Unit 3 Flashcards
A _____ of a corporation incorporates a business, organizes it’s initial management, and raises its initial capital.
promoter 1090
The only way a corporation may become bound on the promoters preincorporation contracts is by the corporations ________ of the promoters contracts
adoption 1091
A promoter and her copromoters are _____ and _____ liable on preincorporation contracts the promoter negotiates in the name of the nonexistent Corporation
jointly, severally 1091
______ 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
novation 1091
A promoter ______ liable until novation occurs
is 1091
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 _____
can not, impliedly 1091
“the promoter’s liability on this contract shall terminate upon the corporation’s adoption of this contract” is an example of a ________
Automatic novation clause 1092
under the terms of a preincorporation ________ a prospective shareholder offers to buy a specific number of the corporations shares at a stated price.
share subscription 1092
under the MBCA, a share holder may not revoke a preincorporation share subscription for _______ .
6 months 1092
Although not an agent of the proposed Corporation or its investors, a promoter owes a _______ to the corporation and to it’s prospective investors
fiduciary duty 1093
A corporation is generally ____ required to compensate a promoter for their promotional services unless expressly agreed upon.
not 1093
The basic governing documents of the corporation is the ______ sometimes called the ______
Articles of incorporation, charter 1094
To retain its status as a corporation in good standing, a corporation must file an ______ with the Secretary of State and pay an ___________.
annual report, annual franchise fee or tax 1096
a _________ is formed when the promoters substantially complied with each of the mandatory conditions precedent to the incorporation of the business.
de jure corporation 1096
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.
De Facto 1097
Ordinarily, the owners of _________ have the exclusive right to elect the directors, who manage the corporation and exclusive right to corporate earnings and assets.
common shares/common stock 1100
________ are customarily given liquidation and dividend preferences over common shareholders.
preferred shareholders 1100
_______ shares have voting rights unless the articles provide otherwise.
preferred 1100
_______ shares are shares that a corporation is permitted to issue by its articles of incorporation
authorized 1101
______ shares are shares that have ever actually been traded to include shares the company currently has within its treasury.
issued 1101
________ shares are shares currently held by shareholders.
outstanding 1101
When a corporation purchases its shares and and prevents their repurchase, they are ______ shares.
canceled 1101
_______ are options evidenced by certificates. They are sometimes part of a package of securities sold as a unit.
warrants 1101
______ 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.
rights 1101
_____ are long term, unsecured debt securities with a typical term of 10 to 30 years.
debentures 1101
an _______ is a contract that states the rights of the debenture holders.
indenture 1101
______ are Long term, secured debt securities that usually have been dentures and are secured by collateral.
Bonds 1101
Generally, _____ have a shorter duration then debentures or bonds and be secured or unsecured.
notes 1101
______ 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
par value 1102
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 _____
discount shares, par value, amount paid 1102
When the board impermissibly overvalues the consideration for shares, the shareholders receive _______ shares
watered 1103
_____ for shares could include services rendered, promotors work, real property, and personal property.
consideration 1103
Under the terms of a ________ , a prospective shareholder promises to buy a specific number of shares of the corporation at a stated price
share subscription 1104
a ______ is an agreement between the corporation and a subscriber to sell additional shares to the subscriber.
postincorporation subscriptions 1105
the _____ regulates the issuance of securities
UCC Article 8 1105
The directors may incur liability, including criminal liability, for an ________ of shares
Over issuance 1105
A ______ is evidence that a person has been issued shares, owns the shares, and is a shareholder.
share certificate 1105
_______ 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.
transfer, close 1109
____________ permit or require directors to take into account the interest of parties other than shareholders, including employees, suppliers, and customers.
Corporate constituency statutes 1114
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.
ultra vires 1115
ultra vires is latin for _______
“beyond the powers” 1115
The MBCA permits a corporation to be managed under the direction of the ________
board of directors 1115
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.
board of directors 1115
Only _____ can serve on smaller board committees that conduct management decisions for the company.
directors 1116
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
Executive committee 1116
The Sarbanes-Oxley act requires that all publicly held firms have _________ comprising independent directors to provide oversight for independent public accountants for the company.
audit committees 1116
_________ choose managements slate of directors that is to be submitted to the shareholders at the annual election of directors and plan for management succession.
Nominating committees 1116
______ review and approve the salaries, bonuses, stock options, and other benefits of high-level corporate executives.
Compensation committees 1116
A ________ committee is given the task of determining whether a corporation should sue someone who has allegedly harms the corporation
Shareholder litigation 1116
The _________ or ______ Will state the number of directors of the corporation.
Articles of incorporation, bylaws 1117
Directors are elected by the _______ at the annual shareholder meeting.
Shareholders 1117
under _____ voting, a shareholder make cast as many votes for each nominee as he has shares.
straight 1117
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.
Cumulative 1117
Passive shareholder will have _____ who vote for the shareholder at shareholder meetings when public ownership of the corporation’s shares exceeds _____ percent.
proxies, 50
Typically, proxie votes are cast by another officer who was elected by the _____, the president, or the chairman of the board of directors.
CEO 1118
for the directors to act, a _____ of the directors must be present. This is usually a majority.
quorum 1120
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_______ .
Secretary, secretary 1121
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.
treasurer 1121
The Statutory Close Corporation Supplements grants _____ unlimited power to restrict the discretion of the board of Directors.
Shareholders 1122
A nonprofit corporation must have at least _____ directors.
three 1122
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.
Business judgment rule, good faith, reasonable investigation 1123
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.
intrinsic fairness standard 1134
Directors and officers may steal opportunities that their corporations could have exploited by ___________ .
usurping corporate opportunities 1135
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.
freeze-out 1137
_______ is a special term for a freeze-out of shareholders of publicly owned corporations.
going private 1137
under the MBCA, a director is entitled to _______ of their reasonable litigation expenses when they are sued and completely win.
mandatory idemnification 1145
unde the MBCA, a director who loses a lawsuit _______ indemnified by the Corporation under the concept of _____
maybe, permissible indemnification 1145
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.
Voting trust 1152
A _____ is different than a merger because the both corporations dissolve and and a new one takes the assets of both.
consolidation 1155
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.
25% 1155
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.
Preemptive right 1164
cash or property dividends must be paid to _______ shareholders before being paid to any ______ shareholders.
preferred, common 1165
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.
Share dividends 1167
A _______ results in shareholders receiving a specified number of shares in exchange for each share that they currently own.
Share split 1167
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”
directors 1167
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.
Reverse share split, increases 1167
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.
redemption 1167
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.
Derivative action 1168
_______ 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.
strike suits 1168
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.
demand, derivative 1169
voting agreements expire after _____
ten years 1176
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.
Religious 1176
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.
Administrative 1177
The Corporation must make the correction or demonstrate the default does not exist within _______ to avoid an administrative dissolution
60 days 1177
_______ may request dissolution of the corporation if it is insolvent
creditors 1177
________ (also called ______) is the orderly collection and disposal of the corporation’s assess and the distribution of the proceeds of the sale of assets.
winding up, liquidation 1177
Liquidation to parties will occur in this order (3)
- creditors
- preferred shareholders
- Common shareholders 1177
______ 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.
judicial
