exam 4 Flashcards
Sole proprietorship
Simple to set up and avoids double taxation, but the owner is liable for the debts and liabilities of the sole proprietorship (no limited liability) and it can be difficult to raise funds
joint venture
two or more persons/corporations for a specific business undertaking, many forms
franchise
purely contractual, chain-Style franchise or Distributorship franchise
Warrants
granting owners ability to purchase additional ownership interests at a certain price
Pre-emptive rights
giving owners a preferential right to participate in future offerings and maintain their existing ownership interest percentage
Right of First Refusal (ROFR)
before you can sell, name the price you are selling for, and the entity or other owners have a right to buy your ownership interests at that price. If they don’t, you have a certain period of time to sell to a 3rd party at that or a higher price
Right of First Offer (ROFO)
before you can sell, announce you want to sell – the entity or other owners get to name a price for the purchase of your ownership interests. If you reject the offer, you can’t sell to others for less than that ROFO price without going through the process again
Tag-Along Rights
Gives minority owners an opportunity to join in a sale being undertaken by the majority owners
Drag-Along Rights
Gives the majority owners an opportunity to force the minority owners to participate in a sale being undertaken by the majority owners
Merger
2 entities combine with 1 surviving
Acquisition
both entities survive, but one is the parent with control, and the other is the subsidiary that is controlled (they are affiliates)
hostile takeover
acquirer makes a tender offer directly to the existing owners to buy their interests
exchange tender offer
acquirer makes a tender offer directly to the existing owners to buy their interests for some of its ownership interests in the acquirer
cash tender offer
acquirer makes a tender offer directly to the existing owners to buy their interests for cash
leveraged buyout
management may try to acquire ownership themselves and take the company “private”
partnership
more than 1 person or entity involved
relatively easy to set up and avoids double taxation, but the general partners are going to be liable for the debts and liabilities of the partnership (limited partners will not)
Partners will generally have a fiduciary duty to act in good faith in the best interests of the partnership, and a duty of care to act in a reasonably prudent manner
general partnership
all the owners are general partners
limited partnership
at least one general partner.
limited liability company (LLC)
limited liability for all owners, avoids double taxation, and allows for maximum flexibility in terms of creating separate types of ownership interests, allocating rights, responsibilities, profits and losses, etc.
corporation
imited liability for all owners, and is generally thought of as the most efficient structure in terms of raising money and allowing owners to easily transfer their ownership interests
ultra vires act
avoid taking actions outside of the express and implied powers of the corporation
piercing the corporate veil
keep the entity “separate” from its owners (don’t commingle funds, commit fraud, etc.) to preserve limited liability and avoid a plaintiff
double taxation
once when the corporation earns the income, and again to the extent that income is distributed to owners as dividends
S corporation
avoid double taxation, but the trade-off is a loss of some flexibility in terms of the number and type of owners you can have, and you can only have 1 class of common stock (and can’t issue preferred stock with preferences over common stock for example)
not for profit corporation
does not distribute profits to any owners. Donations to a 501(c)(3) not for profit corporation may be tax-deductible
publicly held corporation
has issued its stock to the general public - closely held corporation has not.
Shareholders
the subscribers who will purchase shares via a subscription agreement). Shareholders will ultimately have the most power via their ability to appoint the Board of Directors and approve major decisions.
Board of Directors
who will be responsible for making most of the significant business and financial decisions, and appointing officers
Officers
who will implement most day to day decisions of the entity
Bylaws
adopt the rules and regulations for the entity
quorum
setting a threshold requirement for how many officers / directors must attend a meeting in order to conduct business
VA SCC in Virginia
Articles of Incorporation at the state level
business judgment rule.
Directors and officers are not expected to make perfect decisions – if they mess up but were acting in good faith and in the reasonable belief their decision was in the best interests of the corporation, they may be protected by the
shareholder derivative suit claim
If a shareholder thinks a corporation is harmed by the actions of a director (or others), but directors are not causing the corporation to pursue a claim, any award goes to the corporation, not the shareholder
Promissory Note
evidencing borrower’s obligation to repay the loan
Term loan agreement
with a fixed amount that needs to be repaid
Security Agreement
creates a lien / security interest against personal property
UCC Financing Statement
lender “perfects” lien/security interest against personal property - provides future lenders with notice of any existing liens
Deed of Trust
Both “creates” and “perfects” (by recording) lien against real property, etc.
Deposit account control agreement
lender gets control and perfects lien on bank accounts
Collateral assignment
of contracts and/or rents and leases (takes effect following a default)
