Vocab Flashcards
1
Q
Agency Law
A
The body of law governing the relationship between principals and agents, including their rights, duties, and liabilities.
2
Q
Principal
A
A person or entity who authorizes an agent to act on their behalf and is responsible for the agent’s actions within the scope of authority.
3
Q
Agent
A
A person authorized to act on behalf of a principal in dealings with third parties.
4
Q
Fiduciary Duty
A
A legal obligation of loyalty and care that an agent owes to the principal, requiring the agent to act in the principal’s best interests.
5
Q
Actual Authority
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Authority explicitly granted by a principal to an agent, either orally or in writing.
6
Q
Apparent Authority
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Authority that a third party reasonably believes an agent has, based on the principal’s representations or conduct.
7
Q
Partnership
A
A business arrangement in which two or more individuals share ownership and operate as co-owners for profit.
8
Q
Default Rules
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Legal rules that govern relationships or business entities unless explicitly altered by agreement.
9
Q
Unlimited Personal Liability
A
The legal responsibility of partners or sole proprietors to pay business debts and obligations using personal assets.
10
Q
Limited Liability
A
A legal protection that shields members or shareholders from personal responsibility for a business’s debts or liabilities.
11
Q
Members
A
The owners of an LLC who may or may not participate in managing the business.
12
Q
Managers
A
Individuals, either members or non-members, appointed to manage an LLC’s operations in a manager-managed structure.
13
Q
Uniform Rules
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Standardized legal frameworks, such as RUPA or RULLCA, adopted by states to regulate business entities.
14
Q
Agency Relationship
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A legal relationship in which one party (agent) acts on behalf of another (principal) under mutual consent.
15
Q
Restatement (Third) of Agency
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A legal treatise summarizing the principles of agency law, widely cited by courts.
16
Q
Mutual Assent
A
An agreement between the principal and agent to establish an agency relationship, evidenced by words or conduct.
17
Q
Control
A
The principal’s right to oversee and direct the agent’s actions within the scope of the agency relationship.
18
Q
Acting on Behalf
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The agent’s responsibility to act in the principal’s interests when dealing with third parties.
19
Q
Express Authority
A
Specific authority given by a principal to an agent, clearly stated in oral or written form.
20
Q
Implied Authority
A
Authority that is not explicitly granted but is necessary to carry out the agent’s express authority.
21
Q
Estoppel
A
A legal principle preventing a party from denying a fact or relationship if their actions or representations led another party to rely on it.
22
Q
Duty of Loyalty
A
The obligation of agents, partners, or managers to act in good faith and prioritize the interests of the principal or organization above their own.
23
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Duty of Care
A
The obligation to act with diligence, competence, and prudence when managing affairs or performing duties for another.
24
Q
Duty of Obedience
A
The requirement for agents to follow the lawful instructions of their principal or organization.
25
Vicarious Liability
A principal’s or employer’s responsibility for the wrongful acts of an agent or employee committed within the scope of their employment.
26
Respondeat Superior
A legal doctrine holding employers liable for their employees’ tortious actions conducted within the scope of their job.
27
Undisclosed Principal
A situation where the third party interacting with an agent is unaware of the principal’s existence.
28
Unidentified Principal
A situation where a third party knows the agent represents a principal but does not know the identity of the principal.
29
Disclosed Principal
A situation where the third party is aware of both the existence and identity of the principal in an agency relationship.
30
Deviation from Employment
When an employee temporarily acts outside the scope of their employment, potentially impacting an employer’s liability.
31
Return to Scope of Employment
The resumption of duties by an employee within the scope of their authorized employment after a deviation.
32
De Facto Control
The exertion of actual control over a business or entity by a party not formally designated as a manager or official.
33
Creditor Liability
Liability that arises when a creditor exercises significant control over a debtor’s operations, creating a potential fiduciary or agency relationship.
34
Implied Employment Relationship
An employment relationship inferred from the conduct of the parties, even without a formal contract.
35
Franchise Liability
The potential responsibility of a franchisor for the actions of its franchisees, often determined by the level of control over the franchisee’s operations.
36
Joint Employer
When two or more entities share significant control over an employee's work, making them jointly responsible for employment obligations.
37
Restatement § 1.01 – Definition of Agency
Defines agency as a fiduciary relationship where an agent acts on behalf of and under the control of a principal.
38
Restatement § 1.02 – No Formalities Required
States that an agency relationship does not require formalities and may be created by conduct alone.
39
Restatement § 2.01 – Actual Authority
Defines actual authority as the power granted to an agent by the principal's words, actions, or conduct, either expressly or impliedly.
40
Restatement § 7.03 – Principal Liability
Specifies that a principal is liable for the acts of an agent when the agent acts with actual or apparent authority or when the principal ratifies the agent’s conduct.
