Corporations 12 Flashcards
The ______ model: double tax. The corporation pays taxes on revenues, and then shareholders pay taxes on dividends and capital gains.
C-Corp
The C-Corp Model: _____ _____. The corporation pays taxes on revenues, and then shareholders Pay taxes on dividends and capital gains.
double tax
The ______ model: pass through taxation akin to LLC’s or partnerships.
S-Corp
The S-Corp model: ____ ___ ______ akin to LLC’s or partnerships.
pass through taxation
These are all questions that financial documents help to answer:
1. ?
2.
3.
4.
5.
- How will the corporation track how much cash was invested in the business?
These are all questions that financial documents help to answer:
1.
2. ?
3.
4.
5.
- How will the corporation track how much money it is spending to operate?
These are all questions that financial documents help to answer:
1.
2.
3. ?
4.
5.
- How does it track how much income it is generating?
These are all questions that financial documents help to answer:
1.
2.
3.
4. ?
5.
- How does the corporation determine whether it is generating sufficient income to cover its expenses.
These are all questions that financial documents help to answer:
1.
2.
3.
4.
5. ?
- If the Corp does not generate a profit at the end of the fiscal period, how does the Corp determine why there was not a profit?
Financial Accounting Foundations
Purpose: to record every _______ _________ of a corporation and report these transactions in a consistent format.
financial transaction
Financial Accounting Foundations
Purpose: to record every financial transaction of a corporation and report these transactions in a ______ ______.
consistent format
Four critical financial statements, produced at regular intervals (quarterly, etc.)
1.
2.
3.
4.
- Balance Sheet
- Income Statement
- Cash Flow Statement
- Statement of Stockholder’s Equity
Allows users to review and analyze the corporation’s financial condition:
1. ?
2.
3.
4.
5.
- Sales
Allows users to review and analyze the corporation’s financial condition:
1.
2. ?
3.
4.
5.
- Expenses
Allows users to review and analyze the corporation’s financial condition:
1.
2.
3. ?
4.
5.
- Cash Flow
Allows users to review and analyze the corporation’s financial condition:
1.
2.
3.
4. ?
5.
- Profitability
Allows users to review and analyze the corporation’s financial condition:
1.
2.
3.
4.
5. ?
- Liquidity
Allows users to review and analyze the corporation’s financial condition:
o Sales
o Expenses
o Cash Flow
o Profitability
o Liquidity
And allows lawyers to identify potential ____ _______ and manage ______ to help mitigate liabilities.
legal issues
risks
What is Capital Structure of a Corporation?
The _________ of claims sold by the corporation to investors.
combination
What is Capital Structure of a Corporation?
The combination of _____ sold by the corporation to investors.
claims
What is Capital Structure of a Corporation?
The combination of claims sold by the ________ to _______.
corporation
investors
________ are redeemable or tradable
claims
Claims are _______ or ______.
redeemable or tradable
Claims are redeemable or tradable.
________: can be sold back to the corporation.
______: can be sold to other investors on public market.
Redeemable
Tradable
Claims are redeemable or tradable.
Redeemable: can be ____________.
Tradable: can be sold to other investors on public market.
sold back to the corporation
Claims are redeemable or tradable.
Redeemable can be sold back to the corporation.
Tradable can be _____________.
sold to other investors on public market.
The claims are divided into two types:
equity claims
debt claims
Shares of stock
Equity claims
Bonds
debt claims
Why does a corporation sell theses claims?
to generate capital cash for the corporation to operate with.
When one becomes a ________, they obtain certain rights in the control of the Company.
(1) Right to vote for Directors and major transactions. (The specifics of the right to vote can vary).
(2) Right to financial information
shareholder
When one becomes a shareholder, they obtain certain rights in the control of the company
(1) ?
(2) Right to financial information
(1) Right to vote for Directors and major transactions. (The specifics of the right to vote can vary).
When one becomes a shareholder, they obtain certain rights in the control of the company.
(1) Right to vote for Directors and major transactions. (The specifics of the right to vote can vary).
(2) ?
(2) Right to financial information
*Anti-Dilution Provision (or Control-Preserving, depending on your perspective).
*Allows shareholders to subscribe to the portion of any increase in a corporation’s capital stock necessary to maintain the shareholder’s relative voting power.
*This is not the default rule. Must “opt-in” via a contract.
*Generally, only see in closely held corporations, not public.
*Be careful when drafting your contract.
Preemptive Rights
*Anti-Dilution Provision (or Control-Preserving, depending on your perspective).
Premptive Rights
*Allows shareholders to subscribe to the portion of any increase in a corporation’s capital stock necessary to maintain the shareholder’s relative voting power.
Preemptive Rights
*Anti-Dilution Provision (or Control-Preserving, depending on your perspective).
*Allows shareholders to subscribe to the portion of any increase in a corporation’s capital stock necessary to maintain the shareholder’s relative voting power.
*This is not the default rule. Must “opt-in” via a contract.
Preemptive rights
*Generally, only see in closely held corporations, not public.
*Be careful when drafting your contract.
Preemptive Rights
Shareholder X
10 Shares (out of 100)
[10%]
Board of Directors approves the issuance of 1,000 more shares.
Shareholder X will now have 10 out of 1,100
Dilutes Shareholder X’s voting power to less than 1%.
