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Business Law II > Unit 3 > Flashcards

Unit 3 Flashcards

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1
Q

A _____ of a corporation incorporates a business, organizes it’s initial management, and raises its initial capital.

A

promoter 1090

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2
Q

The only way a corporation may become bound on the promoters preincorporation contracts is by the corporations ________ of the promoters contracts

A

adoption 1091

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3
Q

A promoter and her copromoters are _____ and _____ liable on preincorporation contracts the promoter negotiates in the name of the nonexistent Corporation

A

jointly, severally 1091

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4
Q

______ occurs when the corporation and the third-party agreed to release the promoter from liability and to substitute the corporation for the promoter is the party liable on the contract

A

novation 1091

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5
Q

A promoter ______ liable until novation occurs

A

is 1091

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6
Q

the Corporation _____ relieve the promoter of liability to the third-party; the third-party must also agree to release the promoter from liability; either expressly or _____

A

can not, impliedly 1091

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7
Q

“the promoter’s liability on this contract shall terminate upon the corporation’s adoption of this contract” is an example of a ________

A

Automatic novation clause 1092

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8
Q

under the terms of a preincorporation ________ a prospective shareholder offers to buy a specific number of the corporations shares at a stated price.

A

share subscription 1092

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9
Q

under the MBCA, a share holder may not revoke a preincorporation share subscription for _______ .

A

6 months 1092

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10
Q

Although not an agent of the proposed Corporation or its investors, a promoter owes a _______ to the corporation and to it’s prospective investors

A

fiduciary duty 1093

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11
Q

A corporation is generally ____ required to compensate a promoter for their promotional services unless expressly agreed upon.

A

not 1093

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12
Q

The basic governing documents of the corporation is the ______ sometimes called the ______

A

Articles of incorporation, charter 1094

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13
Q

To retain its status as a corporation in good standing, a corporation must file an ______ with the Secretary of State and pay an ___________.

A

annual report, annual franchise fee or tax 1096

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14
Q

a _________ is formed when the promoters substantially complied with each of the mandatory conditions precedent to the incorporation of the business.

A

de jure corporation 1096

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15
Q

A __________ corporation exists when the incorporators fail in some material respect to comply with all of the mandatory provisions of the incorporation statutes yet comply with most mandatory provisions.

A

De Facto 1097

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16
Q

Ordinarily, the owners of _________ have the exclusive right to elect the directors, who manage the corporation and exclusive right to corporate earnings and assets.

A

common shares/common stock 1100

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17
Q

________ are customarily given liquidation and dividend preferences over common shareholders.

A

preferred shareholders 1100

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18
Q

_______ shares have voting rights unless the articles provide otherwise.

A

preferred 1100

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19
Q

_______ shares are shares that a corporation is permitted to issue by its articles of incorporation

A

authorized 1101

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20
Q

______ shares are shares that have ever actually been traded to include shares the company currently has within its treasury.

A

issued 1101

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21
Q

________ shares are shares currently held by shareholders.

A

outstanding 1101

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22
Q

When a corporation purchases its shares and and prevents their repurchase, they are ______ shares.

A

canceled 1101

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23
Q

_______ are options evidenced by certificates. They are sometimes part of a package of securities sold as a unit.

A

warrants 1101

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24
Q

______ are short-term certificate options that are usually transferrable. They are used to present security holders an option to subscribe to a proportional quantity of the same or different security of the corporation.

A

rights 1101

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25
Q

_____ are long term, unsecured debt securities with a typical term of 10 to 30 years.

A

debentures 1101

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26
Q

an _______ is a contract that states the rights of the debenture holders.

A

indenture 1101

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27
Q

______ are Long term, secured debt securities that usually have been dentures and are secured by collateral.

A

Bonds 1101

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28
Q

Generally, _____ have a shorter duration then debentures or bonds and be secured or unsecured.

A

notes 1101

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29
Q

______ is an arbitrary dollar amount that maybe assigned to the shares by the articles of incorporation and is the minimum amount of consideration for which the shares maybe issued

A

par value 1102

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30
Q

Shares issued for less than the par value are called______ . Share holder who purchase these are liable to the corporation for the difference between the _____ and the _____

A

discount shares, par value, amount paid 1102

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31
Q

When the board impermissibly overvalues the consideration for shares, the shareholders receive _______ shares

A

watered 1103

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32
Q

_____ for shares could include services rendered, promotors work, real property, and personal property.

A

consideration 1103

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33
Q

Under the terms of a ________ , a prospective shareholder promises to buy a specific number of shares of the corporation at a stated price

A

share subscription 1104

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34
Q

a ______ is an agreement between the corporation and a subscriber to sell additional shares to the subscriber.