41
RUPA (Revised Uniform Partnership Act)
A uniform law adopted by many states to govern partnerships, providing updated and modernized default rules for formation, management, and dissolution.
42
UPA (Uniform Partnership Act)
The original uniform law governing partnerships, adopted in 1914, and still followed by some states in its original or revised form.
43
Formation by Operation of Law
The automatic creation of a partnership when two or more persons associate to carry on as co-owners a business for profit, even without explicit agreement.
44
Joint and Several Liability
A legal principle making all partners liable for the debts and obligations of the partnership, allowing creditors to pursue one or more partners individually or collectively.
45
Pass-Through Taxation
A tax structure where the business itself does not pay taxes; instead, income and losses flow through to individual owners’ personal tax returns.
46
Mandatory Rules (RUPA § 105)
Non-waivable provisions under RUPA, such as the duty of care, duty of loyalty, access to books and records, and the right to dissociate.
47
Profit Sharing Presumption
A presumption under RUPA § 202 that sharing profits creates a partnership unless the profits are for purposes such as debt repayment or wages.
48
Co-Ownership
A hallmark of partnerships where all partners share ownership of the business, including profits, losses, and management responsibilities.
49
Duty of Good Faith and Fair Dealing
An obligation requiring parties in a partnership or LLC to act honestly and fairly toward one another, which cannot be eliminated by agreement.
50
De Facto Partnership
A partnership recognized by law based on the conduct of the parties, even in the absence of an explicit agreement.
51
Profit Sharing as Compensation
A situation where profit sharing does not indicate a partnership because the profits are distributed as compensation for services, loans, or other arrangements.
52
Oversight Rights
The ability of partners or members to access records and oversee management to ensure transparency and protect their interests.
53
Deadlock Rule
A principle addressing the inability of partners or members to agree, often resolved by default rules or provisions in an agreement.
54
Two-Partner Deadlock
A situation where two partners in a 50/50 partnership cannot agree, potentially requiring judicial intervention or dissolution.
55
Joint Venture
A limited-purpose partnership or collaboration between two or more parties to accomplish a specific business goal or project.
56
Constructive Trust
An equitable remedy where a court imposes a trust on property or profits wrongfully acquired by a fiduciary to prevent unjust enrichment.
57
Equitable Remedies
Non-monetary remedies such as injunctions, specific performance, or constructive trusts, aimed at achieving fairness rather than compensating with damages.
58
Capital-and-Labor Partnership
A partnership where one partner contributes capital while another contributes labor, with unique rules for loss sharing that reflect the distinct contributions.
59
Dissociation (K.S.A. 56a–601)
The process by which a partner is removed from a partnership, voluntarily or involuntarily, under Kansas’ adoption of RUPA, based on certain statutory grounds.
60
“Not Reasonably Practicable†Standard
A legal standard under RULLCA and similar statutes allowing judicial dissolution or dissociation when it is no longer feasible to carry on the LLC or partnership business effectively.
61
Dysfunction in Partnerships
A situation where trust, communication, or cooperation among partners breaks down, making it difficult or impossible to manage the business effectively.
62
Buyout Provisions
Contractual terms in a partnership or LLC agreement that outline procedures for purchasing a departing member’s or partner’s interest, often triggered by dissociation or other events.
63
Limited Liability Company (LLC)
A hybrid business entity offering limited liability protection like a corporation and pass-through taxation like a partnership, governed by state law.
64
Articles of Organization
A document filed with a state agency (e.g., Secretary of State) to officially form an LLC, detailing basic information such as the LLC's name, purpose, and registered agent.
65
Operating Agreement
An internal document outlining the governance, management, and financial arrangements of an LLC, which can modify many default statutory rules.
66
Member-Managed LLC
An LLC where all members participate directly in the management of the business, similar to a general partnership structure.
67
Manager-Managed LLC
An LLC where members appoint one or more managers (who may or may not be members) to handle the business's operations, delegating most authority to those managers.
68
Contractual Freedom
The ability of LLC members or partners to customize governance, management, and operational terms in an operating or partnership agreement, within legal limits.
69
Hybrid Business Entity
A business structure like an LLC that combines elements of partnerships (pass-through taxation) and corporations (limited liability) to offer flexibility and protection.
70
RULLCA (Revised Uniform Limited Liability Company Act)
A model law adopted by many states to govern LLCs, emphasizing contractual freedom while providing a standardized legal framework.
71
DLLCA (Delaware Limited Liability Company Act)
Delaware’s LLC statute, widely used due to its business-friendly provisions, offering significant flexibility in governance and contractual arrangements.
72
Internal Affairs Doctrine
A legal principle stating that the internal governance of an LLC or corporation is governed by the laws of the state in which it is formed, regardless of where it operates.
73
Mandatory Statutory Provisions
Non-waivable rules in LLC statutes, such as the duty of good faith and fair dealing, or prohibitions on eliminating a member's right to access information.
