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Business Law 2 > test 2 > Flashcards

test 2 Flashcards

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1
Q

creature of the state

A

a entity may be formed only compliance (obey) state incorporation statute (law passed)

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2
Q

limited liability

A

liability limited to the amount invested (percentage)

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3
Q

free transferability of corporate shares

A

free to transfer shares by gift or sale

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4
Q

perpetual (forever/ without end) existence

A

corp. outlives owner

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5
Q

centralized Management

A

shareholders elect board of directors; board appoints officers

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6
Q

public corporation

A

owned and operated by the government

federal, state or local

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7
Q

private corporation

A

owned and operated by private persons

ex. apple, Microsoft.

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8
Q

Profit Corporation

A

founded to operate business for profit

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9
Q

NonProfit Corporation

A

profits are used for charity, education or scientific purposes

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10
Q

domestic Corporation

A

created under the laws of the given state.

so if formed in NY it is domestic

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11
Q

foreign corp.

A

doing business in another state in which it was not formed.

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12
Q

publicly held corp.

A

shares are owned by a large number of people and traded

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13
Q

privately/closely held corp.

A

owned by few shareholders and not traded

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14
Q

types of corporation

A

C-corporation
Subchapter S-Corporation
professionally corporation.

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15
Q

C-corporation

A

formed under law and subject to double taxation

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16
Q

Subchapter S- Corp.

A

taxed as a partnership under the Internal Revenue Code

taxed one time if met the IRS requirements

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17
Q

Professional Corp.

A

corporation where duly license people may practice their profession. ex. CPA, Lawyers

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18
Q

formation of a corp.

promoter

A

person who takes preliminary steps to form a corporation

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19
Q

promoter’s Contract

A

promoters remain liable until pre-incorp. contracts or unless a novation is effected (you are responsible for any debt incurred before the formation of the corp.

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20
Q

subscribers

A

person who agrees to purchase initial stock in the corp.

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21
Q

selection of the name

A

must end in Corp, incorporated, inc. etc.

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22
Q

incorporators

A

the persons who signed the article of incorporation

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23
Q

articles of incorporation

A

organizational document of the corp. ( birth of the corp)

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24
Q

organizational meeting

A

first meeting, to adopt the bylaws and appoint officers.

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25
Q

bylaws

A

rules governing internal management

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26
Q

piercing the corporate veil

A

the court may disregard the the corporate entity when its used to defeat public convenience, commit wrong doing, protect fraud, or circumvent the law.
the person is held liable for the wrong doing not the corp.

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27
Q

debt security

A

source of capital creating no ownership promising to repay back funds lent to it

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28
Q

bonds

A

a debts security

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29
Q

rule of authority to issue debt securities

A

each corp. has the power to issue debt securities as determine by the board

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30
Q

types of debt securities

A

unsecured bonds

secured bonds

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31
Q

unsecured bonds

A

called debentures, if corp. defaults, bond holder looses everything

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32
Q

secured bonds

A

when corp. defaults, bond holder gets his money back when the corp. sells asset or property

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33
Q

equity security

A

source of capital creating ownerships interest

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34
Q

shares

A

proportionate ownership interest in corp.

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35
Q

treasury stock

A

shares acquired ( buy back ) by a corp.

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36
Q

authority to issue

A

only the shares authorized in the articles of inc. may be issued.

37
Q

preemptive right

A

right of a shareholder to purchase a specific amount of shares at a specific rate to ensure that his percentage ownership does not decrease

38
Q

classes of shares

A

common stock

preferred stock

39
Q

common stock

A

stock, not having any special contracts

40
Q

preferred stock

A

superior usually bought by venture capitalist (people who want a cut in your corp.)

41
Q

preferred stock

dividend

A

must receive full dividends before common stock

42
Q

preferred stock

liquidation preferences

A

priority over common stock upon liquidation

43
Q

Types of dividends

A

cash dividends
property dividends
stock dividends
stock splits

44
Q

cash dividends

A

most common distributed

45
Q

property dividend

A

distribution in form or property

46
Q

stock dividend

A

distribution of additional shares of stock

47
Q

stock split

A

shares broken into a greater number of shares

48
Q

legal restrictions on stock dividends: they should only be paid if the following test are satisfied

A

cash flow test

balance sheet test

49
Q

legal restrictions

cash flow test

A

a corp. must not be or become insolvent (unable to pay its debt)

50
Q

legal restrictions

balance sheet test

A

after paying dividends the corp. should equal Assets = liability + owners equity

51
Q

what if the board announces that its paying dividends?

