common shareholders of record (persons whose names are on the books)

74
Q

Straight voting gives each shareholder?

A

1 vote on each matter

75
Q

Under a cumulative voting plan, each shareholder has as many votes as?

A

The number of shares owned multiplied by the number of directors being elected.
(# of shares x # of directed being elected)

76
Q

What authorizes another to vote one’s shares?

A

Voting by proxy

77
Q

A voting trust is created when a group of shareholders do what?

A

Transfer their shares to one or more persons as trustees

78
Q

Preemptive Offer of Shares

A

Right to subscribe to same percentage of new shares that their stock currently represents

79
Q

Can one or more persons act as inspectors (inspection of books)?

A

Yes

80
Q

Form of books

A

There is no specific requirements for how exactly a corporation should keep their books, as long as they have them and they are organized

81
Q

Financial statements

A

Must be furnished (accommodated) annually

82
Q

There must be an earned surplus (retained earnings) in order to?

A

Declare dividends

Except for “wasting asset corporations” that may pay out of current profits!

83
Q

As to when dividends are declared, that discretion is of the?

A

Directors

84
Q

Dividends are usually distributed in the form of money but may also be?

A

Property or shares of stock

85
Q

Effect of Transfer of Shares

A

Dividends are declared as of a “declaration date” and payable to shareholders as of the “record date”. The “payment date” follows.

86
Q

Owner on the record date receives the dividend even if shares are?

A

Transferred before payment date

87
Q

Upon dissolution, shareholders are entitled to receive any balance of corporate assets after?

A

Creditors are paid (certain classes of stock may have a preference)

88
Q

Can a shareholder bring a derivate action against corporation on behalf of stockholders?

A

Yes

89
Q

When a special litigation committee (SLC) is formed (by board of directors) to decide on the suit, what may happen?

A

Demand on entire board may be excused

90
Q

Courts will only defer to special litigation committee’s (SLC) if?

A

Directors are independent

91
Q

Liability of shareholders is generally?

A

Limited

92
Q

Ignoring the corporate entity can also be called?

A

“Piercing the Corporate Veil”

93
Q

Court may disregard the corporate entity when there is? (5 things)

A

Failure to maintain adequate records and commingling of assets

Grossly inadequate capitalization

Diversion of corporate funds or assets

Formation of corporation to avoid existing obligation or commit fraud

Determine that injustice would result

94
Q

“Alter Ego” Theory

A

When an individual controls a corporation to the extent that separate personalities of the corporation and individual no longer exist

95
Q

Obtaining Advantages of Corporate Existence

A

Courts will not go behind the corporate identity merely because the corporation was formed to obtain tax advantages or limited liability

96
Q

Wage claims

A

May accrue to all shareholders or only to corporate officers

97
Q

Unpaid subscriptions

A

Allow creditors to go after stockholders for balance

98
Q

Unauthorized dividends

A

If dividends are paid out of capital, shareholders are generally liable to creditors for the depletion of capital

99
Q

Act of Shareholder in Creating Liability

A

Usually requires that share ownership be limited to duly licensed professionals.

100
Q

Liability of a shareholder for malpractice is…

A

NOT affected by the fact of incorporation

101
Q

Malpractice Liability of an Associate

A

Liability varies from state to state. Statutory reference is often not clear and courts are left to resolve the question.

Mgmt 429 (3 decks)

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