74
Duties of Loyalty and Care
Fiduciary obligations of members and managers to act in the LLC's best interests (loyalty) and avoid gross negligence or intentional harm (care).
75
Derivative Action
A lawsuit brought by an LLC member on behalf of the company to address harm done to the LLC by managers, members, or third parties.
76
Per Capita Voting
A default voting system in LLCs where each member has an equal vote, regardless of ownership interest, unless modified by the operating agreement.
77
Pro Rata Voting
A voting system where votes are weighted based on each member's ownership interest in the LLC, often used in Delaware LLCs by default.
78
Statutory Apparent Authority
A default rule in some LLC statutes granting members or managers authority to bind the LLC in the ordinary course of business, based on the LLC's management structure.
79
Capital Accounts
Financial records that track each LLC member's contributions, distributions, and share of profits or losses, often used to determine distribution rights.
80
Profit and Loss Allocation
The method by which profits and losses are divided among LLC members, typically defined in the operating agreement, or defaulting to proportional contributions or equal shares based on state law.
81
Distributions
Transfers of LLC property (usually cash) to members, governed by the operating agreement or default statutory rules, often tied to members' capital accounts.
82
Insolvent Distributions
Distributions prohibited by law if they would render the LLC insolvent, such as leaving the LLC unable to pay its debts or reducing its assets below liabilities.
83
Veil Piercing
A legal doctrine allowing courts to hold LLC members personally liable for the company’s debts when the LLC structure is abused (e.g., fraud, commingling of assets).
84
Alter-Ego Doctrine
A specific basis for veil piercing, where the LLC is treated as indistinguishable from its owner due to misuse, such as failing to maintain separate identities or funds.
85
Special Litigation Committees (SLCs)
Independent committees appointed by an LLC to evaluate the merits of derivative lawsuits and determine whether pursuing the claims aligns with the LLC’s best interests.
86
Judicial Dissolution
A court-ordered dissolution of an LLC, granted under statutory grounds such as deadlock, unlawful activities, or when it is no longer practicable to operate the business.
87
Private Ordering
The principle that members of an LLC have broad contractual freedom to define the terms of governance, management, and financial arrangements through the operating agreement.
88
Creatures of Contract
A term emphasizing the LLC's flexibility, where its governance and operations are largely dictated by the terms of the operating agreement rather than rigid statutory rules.
89
Chancellor Strine’s Fiduciary Duty Principles (from Auriga Capital Corp. v. Gatz Properties)
The idea that fiduciary duties of loyalty and care are default obligations for LLC managers unless explicitly eliminated or modified in the operating agreement.
90
Capital Lock-In
A feature of LLCs where members cannot withdraw their equity without the agreement of other members or provisions in the operating agreement, ensuring stability for the business.
91
Withdrawal Rights
The ability of an LLC member to exit the company, governed by the operating agreement or default rules, which often restrict unilateral withdrawal in certain states (e.g., Delaware).
92
Exit Mechanisms
Procedures outlined in the operating agreement for members to leave the LLC, such as buyout provisions or triggering dissolution.
93
Deadlock in LLCs
A situation where decision-making is stalled due to disagreement among members or managers, often addressed through operating agreement provisions or judicial intervention.
94
Single-Member LLCs (SMLLCs)
An LLC with one member, offering liability protection and pass-through taxation, but subject to stricter scrutiny for maintaining separation between personal and business assets.
95
Series LLCs
A unique form of LLC allowing separate divisions, called series, within the same entity, each with its own assets, liabilities, and members, often used for asset protection or distinct projects.
96
Professional LLCs (PLLCs)
A specialized type of LLC designed for licensed professionals (e.g., doctors, lawyers), where all members must typically hold the same professional license.
97
Low-Profit LLCs (L3Cs)
A type of LLC created for social enterprises, combining limited liability and pass-through taxation with a primary focus on achieving charitable or educational purposes.
98
Default Tax Treatment Options
LLCs are taxed by default as pass-through entities (sole proprietorships for single-member LLCs or partnerships for multi-member LLCs), avoiding double taxation.
99
Election of Corporate Taxation
An option for LLCs to elect corporate taxation under IRS Form 8832, which may be beneficial in certain cases (e.g., retaining profits within the business).
100
Qualified Business Income Deduction (QBID)
A tax deduction under Section 199A of the Tax Cuts and Jobs Act that allows LLC members (if taxed as a pass-through entity) to deduct up to 20% of their qualified business income, subject to limits based on income and business type.
101
State-Specific LLC Taxation
The varying tax requirements imposed by states on LLCs, such as franchise taxes, annual report fees, or minimum tax payments, depending on the state of formation or operation.
102
Buy-Sell Agreements
A contractual agreement among LLC members outlining terms for the transfer or sale of membership interests, typically used to address member exit, death, disability, or disputes.
