The Corporation

Question 1

Financial Right-Holders

Answer 1

Shareholders and debt holders

Question 2

What are shareholders entitled to?

Answer 2

Dividends and voting

Question 3

What are the two types of stock?

Answer 3

Common and preferred

Question 4

In descending order, what is the priority of financial right-holders in bankruptcy?

Answer 4

Secured debt holders, senior unsecured debt holders, junior unsecured debt holders, preferred shareholders, common shareholders

Question 5

When may the corporate veil be pierced?

Answer 5

If there is a unity of interest and ownership, and refusing to allow piercing would either sanction fraud or promote injustice.

Question 6

What are the unity factors?

Answer 6

1. Lack of corporate formalities
2. commingling of funds and assets
3. severe undercapitalization
4. use by one corporation of assets of another

Question 7

What are the fraud/injustice factors?

Answer 7

1. adverse selection
2. use of the corporate form to avoid legal obligations
3. unjust enrichment
4. parent corporation would escape liability

Question 8

What is the purpose of the corporation?

Answer 8

To make profit for the shareholders