Exam 3 Flashcards
General Formalities to Form Corporation
1) Filing papers with secretary of state
2) Secretary issues certificate of incorporation signifying formal beginning of legal existence
3) Bylaws must be adopted, directors and officers elected, shares of stock issued
4) Regular meetings of directors and shareholders must occur
Who holds the investor role?
Shareholders
What rights do shareholders have in their investor role?
- vote for BOD and major changes in the organizational structure
- receive dividends if directors choose to authorize such
Can shareholders occupy other roles in the corporation
Yes
Who has power or control of the organization
Board of Directors as a group
How is Board of Directors selected
by a vote of the shareholders
Who do the Board of Directors vote for
Officers
Who controls the day-to-day management of the company
Corporate officers
What rights do the board of directors hold
set policy
ultimate decision makers
What rights do the corporate officers hold
carry out policy decisions and directives of the board
What rights do the corporate officers hold
carry out policy decisions and directives of the board
Who are the top officers provided by corporation statute
president, secretary, treasurer
Return on Investment Comes From
market appreciation
dividends
What is the goal of return on investment
buy low, sell high
What is market appreciation
profit is “returned” via the share price
Limited Liability
only lose amount invested in corporation
Unsecured Debt
contract between debtor and creditor in which creditor lends money to debtor, and debtor promises to pay repay it
***no collateral
Secured Debt
- **creditor has hedge against risk of default
- **debtors continued ownership of specific property subject to full repayment of loan
- ***collateral
If using personal property as collateral what do you use to transfer collateral right
Article 9 of Uniform Commercial Code
If using real property as collateral what do you use to transfer collateral right
mortgage
Secured Creditor
creditor with the benefit of a security interest over some or all of the assets of the debtor
Mortgagee
entity that lends money to the mortgagor for the purpose of purchasing a piece of real property
Debtor
person or institution that owes a sum of money
mortgagor
the borrower in a mortgage, typically a homeowner
Sell Property
- property it owns
- bonds or shares of stock
Sell Property
- property it owns
- bonds or shares of stock
1933 Securities Regulation Act
goals of information disclosure and reinforcing the perception of fairness within the market
Elements of Fraud
- must be material information missing or misstated
- parties that face liability risk because of missing or misstated material information include anyone who was involved in preparing the statement (due diligence defense for everyone but the issuer of securities, they must prove they were careful when preparing and then they are free of liability)
Interests companies need to consider before entering contract
- attractiveness of being obligated to pay back any capital it receives (borrows)
- whether it is worth while to exchange some kind of property for another
- effect of having additional shareholders on the operation of corporate structure
- what is the legal risk when using any of the capital formation methods
- what is the cost
Implications of Raising Capital by borrowing from a bank
- you have to pay back money
- may need to use property as collateral
- legal risk (default=lost property)
- cost of creating contract and structuring the transfer of collateral right
Implications of Raising Capital by selling bonds
- pay back money
- bond may be “secured”
- must be structured and comply with securities law
- legal risk
- cost of creating the bond and cost of complying with securities law
Implications of Raising Capital by selling stock
- additional shareholders cause current shareholders power to be diluted
- transferring new share of stock to each buyer
- legal risk
- cost of compliance