103
Foreign LLC Registration
The process of registering an LLC formed in one state (domestic LLC) to legally operate in another state, requiring filing with the Secretary of State and paying applicable fees.
104
Choice of State for Formation
The strategic decision of where to form an LLC, often influenced by factors such as tax laws, flexibility of statutes (e.g., Delaware’s business-friendly laws), and operating requirements.
105
Drag-Along Rights
A provision in an LLC operating agreement allowing majority members to force minority members to sell their ownership interests in a sale of the company, ensuring smooth transaction processes.
106
Agency
A legal relationship in which one party (agent) acts on behalf of and under the control of another (principal).
107
Implied Authority
Authority an agent has to do what's reasonably necessary to carry out duties, even if not expressly stated.
108
Apparent Authority
Authority a third party reasonably believes an agent has, based on the principal’s words or actions.
109
Respondeat Superior
A doctrine holding employers vicariously liable for employees’ torts committed within the scope of employment.
110
Fiduciary Duty
A legal duty to act in another party’s best interests (e.g., loyalty, care, and good faith).
111
Duty of Loyalty
An obligation to avoid conflicts of interest and refrain from self-dealing in a fiduciary relationship.
112
Partner-Like Duty (Close Corporations)
A heightened fiduciary obligation in closely held corporations, akin to duties among partners.
113
Piercing the Corporate Veil
A court disregards the corporation’s separate legal status to hold owners personally liable, typically when it’s used as an alter ego.
114
Reverse Veil-Piercing
Reverse veil piercing is a less common doctrine that allows creditors or plaintiffs to reach the assets of a corporation when a controlling owner has misused the corporate form for personal benefit. Instead of the usual "piercing the corporate veil"—which allows courts to hold an owner personally liable for corporate debts—reverse veil piercing goes "down" into corporate assets to satisfy the personal debts or liabilities of a dominant shareholder or owner.
115
Business Judgment Rule (BJR)
A presumption that, absent bad faith, fraud, or self-dealing, corporate directors’ decisions are valid and made in the corporation’s best interest.
116
Entire Fairness
A strict standard of review (in Delaware law) requiring proof of fair dealing and a fair price when directors have conflicts of interest.
117
Demand Futility (Derivative Suits)
A requirement in shareholder derivative suits that may be excused if plaintiffs show the board is too conflicted or faces liability, making a demand pointless.
118
Caremark Standard
A director oversight liability test—directors must make a good-faith effort to implement monitoring/reporting systems or else risk liability for ignorance of wrongdoing.
119
Derivative Suit
A lawsuit brought by a shareholder on behalf of the corporation to remedy a harm to the corporation.
120
Direct Suit
A lawsuit by a shareholder for harm done to that shareholder personally (as opposed to the corporation).
121
Ratification (Shareholder)
When fully informed, disinterested shareholders approve a transaction that might otherwise be voidable (e.g., conflict-of-interest deals), shifting judicial review to the “waste†standard.
122
Waste Doctrine
A standard under which a transaction is so one-sided that no reasonable businessperson would approve it; extremely difficult to prove.
123
Corporate Opportunity Doctrine
Prohibits directors/officers from taking business opportunities for themselves if the corporation is financially able and has an interest or expectancy in that opportunity.
124
Duty of Care
The responsibility of directors/officers to act on an informed basis, with the care an ordinarily prudent person would use under similar circumstances.
125
Good Faith (Corporate Governance)
Acting with proper motives, honesty, and no intent to violate law or fiduciary duties—often relevant for escaping liability under the BJR.
126
Misappropriation Theory (Insider Trading)
Trading liability arises when someone uses confidential information (owed to another) in breach of a duty to that information’s source.
127
Tippee Liability
A “tippee†is liable for insider trading if they knew the tipper (an insider) breached a fiduciary duty by disclosing information for personal benefit.
128
Scienter (Securities Fraud)
A mental state embracing intent to deceive or manipulate; required for liability under Rule 10b–5.
129
Unocal Standard
A Delaware test allowing boards to use takeover defenses if there’s a reasonable threat and the response is proportionate to that threat.
130
Revlon Duties
When a company is for sale, directors must focus solely on maximizing immediate shareholder value, rather than long-term strategy.
131
Internal Affairs Doctrine
Corporate governance matters are governed by the law of the state (or country) where the corporation is incorporated.
132
Freeze-Out
When majority shareholders in a close corporation cut off minority owners from salaries, decision-making, or distributions, violating fiduciary duties if done without a valid business purpose.
133
Shareholder Inspection Rights
Shareholders may inspect certain corporate records if they demonstrate a “proper purpose,†typically related to financial or governance interests.
134
Controlling Stockholder Doctrine
A shareholder with less than a majority stake may still be “controlling†if they exercise outsized influence or domination over the corporation’s affairs.
