CORPORATIONS Flashcards
Corporation
A corporation is a type of business ownership. It differs from other types of business entities and has its own unique characteristics, advantages and disadvantages.
Shareholder Agreements
Agreements entered into by shareholders that are intended to protect the shareholders’ voting power, stock ownership, or other interests they may have in the corporation. Typically, these are seen in closely held corporations but they do apply to larger corporations as well.
Distributions
The paying of corporate assets to the shareholders. This can be done in several ways -one popular way is paying out dividends to shareholders in the form of cash.
Duty of Care
The duty to manage the corporation to the best of one’s ability (1) in good faith (2) with the care that an ordinarily prudent person would use in a similar situation; and (3) in a way that the director reasonably believes is in the best interest of the corporation
Business Judgment Rule
So long as a director meets her duty of care, she will not be held liable for decisions, which in hindsight are bad decisions.
Tender Offers
An offer to shareholders of a corporation asking them to give their shares in exchange for cash. Usually it si made by another corporation (the bidder) but sometimes by an individual. The William Act and state statutes protect shareholders of companies that are being acquired.
Dissolution of a Corporation
The dissolution of a corporation means to end the existence of a corporation. In order to properly dissolve a corporation, several steps must be taken in order to effectively dissolve a corporation. There are two types of dissolutions - ones that are involuntary and those that are voluntary.
Rule 10B-5
Under 17 C.F.R. sec 240.10b-5 it is unlawful for any person via any means of interstate commerce, in connection with the purchase or sale of any security, to: (1) engage in any act, practice, or course of business that operates as fraud to any person; (2) employ any scheme or plan to defraud; and (3) make an untrue statement of material fact or omit to state a material fact necessary in order to make the statements made not misleading.
Section 16(B)
Under section 16(B) of the Securities Exchange Act, any profit realized by a shareholder, director, or officer who owns more than 10% of the outstanding shares of a corporation that results from the sale or purchase of that corporation within a 6 month period (or less) must be returned to the corporation. This only applies to publicly held corporations that have shares treaded on a national exchange of have at least 2000 shareholders, or 500 shareholders if they are not accredited investors.