A

postincorporation subscriptions 1105

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35
Q

the _____ regulates the issuance of securities

A

UCC Article 8 1105

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36
Q

The directors may incur liability, including criminal liability, for an ________ of shares

A

Over issuance 1105

37
Q

A ______ is evidence that a person has been issued shares, owns the shares, and is a shareholder.

A

share certificate 1105

38
Q

_______ restrictions are common for _____ corporations because it prevents other shareholders from obtaining said shares and becoming a majority, and restricts those who may be a shareholder.

A

transfer, close 1109

39
Q

____________ permit or require directors to take into account the interest of parties other than shareholders, including employees, suppliers, and customers.

A

Corporate constituency statutes 1114

40
Q

under the ________ doctrine, any act not permitted by the corporation statute or by the corporation’s articles of incorporation was avoid due to lack of capacity.

A

ultra vires 1115

41
Q

ultra vires is latin for _______

A

“beyond the powers” 1115

42
Q

The MBCA permits a corporation to be managed under the direction of the ________

A

board of directors 1115

43
Q

The ________ has authority to delegate management powers of day to day working of the company to other officers such as the CEO and other management officers.

A

board of directors 1115

44
Q

Only _____ can serve on smaller board committees that conduct management decisions for the company.

A

directors 1116

45
Q

The most common board committee is the ___________ which is given authority to act for the board on most matters when the board is not in session

A

Executive committee 1116

46
Q

The Sarbanes-Oxley act requires that all publicly held firms have _________ comprising independent directors to provide oversight for independent public accountants for the company.

A

audit committees 1116

47
Q

_________ choose managements slate of directors that is to be submitted to the shareholders at the annual election of directors and plan for management succession.

A

Nominating committees 1116

48
Q

______ review and approve the salaries, bonuses, stock options, and other benefits of high-level corporate executives.

A

Compensation committees 1116

49
Q

A ________ committee is given the task of determining whether a corporation should sue someone who has allegedly harms the corporation

A

Shareholder litigation 1116

50
Q

The _________ or ______ Will state the number of directors of the corporation.

A

Articles of incorporation, bylaws 1117

51
Q

Directors are elected by the _______ at the annual shareholder meeting.

A

Shareholders 1117

52
Q

under _____ voting, a shareholder make cast as many votes for each nominee as he has shares.

A

straight 1117

53
Q

Under _____ voting, shareholder can multiply the number of their shares by the number of directors to be elected and cast the resulting number of votes on one or more directors of their choosing. This allows them a chance to elect board representation.

A

Cumulative 1117

54
Q

Passive shareholder will have _____ who vote for the shareholder at shareholder meetings when public ownership of the corporation’s shares exceeds _____ percent.

A

proxies, 50

55
Q

Typically, proxie votes are cast by another officer who was elected by the _____, the president, or the chairman of the board of directors.

A

CEO 1118

56
Q

for the directors to act, a _____ of the directors must be present. This is usually a majority.

A

quorum 1120

57
Q

Although the ______ has no authority to make contracts for the corporation by virtue of that office, the corporation is bound by the documents certified by the_______ .

A

Secretary, secretary 1121

58
Q

The ______ binds the corporation by his receipts, checks, and indorsements, but he does not by virtue of that office alone have authority to borrow money, to issue negotiable instruments, or to make other contracts on behalf of the corporation.

A

treasurer 1121

59
Q

The Statutory Close Corporation Supplements grants _____ unlimited power to restrict the discretion of the board of Directors.

A

Shareholders 1122

60
Q

A nonprofit corporation must have at least _____ directors.

A

three 1122

61
Q

The directors and officers duty of care is sometimes expressed as the ________ . Under this rule, if the officer or manager acted in _______ and conduct a _______ , they are shielded from liability.

A

Business judgment rule, good faith, reasonable investigation 1123

62
Q

Under the ____________, a transaction mad by a director or officer is fair if reasonable persons in an arm’s-length bargain would have bound the corporation to it.