135
Short-Swing Profits (Section 16(b))
Profits made by insiders (≥10% shareholders, officers, directors) on purchases and sales of a corporation’s stock within a six-month window must be returned to the corporation.
136
Poison Pill
A defensive tactic (often a rights plan) used by a target company’s board to dilute or deter a hostile bidder’s stake or voting power.
137
Compelling Justification (Blasius)
A standard requiring boards to demonstrate a compelling reason for any action taken primarily to interfere with shareholder voting rights.
138
Lock-Up Provision
An agreement giving a favored bidder special rights (e.g., to buy key assets or stock) if another bidder succeeds, often used to deter competing bids in M&A.
139
No-Shop Provision
A contractual clause prohibiting a target company from soliciting or negotiating competing takeover proposals once it has signed a definitive agreement with one bidder.
140
Self-Tender Offer
When a corporation offers to buy back its own shares—often used as a defensive tactic against hostile takeovers, aiming to reduce the bidder’s ability to gain voting control.
141
Two-Tier Tender Offer
A hostile takeover bid structured in two steps: a first (front-end) offer at a premium price for a controlling block, followed by a lower-priced (back-end) squeeze-out merger for remaining shareholders.
142
Judicial Dissociation
A court-ordered removal of a partner (in a partnership) or member (in an LLC) whose conduct makes it no longer feasible to continue the business relationship (as in Giles v. Giles Land Co.).
143
Statutory Close Corporation
A corporation that formally elects close-corporation status under specific state statutes, often granting more flexible governance and added protections for minority shareholders (mentioned in Nixon v. Blackwell).
144
Exculpation Clause (DGCL §102(b)(7))
A provision in a Delaware corporation’s charter that shields directors from personal liability for certain breaches of the duty of care, so long as there is no bad faith or self-dealing.
145
Agreement-in-Principle Test
A once-used benchmark in merger-disclosure cases that required disclosure of merger negotiations only after an agreement was nearly final. Rejected by Basic Inc. v. Levinson in favor of a broader materiality standard.
146
TSC Industries Standard
The Supreme Court’s test for materiality: a fact is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy or sell securities.
147
Freeze-Out Merger
A transaction in which majority shareholders force minority shareholders to sell their shares (often at a price set by the majority). Common in close corporations and can trigger fiduciary-duty scrutiny (e.g., Wilkes-type analysis).
148
Majority-of-the-Minority Provision
A deal condition requiring that a majority of disinterested (minority) shareholders approve a merger or other significant transaction, reducing coercion when a controlling shareholder is involved.
149
Fiduciary Out Clause
A provision in a merger or acquisition agreement allowing the target’s board to accept a superior proposal (or negotiate one) if the board’s fiduciary duties require it, despite previously agreeing to a no-shop or exclusivity clause.
150
Squeeze-Out
Used somewhat interchangeably with “freeze-out.†Refers to a merger or transaction by which controlling shareholders eliminate minority owners—often scrutinized under entire-fairness or Wilkes-style standards in close corporations.
151
Entire Fairness Standard
A stringent Delaware test for conflicted transactions requiring proof of both fair dealing (process) and fair price, typically triggered when a controlling shareholder or conflicted board members are on both sides of a deal.
152
Intrinsic Fairness Standard
A term sometimes used (e.g., in Sinclair Oil v. Levien) as synonymous with “entire fairness,†requiring the controlling party in a self-dealing transaction to prove the transaction’s fairness in both process and price.
153
Staggered Board
A board structure in which only a fraction of directors (often one-third) are elected each year, making it harder for a hostile bidder to quickly replace a full board in a proxy fight.
154
Cumulative Voting
A voting system allowing shareholders to pool their votes for fewer candidates (e.g., all votes for one candidate), improving the chance that minority shareholders can elect at least one director.
155
Appraisal Rights
A statutory right (under state law) that allows dissenting shareholders in certain mergers or reorganizations to have a court determine the fair value of their shares if they object to the transaction price.
156
Poison Put
A covenant in corporate debt agreements making the debt immediately due (or giving bondholders special rights) if a takeover occurs—another anti-takeover measure, akin to a poison pill but targeting the company’s bonds.
157
Staggered Board
A board structure in which directors are divided into classes, and only one class stands for election each year—making it harder for a hostile bidder to quickly replace an entire board.
158
Cumulative Voting
A voting system allowing shareholders to pool all their votes for a single candidate (or a few), improving the chance for minority shareholders to elect at least one director.
159
Majority-of-the-Minority Provision
A requirement that a transaction (often involving a controlling stockholder) must be approved by a majority of the disinterested or 'minority' shareholders, reducing coercion concerns.
160
Fiduciary Out Clause
A contractual provision allowing a target’s board to accept a superior takeover or merger proposal—despite a no-shop or exclusivity clause—if needed to fulfill its fiduciary duties.