A

then it is obligated to pay back dividends

52
Q

liability for improper dividends and distributions

board of directors

A

the director is liable for unlawful amount

53
Q

liability for improper dividends and distributions

shareholders

A

shareholders must return illegal dividends if he knew, resulted from his fraud or the corp. become insolvent.

54
Q

role of shareholders

A

not directly involved in the day to day operations of a LARGE corporation; but are indirectly involved because they elect the board of directors.

55
Q

shareholders meeting

A

exercise voting rights at both annual and special shareholders meeting.

56
Q

quorum for shareholders

A

minimum number necessary to make a business transaction

57
Q

election of directors

A

shareholders elect board at annual meeting

58
Q

removal of directors

A

shareholders may remove a director by majority vote with/ without cause or reason

59
Q

approval of fundamental changes

A

shareholder approval is required to charter amendments, acquisitions, and dissolution

60
Q

proxy

A

vote another’s shares at meeting (can appoint somebody to vote for your shareholder at the shareholders meeting)

61
Q

right to inspect books and records for shareholders

A

they can request it if demand is made in good faith(honesty and fact), and proper purposes

62
Q

direct suits for shareholders

A

sues corp, on his shareholders behalf

63
Q

derivative suits by shareholder

A

sued by shareholder on behalf of corp. to enforce a right to the corp.

64
Q

what is an officer? and what do they do?

A

agents for or on behalf the corporation and they carry out decisions made by directors

65
Q

role of officers

A

CEO - Chief executive officer - Officers in charge of all other officers
CFO - officer in charge of finance
CMO - officer in charge of marketing
COO - Officer in charge of logistic an operations
CTO - chief talent officer - in charge of human resources

66
Q

function of the BOD

A

make business decision carried out by officers

67
Q

chairman of the BOD

A

director in charge of all the other directors

68
Q

capital structure

A

BOD decides how and and how much the corp. will raise capital

69
Q

fundamental changes for directors

A

have the power to amend or appeal the bylaws (change)

70
Q

dividends from BOD

A

directors declare amount and type of dividend to be paid

71
Q

management compensation from BOD

A

BOD decides own salary and officers

72
Q

vacancies on the board

A

may be filled by remaining BOD on majority vote

73
Q

Meeting of BOD

A

directors have power to bind corporation only when acting as the board. meaning every director should be present at the meeting at the same time. Either by facetime, or Phone convo also valid.

74
Q

Action taken without a meeting of the BOD

A

if consent is signed by all directors

75
Q

delegation of the BOARD powers

A

committees may be appointed to perform some not all of the boards functions

76
Q

directors inspection rights

A

right to inspect books, and records.

77
Q

duties of directors

A

duty of obedience - act with respective authority
duty of diligence - exercise care and prudence
duty of loyalty - loyalty to the corp.

78
Q

Business judgement rule

A

the BOD cannot be sued if decision made caused corp. to loose money, if they acted with due care, good faith, or with the best interest of the corp. at heart.

79
Q

charter amendments

A

making change to the articles of incorporations

80
Q

procedure of charter amendments

A

the BOD adopts a resolution (decision) that must be approved by majority vote of shareholders

81
Q

what happens if some decisions made by BOD affect shareholders?

A

shareholders should have a say

82
Q

combinations

merger

A

combination of assets of two or more corp. for form a new corp.
A + B = C

83
Q

merger procedure

A

approval by directors and shareholders of EACH corp.

84
Q

acquisition

A

when one corp. buys another

A + B = A

85
Q

procedure for Acquisition

A

requires approval of the BOD and Shareholder of EACH corp.

there would be 4 meetings.

86
Q

Dissolution of a corp.

A

brought by BOD that is approved by shareholders

87
Q

what happens if shareholder vote against a dissolution

A

there won’t be no dissolution

88
Q

legal entity

A

an entity apart from its shareholders

Business Law 2 (3 decks)

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