A

intrinsic fairness standard 1134

63
Q

Directors and officers may steal opportunities that their corporations could have exploited by ___________ .

A

usurping corporate opportunities 1135

64
Q

a ______ is usually accomplished by merging a close corporation with a newly formed a corporation under terms by which the minority shareholders do not receive shares but instead receive only cash or other securities.

A

freeze-out 1137

65
Q

_______ is a special term for a freeze-out of shareholders of publicly owned corporations.

A

going private 1137

66
Q

under the MBCA, a director is entitled to _______ of their reasonable litigation expenses when they are sued and completely win.

A

mandatory idemnification 1145

67
Q

unde the MBCA, a director who loses a lawsuit _______ indemnified by the Corporation under the concept of _____

A

maybe, permissible indemnification 1145

68
Q

with a ______, shareholders transfer their shares to one or more voting trustees and receive voting trust certificates in exchange. This allows minority shareholders to combine votes under one.

A

Voting trust 1152

69
Q

A _____ is different than a merger because the both corporations dissolve and and a new one takes the assets of both.

A

consolidation 1155

70
Q

A sale of all or substantially all of the assets of the business other than in the regular course of business must be approved by the shareholders of the selling corporation. A corporation who retains _____ of its business activity and income or revenue does not fit this.

A

25% 1155

71
Q

It’s written into the articles of incorporation, a shareholders ________ is an option to subscribe to any new issuances of shares in proportion to the shareholders current interest in the corporation to maintain their interest.

A

Preemptive right 1164

72
Q

cash or property dividends must be paid to _______ shareholders before being paid to any ______ shareholders.

A

preferred, common 1165

73
Q

Corporations sometimes distribute a specified percentage of outstanding shares to their shareholders called _______ instead of cash dividend so that the cash to be retained in reinvested in the business.

A

Share dividends 1167

74
Q

A _______ results in shareholders receiving a specified number of shares in exchange for each share that they currently own.

A

Share split 1167

75
Q

Share dividends and share splits can be distributed by mere action of the ______ because the number of authorized shares does not change, they are just “split”

A

directors 1167

76
Q

A ________ is a decrease in the number of shares of a class such that, for example, two shares becomes one share. This in effect _____ the market price of the shares.

A

Reverse share split, increases 1167

77
Q

The right of _______ (or a call) is usually the rights of the corporation to force involuntary sale by shareholder at a fixed price. The shareholder must sell the shares to the corporation.

A

redemption 1167

78
Q

a ________ allows a shareholder to bring action against someone such as a CEO who has harmed the corporation on behalf of the corporation because normally the CEO could prevent the corporation from suing her.

A

Derivative action 1168

79
Q

_______ suits are wrongful lawsuits brought to get out of court settlements for the complaining shareholders personally or to earn large attorneys fees, rather than to obtain a recovery for the corporation.

A

strike suits 1168

80
Q

Since a corporation’s decision to sue someone is ordinarily made by its managers, a shareholder must first _____ that the Board of Directors bring the suit. If the directors bring the suit, a _______ suit can not be sought by the shareholders.

A

demand, derivative 1169

81
Q

voting agreements expire after _____

A

ten years 1176

82
Q

Members have the same rights as shareholders to inspect records and meetings minutes, however, a ________ corporation may limit the right of a member to inspect any record.

A

Religious 1176

83
Q

an _______ dissolution by the secretary of state occurs when the corporation fails to pay taxes, file its annual report, or not adhere to other laws.

A

Administrative 1177

84
Q

The Corporation must make the correction or demonstrate the default does not exist within _______ to avoid an administrative dissolution

A

60 days 1177

85
Q

_______ may request dissolution of the corporation if it is insolvent

A

creditors 1177

86
Q

________ (also called ______) is the orderly collection and disposal of the corporation’s assess and the distribution of the proceeds of the sale of assets.

A

winding up, liquidation 1177

87
Q

Liquidation to parties will occur in this order (3)

A
  1. creditors
  2. preferred shareholders
  3. Common shareholders 1177
88
Q

______ dissolution is by order of the courts, usually in response to law suit by shareholders because directors are deadlocked, directors are acting illegally, or the shareholders are deadlocked.

A

judicial

Business Law II (7 decks)

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