161
Squeeze-Out
Sometimes used interchangeably with 'freeze-out,' it describes a transaction in which the controlling shareholder forces out minority shareholders—often subject to entire fairness review.
162
Proxy Contest
A battle for corporate control in which opposing factions of shareholders (often an insurgent group vs. incumbents) solicit proxies to vote for different director slates or proposals.
163
Poison Put
A defensive covenant in a corporate debt agreement giving bondholders special rights (e.g., immediate repayment) if a change in control occurs, making a hostile takeover more expensive.
164
Appraisal Rights
A statutory remedy allowing dissenting shareholders to have a court determine the 'fair value' of their shares if they object to certain mergers or fundamental transactions.
165
Tag-Along Rights
A provision permitting minority shareholders to join (“tag alongâ€) if majority or controlling shareholders sell their stakes, so minority holders can sell at the same price/terms.
166
Drag-Along Rights
A provision allowing majority (or controlling) shareholders to 'drag' minority shareholders into a sale of the company under the same price and terms—preventing a few holdouts from blocking a deal.
167
White Knight
A more favorable acquirer invited by a target company to avoid a hostile takeover by another bidder, typically offering better terms to shareholders or management.
168
Golden Parachute
A lucrative severance package guaranteed to top executives in the event of a takeover or merger, designed to discourage hostile bids and protect management.
169
Greenmail
A situation where a hostile bidder accumulates a significant stake in a target company and then agrees to sell shares back to the target at a premium, often in exchange for dropping the takeover attempt.
170
Standstill Agreement
A contract in which a potential bidder agrees not to increase its stake in a target for a defined period (or not to pursue a takeover) in exchange for certain concessions or payments.
171
Short-Form Merger
A merger of a parent company with its 90%-owned (or more) subsidiary, completed without the usual shareholder approval—subject to statutory appraisal rights for minority holders.
172
Triangular Merger
A merger structure involving three entities: the acquirer creates a subsidiary (the ‘merger sub’), which merges into the target. The target then becomes a subsidiary of the acquirer (in a forward or reverse triangular merger).
173
Voting Trust
A legal arrangement in which shareholders transfer their share voting rights to a trustee—often used to consolidate voting power or ensure continuity in governance.
174
Dual-Class Shares
A capital structure featuring two (or more) classes of stock with different voting rights, allowing founders/insiders to retain control despite owning a smaller economic stake.
175
Green Shoe Option
Also called an ‘overallotment option’ in an IPO, it allows underwriters to buy up to an additional 15% of shares at the offering price to stabilize the stock if demand is high.
176
Class Voting
When certain charter or bylaw provisions require approval by specific classes of shares for major corporate actions (e.g., changes that disproportionately affect a class).
177
Majority Shareholder Oppression
The unfair treatment of minority shareholders by majority shareholders, often through exclusion from decision-making, denial of dividends, or dilution of shares. Courts may intervene to protect minority rights.
178
Corporate Waste Doctrine
A legal principle preventing corporate directors from engaging in transactions that amount to a reckless dissipation of corporate assets, typically requiring an exchange with no reasonable business justification.
179
Shareholder Deadlock Resolution
Mechanisms to resolve a deadlock among shareholders in a closely held corporation, such as buy-sell agreements, third-party mediation, or judicial dissolution.
180
Ratification of Director Actions
A corporate governance process where shareholders or the board retroactively approve actions taken by directors that may have lacked proper authorization initially.
181
Insider Trading Safe Harbors
Legal provisions that protect certain individuals from liability for insider trading when transactions occur under predefined, non-discretionary plans, such as Rule 10b5-1 plans.
182
Limited Partner Rights
Rights granted to limited partners in a partnership, including access to financial records, distributions, and protection from personal liability beyond their investment.
183
Dissenters' Rights and Appraisal
The statutory right of shareholders to object to certain corporate actions (e.g., mergers) and receive a judicially determined fair value for their shares instead of participating in the transaction.
184
Board Staggering and Takeover Defense
A corporate governance mechanism where board members serve staggered terms to prevent hostile takeovers by making it difficult to gain immediate control of the board.
185
Spring-Loaded Stock Options
The practice of granting stock options shortly before positive news is released, potentially leading to legal and ethical concerns regarding executive compensation and disclosure.
186
Poison Pill Trigger Events
Specific events that activate a shareholder rights plan, typically to prevent hostile takeovers by diluting the acquirer's stake or making acquisitions prohibitively expensive.
187
Hostile Takeover Defenses
Strategies used by a target company to prevent or deter an unwanted acquisition, such as poison pills, golden parachutes, white knights, and staggered boards.
188
Derivative Action Standing
The legal requirement that a shareholder must meet to file a derivative lawsuit on behalf of the corporation, often requiring ownership at the time of the alleged wrongdoing and making a demand on the board.
