Law: #21 Flashcards
Who are the three basic players in the operation of a corporation?
1) board of directors
2) officers
3) shareholders
What are the two places that the number of directors on a board can be specified?
1) articles of incorporation
2) bylaws of the corporation
What type of directors are specified in the articles of incorporation?
Original directors
What are bylaws? How do they come about?
They are rules that are adopted by the board of directors.
What rule is a directors conduct judged by?
By the business judgment rule
What are the three things a director has the fiduciary duty to do?
1) act in good faith
2) exercise ordinary care (with the care of an ordinary prudent person in a like position would exercies under similar circumstances)
3) be loyal (cant compete with the corporation)
Who appoints corporation officers?
The board of directors
How is a bond defined in the lesson?
The contractual obligation of a corporation to repay borrowed money.
Who controls major financial decisions in a corporation?
The board of directors
Who usually determines the organizational structure of the corp.?
The President/CEO and his subordinates
Who usually determines the number and description of employee’s (not including CEO)?
The CEO/President and his subordinates
Who owns a corporation?
Shareholders
Why would a corporation choose to designate the number of directors in by-laws rather than the articles of incorporation?
Having this in the by-laws makes it easier to change in the future.
What are some of the items frequently found in bylaws? (4 mentioned in lesson)
1) Officers duties and authority
2) Meetings of shareholders
3) Directors number and terms of office
4) Elections of directors
What are the two methods of voting for directors are there? How do they work?
1) Straight Voting:
- each shareholder votes the number of share he owns for as many candidates as he wants. (A majority holder could vote in as many directors as he wanted)
- “winner takes all”, the majority of shareholders may elect all of the directors. Elected by plurality of the votes cast by shares entitled to vote.
2) Cumulative Voting:
- Given a block of votes based on shares owned, and then can put all towards one candidate, or distribute them (allows minority shareholders to have a voice).
- Proportionate representation on the board in which majority and minority shareholders each elect directors according to the number of shares they control.
If in a cumulative voting situation the majority is often still able to vote in more directors why is it important to elect minority directors that will still be out voted? (2 reasons given in lesson)
1) The minority directors can still participate in the discussion and may be able to alter the decisions of the board and
2) they can keep minority share holders informed.
What is the business judgment rule?
the presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
There are many different ways for a company to generate investment money. There are so many that it is hard to remember the names of all of them. However, like how the word dog includes Great Danes’ and Chihuahuas’, there is a word that includes all these different investment methods. What is it?
Securities
What is a preorganization/subscription agreement? Who can usually enforce the agreement?
This is a type of security in which investors promise to invest certain amounts of stock before a corporation is formed so long as others commit to do this as well.
-This is enforceable by the corporation usually
What is the default amount of time that a preorganization/subscription agreement shares are irrevocable?
6 months, unless a longer or shorter time is specified in the agreement.
If there is only one type of stock issued by a corporation what is it generally referred to as?
Common Stock
How is the value of common stock determined?
It is simply the amount the company is worth divided by the number of shares.
What is par value? Where is par value stated? Why is par value stated?
- It is the minimum price a corp can sell its common stock for
- The amount is stated in the articles of incorporation
- This is done to protect early investors.
What is normally paid for first between a bond and stock?
a bond is usually paid for first