test 2 Flashcards
creature of the state
a entity may be formed only compliance (obey) state incorporation statute (law passed)
limited liability
liability limited to the amount invested (percentage)
free transferability of corporate shares
free to transfer shares by gift or sale
perpetual (forever/ without end) existence
corp. outlives owner
centralized Management
shareholders elect board of directors; board appoints officers
public corporation
owned and operated by the government
federal, state or local
private corporation
owned and operated by private persons
ex. apple, Microsoft.
Profit Corporation
founded to operate business for profit
NonProfit Corporation
profits are used for charity, education or scientific purposes
domestic Corporation
created under the laws of the given state.
so if formed in NY it is domestic
foreign corp.
doing business in another state in which it was not formed.
publicly held corp.
shares are owned by a large number of people and traded
privately/closely held corp.
owned by few shareholders and not traded
types of corporation
C-corporation
Subchapter S-Corporation
professionally corporation.
C-corporation
formed under law and subject to double taxation
Subchapter S- Corp.
taxed as a partnership under the Internal Revenue Code
taxed one time if met the IRS requirements
Professional Corp.
corporation where duly license people may practice their profession. ex. CPA, Lawyers
formation of a corp.
promoter
person who takes preliminary steps to form a corporation
promoter’s Contract
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.
subscribers
person who agrees to purchase initial stock in the corp.
selection of the name
must end in Corp, incorporated, inc. etc.
incorporators
the persons who signed the article of incorporation
articles of incorporation
organizational document of the corp. ( birth of the corp)
organizational meeting
first meeting, to adopt the bylaws and appoint officers.
bylaws
rules governing internal management
piercing the corporate veil
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.
debt security
source of capital creating no ownership promising to repay back funds lent to it
bonds
a debts security
rule of authority to issue debt securities
each corp. has the power to issue debt securities as determine by the board
types of debt securities
unsecured bonds
secured bonds
unsecured bonds
called debentures, if corp. defaults, bond holder looses everything
secured bonds
when corp. defaults, bond holder gets his money back when the corp. sells asset or property
equity security
source of capital creating ownerships interest
shares
proportionate ownership interest in corp.
treasury stock
shares acquired ( buy back ) by a corp.
authority to issue
only the shares authorized in the articles of inc. may be issued.
preemptive right
right of a shareholder to purchase a specific amount of shares at a specific rate to ensure that his percentage ownership does not decrease
classes of shares
common stock
preferred stock
common stock
stock, not having any special contracts
preferred stock
superior usually bought by venture capitalist (people who want a cut in your corp.)
preferred stock
dividend
must receive full dividends before common stock
preferred stock
liquidation preferences
priority over common stock upon liquidation
Types of dividends
cash dividends
property dividends
stock dividends
stock splits
cash dividends
most common distributed
property dividend
distribution in form or property
stock dividend
distribution of additional shares of stock
stock split
shares broken into a greater number of shares
legal restrictions on stock dividends: they should only be paid if the following test are satisfied
cash flow test
balance sheet test
legal restrictions
cash flow test
a corp. must not be or become insolvent (unable to pay its debt)
legal restrictions
balance sheet test
after paying dividends the corp. should equal Assets = liability + owners equity
what if the board announces that its paying dividends?
then it is obligated to pay back dividends
liability for improper dividends and distributions
board of directors
the director is liable for unlawful amount
liability for improper dividends and distributions
shareholders
shareholders must return illegal dividends if he knew, resulted from his fraud or the corp. become insolvent.
role of shareholders
not directly involved in the day to day operations of a LARGE corporation; but are indirectly involved because they elect the board of directors.
shareholders meeting
exercise voting rights at both annual and special shareholders meeting.
quorum for shareholders
minimum number necessary to make a business transaction
election of directors
shareholders elect board at annual meeting
removal of directors
shareholders may remove a director by majority vote with/ without cause or reason
approval of fundamental changes
shareholder approval is required to charter amendments, acquisitions, and dissolution
proxy
vote another’s shares at meeting (can appoint somebody to vote for your shareholder at the shareholders meeting)
right to inspect books and records for shareholders
they can request it if demand is made in good faith(honesty and fact), and proper purposes
direct suits for shareholders
sues corp, on his shareholders behalf
derivative suits by shareholder
sued by shareholder on behalf of corp. to enforce a right to the corp.
what is an officer? and what do they do?
agents for or on behalf the corporation and they carry out decisions made by directors
role of officers
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
function of the BOD
make business decision carried out by officers
chairman of the BOD
director in charge of all the other directors
capital structure
BOD decides how and and how much the corp. will raise capital
fundamental changes for directors
have the power to amend or appeal the bylaws (change)
dividends from BOD
directors declare amount and type of dividend to be paid
management compensation from BOD
BOD decides own salary and officers
vacancies on the board
may be filled by remaining BOD on majority vote
Meeting of BOD
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.
Action taken without a meeting of the BOD
if consent is signed by all directors
delegation of the BOARD powers
committees may be appointed to perform some not all of the boards functions
directors inspection rights
right to inspect books, and records.
duties of directors
duty of obedience - act with respective authority
duty of diligence - exercise care and prudence
duty of loyalty - loyalty to the corp.
Business judgement rule
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.
charter amendments
making change to the articles of incorporations
procedure of charter amendments
the BOD adopts a resolution (decision) that must be approved by majority vote of shareholders
what happens if some decisions made by BOD affect shareholders?
shareholders should have a say
combinations
merger
combination of assets of two or more corp. for form a new corp.
A + B = C
merger procedure
approval by directors and shareholders of EACH corp.
acquisition
when one corp. buys another
A + B = A
procedure for Acquisition
requires approval of the BOD and Shareholder of EACH corp.
there would be 4 meetings.
Dissolution of a corp.
brought by BOD that is approved by shareholders
what happens if shareholder vote against a dissolution
there won’t be no dissolution
legal entity
an entity apart from its shareholders