189
Director Duty to Monitor
A fiduciary duty requiring corporate directors to oversee company operations and internal controls to prevent misconduct, fraud, and regulatory violations.
190
Special Litigation Committee Independence
The necessity for a board-appointed special litigation committee (SLC) to be independent and impartial when evaluating whether a shareholder derivative lawsuit should proceed.
191
Executive Clawback Provisions
Contractual clauses allowing a company to recover executive compensation (such as bonuses or stock awards) if misconduct, fraud, or financial restatements occur.
192
Material Adverse Change Clause
A contractual provision in M&A agreements allowing a buyer to back out of a deal if significant adverse changes occur in the target company's financial condition or operations.
193
Equitable Subordination in Bankruptcy
A doctrine allowing courts to subordinate certain creditor claims if a creditor engaged in inequitable conduct, such as fraud or mismanagement, harming other creditors.
194
Piercing the LLC Veil
A legal doctrine allowing courts to hold LLC members personally liable for company debts when corporate formalities are ignored, or the LLC is used for fraud or wrongful conduct.
195
Earnout Provisions in M&A
Contingent payment structures in M&A transactions where additional compensation is paid based on the target company’s future performance.
196
Reverse Triangular Mergers
A merger structure where a subsidiary of the acquiring company merges into the target company, with the target surviving and becoming a subsidiary of the acquirer, often preserving contractual rights.
197
Voting Lockup Agreements
Agreements among shareholders to vote a certain way on corporate matters, often used in mergers or proxy battles to ensure a transaction’s approval.
198
Interlocking Directorships
The practice of individuals serving on multiple corporate boards, which can raise antitrust concerns under Section 8 of the Clayton Act if it reduces competition.
199
Double-Derivative Lawsuits
A legal action brought by a shareholder on behalf of a subsidiary corporation against its parent company’s directors, typically when the parent controls the subsidiary and the subsidiary’s board is unable or unwilling to act.
200
Board Declassification Campaigns
Shareholder initiatives aimed at eliminating staggered boards and requiring all directors to stand for election annually, increasing accountability and reducing takeover defenses.
201
Drag-Along vs. Tag-Along Rights
Drag-Along Rights: Allow majority shareholders to force minority shareholders to sell their shares in a corporate transaction. Tag-Along Rights: Protect minority shareholders by allowing them to join a sale under the same terms as majority shareholders.
202
Non-Voting Equity Securities
Shares that provide financial benefits such as dividends but lack voting rights, often issued to investors who seek economic participation without influence over corporate governance.
203
Dilution Protections for Founders
Contractual provisions that protect early-stage company founders from excessive equity dilution in future funding rounds, often through anti-dilution clauses or preemptive rights.
204
Control Share Acquisition Statutes
State laws designed to prevent hostile takeovers by restricting voting rights of shareholders acquiring a controlling stake unless approved by a shareholder vote.
205
Defensive Merger Structures
Corporate strategies, such as white knight mergers, poison pills, and stock buybacks, designed to prevent hostile takeovers by making the target company less attractive to acquirers.
206
Duty of Candor to Shareholders
A legal obligation requiring directors and officers to fully disclose material information in a transparent and accurate manner to shareholders, particularly in proxy statements and financial reports.
207
Voting Trust Agreements
Agreements in which shareholders transfer their voting rights to a trustee for a specified period, often used in corporate reorganizations, succession planning, or takeover defenses.
208
Self-Tender Offers and Buybacks
Self-Tender Offer: A company offers to repurchase its own shares from shareholders at a specified price, often to consolidate control or return capital. Buybacks: Stock repurchases by a company to reduce share supply, often increasing earnings per share and stock price.
209
Materiality in Proxy Disclosures
The legal standard determining whether information in proxy statements is significant enough to influence a reasonable shareholder’s voting decision, requiring full and accurate disclosure.
210
Cumulative Voting Mechanics
A voting system allowing shareholders to allocate multiple votes per share to a single director candidate, increasing minority shareholder representation on corporate boards.
211
Anti-Dilution Adjustments
Provisions in financing agreements that protect existing shareholders from dilution in value or voting power when new shares are issued at a lower valuation, often using weighted-average or full-ratchet adjustments.
212
Classified vs. Unclassified Boards
Classified Boards: Boards where directors serve staggered terms, making hostile takeovers more difficult. Unclassified Boards: All directors stand for election annually, promoting greater accountability.
213
Majority of the Minority Provisions
A corporate governance mechanism requiring approval from a majority of minority (non-controlling) shareholders in transactions involving controlling shareholders, preventing coercion.
214
Repricing of Employee Stock Options
The process of lowering the exercise price of previously granted stock options, often done when stock prices decline significantly to retain and incentivize employees.