If Shareholder X has negotiated for _______ ________ to retain their relative voting position in the corporation, Shareholder X would be, entitled to purchase 100 shares of the new series of stock.
preemptive rights
____ _______: ________ who provide a startup investment (generally, but not often, new companies)
angel investors
investors
Angel investors are investors who provide a ______ investment (generally, but not often, new companies)
startup
May negotiate for ___ ______ meaning that the investment will come in phases, generally at certain milestones/ accomplishments.
staged financing
May negotiate for staged financing meaning that the investment will come in _____, generally at certain _______/ -_______.
chases
milestones/ accomplishments
____ ______ are particularly important here because once the company builds steam and starts moving (i.e., proof of concept), it may attract a new class of investors and the company may have an incentive to “ditch” its angel investor.
Preemptive Rights
1
2
3
4
5
6
100% Control
Super Majority
Majority
Deadlock
Negative control
Minority
DGCL § 225
Allows for expedited ______ ______ of any challenge to the validity of any election, appointment, removal, or resignation of any director or officer of any corporation.
judicial review
The cardinal rule of corporate law is that a corporation possesses a legal existence separate and apart from that of its _______ and _______.
officers and shareholders
The Court of Chancery, upon application of any stockholder, may appoint 1 or more persons to be ___________, and, if the corporation is insolvent, to be _________ of and for any corporation when:
(1) At any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors, OR
(2) The business of the corporation is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division.
custodians
receivers
The Court of Chancery, upon application of any stockholder, may appoint 1 or more persons to be custodians, and, if the corporation is insolvent, to be receivers of and for any corporation when:
(1) At any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors, OR
(2) The business of the corporation is threatened with ________ _________ because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division.
irreparable injury
The Court of Chancery, upon application of any stockholder, may appoint 1 or more persons to be custodians, and, if the corporation is insolvent, to be receivers of and for any corporation when:
(1) At any meeting held for the election of directors the stockholders are so ________ that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors, OR
(2) The business of the corporation is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division.
divided
________ _______: Generally defined as an injury that cannot be cured or redressed with monetary damages at a later point in time.
Irreparable Injury
Irreparable Injury: Generally defined as an _______ that cannot be ______ or ______ with monetary damages at a later point in time.
injury
cured or redressed
irreparable injury: generally defined as an injury that cannot be cured or redressed with _______ ________ at a later point in time.
monetary damages
DGCL § 226(b) A ________ appointed under this section shall have all the powers and title of a receiver…, but the authority of the custodian is to continue the business of the corporation and not to liquidate its affairs and distributes its assets, except when the Court shall otherwise order. (Equity Discretion).
custodian
DGCL § 226(b) A custodian appointed under this section shall have all the powers and title of a receiver…, but the authority of the custodian is to _____ ____ ________ of the corporation and not to liquidate its affairs and distributes its assets, except when the Court shall otherwise order. (Equity Discretion).
continue the business
DGCL § 226(b) A custodian appointed under this section shall have all the powers and title of a receiver…, but the authority of the custodian is to continue the business of the corporation and ______ to liquidate its affairs and distributes its assets, except when the Court shall otherwise order. (Equity Discretion).
not
DGCL § 226(b) A custodian appointed under this section shall have all the powers and title of a receiver…, but the authority of the custodian is to continue the business of the corporation and not to liquidate its affairs and distributes its assets, except when the ________ ______ _______ ______ (Equity Discretion).
court shall otherwise order
Solvent company
custodian appointed
insolvent company
receiver appointed
resolve the problem and preserve the company
custodian
clean up the insolvency or take it apart
receiver
receiver appointed
insolvent company
Custodian appointed
solvent company
(a) The [Applicable Court] may appoint one or more persons to be custodians, or if the corporation is _________, to the _________, of and for a corporation in a proceeding by a shareholder where it is established that:
(1) The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered; or
(2) The directors or those in control of the corporation are acting fraudulently and irreparable injury to the corporation is threatened or being suffered.
insolvent
receivers
(a) The [Applicable Court] may appoint one or more persons to be _________, or if the corporation is insolvent, to the receivers, of and for a corporation in a proceeding by a shareholder where it is established that:
(1) The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered; or
(2) The directors or those in control of the corporation are acting fraudulently and irreparable injury to the corporation is threatened or being suffered.
custodians
(d) The court shall describe the _______ and _______ of the custodian or receiver in its appointing order… Among other powers:
(1) A custodian may exercise all of the powers of the corporation, through or in place of its board of directors, to the extent necessary to manage the business and affairs of the corporation; and
(2) A receiver (i) may dispose of all or any part of the assets of the corporation wherever located at a public or private sale, if authorized by the courts…
powers and duties
(d) The court shall describe the powers and duties of the custodian or receiver in its _______ _______… Among other powers:
(1) A custodian may exercise all of the powers of the corporation, through or in place of its board of directors, to the extent necessary to manage the business and affairs of the corporation; and
(2) A receiver (i) may dispose of all or any part of the assets of the corporation wherever located at a public or private sale, if authorized by the courts…
appointing order
(e) The court may ________ the custodian a receiver, and during a receivership may designate the receiver a custodian, if doing so is in the best interests of the corporation.
predesignate
