Chapter 9- Business Organizations and Securities Regulation Flashcards
Stockholder ( Shareholder)
An owner of a corporation
Stock
Ownership interest of a shareholder
Publicly held Corporation
Publicly traded shares
Corporations
Not elected to be taxed as an S corporation
All corporations are C corporations by default
General Partnership
All partners are general partners
Mutual agencies
Sole Proprietorships
One person owns and controls the business
Legally indistinguishable from the owner
Limited Liability Company
A hybrid form of business, general partnership with limited liability and operating advantages as a corporation
S Corporation
Closely-held corporation where shareholder have elected to be taxed like partners
Close held corporation
Few shareholders, stock not traded on a public market
Board of Directors
The body elected by the shareholders to govern the corporation
Bylaws
Governs the management and operation of an organization
Directors
Elected by shareholders to govern
Have no authority, only as board directors
Fiduciary Duty
The responsibility of one in a position of trust with another to act in the best interests
Fiduciary (Beneficduary)
Relationship of trust with another and act in their best interests
Business Judgement Rule
Protecting business managers from liability for making bad decisions when they have acted in accordance to fiduciary duties with loyalty and due care
Respondent Superior
Let the master answer
Indemnify
Directly pay the costs of or reimburse the costs incurred by
Piercing the corporate veil
Holding the shareholder responsible for acts of a corporation because of the shareholders domination
1- Misuse of the corporate form
2-An unjust result if limited liability is allowed to stand
Buy-sell agreement
Required to sell stock to the corporation or shareholder under an event (death)
Liquidated
Satisfying all creditors
Distributing assets to shareholders
Article of Dissolution
Article filed to the state to dissolve a corporation
Tax Avoidance
Minimizing taxes by lawful means
Tax Evasion
Minimizing taxes by lawful means
Double Taxation
First taxed on income then shareholders are taxed again based on income when its distributed as dividends
Equity Capital
Resources obtained from owners to acquire assets and conduct operations
Common Stock
Residual ownership interest in a corporation. Right to participate in control, earnings, and assets upon liquidation
Preferred Stock
Enjoy a priority over common stock, with earnings and assets upon liquidation but ack the right to participate in control
Debt Capital
Resources obtained from lenders to acquire assets and conduct operations ( short or long term )
Bonds
Long-term debt security issued to raise capital for a venture
Capital Structures
The balance between debt and equity capital
Debt Covenant
Debt immediately payable should the condition cease to be satisfied
Ex: Exceeding a specified debt/equity ratio
Right of contribution
Reimbursed by other partners for its payment of a disproportionate amount of a partnership obligation
Dissociation
Cessation of a person’s status as a partner without causing the partnership dissolution
Member
An owner of a LLC
General Partner
Participates in management and has unlimited liability for partnership obligations
Limited Partner
Does not participate in management and enjoys limited liability
Venture Capitalists
Those who invest new riskey business venture
Franchise
Franchisee can produce, distribute or sell their products using their name
Inside/Outside Directors
Inside- Senior Directors
Outside- Not employed by company
Independent Directors
Outside directors without conflicts of interest
Proxy
Written permission from a shareholder to another to vote the share at a stockholders meeting
Tender Offer
Public offer to buy common stock at a specified price for a specified period of time
Stateless Income
Income purportedly subject to taxation nowhere in the world
Interstate/ Intrastate Offering
1- Selling security to persons residing in states other than that in which the issuer incorporated
2- Selling in same state
Initial Public Offering (IPO)
Sale for the first time
Going Public/Private
1- Selling first equity interest in the public market
2-Private investors buy all of the equity securities of a publicly held cooperation
Securities and Exchange Commission (SEC)
Federal regulatory agency created in 1934 that is responsible for overseeing the securities market
Prospectus
Offering a security for sale and summarizing the information needed for a prospective buyer to evaluate it
Solicitation
Offering to sell a security
Tombstone Ad
Securities advertisement that does not constitute an offer to sell but rather informs the public that the security might be offered for sale in the future
Red Herring
Draft securities prospectus included in the registration statement filed with the SEC
Doesn’t constitute an offer to sell the security
Shelf Registration
Permits issuer to hold securities for sale until favorable market conditions emerge or the issuer needs the proceeds
Underwriter
Best Sales: Finance professional who acts as the issuers sales agent in a securities offering
Firm Commitment: Buys securities from the issuer hoping to profit from their resale to the public
Over the counter market
A computer network linking dealers to effectuate the purchase and sale of securities
Due Diligence
Materially misleading statement or omission in a registration statement. Must demonstrate that a reasonable investigation was undertaken to provide plausible basis
Depends on if a defendant is an expert
Insider trading
Trading securities while in possession of material nonpublic information in violation of a fiduciary duty
Insiders are directors officers and employees
Disgorgement
Forfeiture of bad gains
Greenmail
Hostile takeover defense involving the target corporations repurchase of a takeover raiders stock at a premium not offered to other shareholders
Crow Jewel Defense
Target corporation prearranges to sell critical assets to a friendly third party
Poison pill defense
Resist a hostile takeover, prearranging a new issuance of a significant amount of common stock to existing shareholders at a discounted price
Golden Parachutes
Generous severance pay packages