215
Reverse Stock Splits and Fairness
A corporate action reducing the number of outstanding shares by increasing share price proportionally, often used to meet stock exchange listing requirements but raising fairness concerns for small shareholders.
216
Director Removal Procedures
The legal process for removing directors, typically outlined in corporate bylaws and statutes, which may require shareholder approval, board action, or judicial intervention.
217
Standing in Double-Derivative Suits
The requirement that a shareholder must demonstrate a sufficient stake in both a parent and subsidiary corporation to bring a double-derivative lawsuit on behalf of the subsidiary.
218
Abstention Doctrine in Corporate Law
The principle that courts may defer to a company’s internal governance processes and avoid intervening in business decisions unless there is clear fraud, illegality, or breach of fiduciary duty.
219
Mandatory vs. Default Corporate Rules
Mandatory Rules: Corporate law provisions that cannot be altered by agreement (e.g., fiduciary duties). Default Rules: Provisions that apply unless a company opts out or modifies them in its governing documents.
220
Fairness Opinions in M&A
Independent expert assessments evaluating whether a proposed merger or acquisition is financially fair to shareholders, often used by boards to justify transactions.
221
Duty to Disclose Business Strategy
The extent to which corporate management is required to disclose strategic plans and risks to shareholders, balanced against competitive concerns and proprietary information protection.
222
Special Purpose Acquisition Companies (SPACs)
Publicly traded shell companies formed to raise capital and acquire private businesses, providing an alternative to traditional IPOs while facing regulatory scrutiny.
223
Crowdfunding and Corporate Securities
Regulations governing equity crowdfunding, allowing small investors to participate in startup financing while ensuring compliance with securities laws such as the JOBS Act.
224
Dual-Class Share Structures
A corporate structure where different classes of shares have different voting rights, often used to concentrate control among founders while still raising public capital.
225
Shell Corporation Uses and Abuses
Uses: Legal entities used for restructuring, tax optimization, or mergers. Abuses: Concealing ownership, avoiding taxes, or facilitating fraudulent transactions.
226
Pledging of Insider Shares
The practice of company executives using their stock holdings as collateral for loans, raising risks of forced sales that could impact stock price and governance concerns.
227
Freeze-Out Mergers
A transaction in which majority shareholders force minority shareholders to sell their shares, often raising fairness and valuation concerns that courts may review under fiduciary duty principles.
228
Controlling Stockholder Transactions
Transactions involving a company’s controlling stockholder, often subject to heightened scrutiny under fiduciary duty principles to ensure fairness to minority shareholders.
229
Preemptive Rights in Equity Offerings
The right of existing shareholders to purchase additional shares before they are offered to outside investors, preventing dilution of their ownership stake.
230
Co-Sale Rights (Piggyback Rights)
Contractual rights allowing minority shareholders to participate in a sale initiated by majority shareholders, ensuring they receive the same exit opportunities.
231
Fiduciary Duties in Bankruptcy
The shift in fiduciary duties from shareholders to creditors when a company approaches insolvency, requiring directors to act in the best interest of creditors.
232
Private Equity Fund Governance
The structures and rules governing private equity funds, including limited partner (LP) rights, general partner (GP) duties, and investment management oversight.
233
PIPE Transactions (Private Investment in Public Equity)
A financing arrangement in which institutional investors purchase stock in a publicly traded company at a discount, providing capital while potentially diluting existing shareholders.
234
Majority-of-Minority Approval in Takeovers
A corporate governance mechanism requiring approval from a majority of minority shareholders in certain transactions, reducing the influence of controlling shareholders.
235
Contingent Consideration in M&A
Payment structures in M&A deals where additional compensation is contingent on future performance milestones, such as earnouts or escrow holdbacks.
236
Supermajority Voting Requirements
Corporate charter provisions requiring approval from a higher percentage of shareholders (e.g., 66% or 75%) for certain major decisions, such as mergers or bylaw amendments.
237
Proxy Fight Mechanics
The process by which shareholders attempt to gain control of a company's board by soliciting proxies to vote for alternative director candidates, often in activist campaigns.
238
Say-on-Pay Shareholder Votes
Non-binding shareholder votes on executive compensation, mandated by the Dodd-Frank Act, allowing investors to express opinions on pay practices.
239
Greenmail Payments and Defenses
A practice where a company repurchases its own stock at a premium from a hostile bidder to prevent a takeover, often criticized as a misuse of corporate funds.
240
Tender Offer Pricing Strategies
The methods used to price shares in a tender offer, including fixed-price, Dutch auction, and creeping tender offers, each affecting shareholder participation and fairness.
241
Spin-Off vs. Split-Off Transactions
Spin-Off: A company distributes shares of a subsidiary to existing shareholders, creating an independent company. Split-Off: Shareholders exchange their shares in the parent company for shares in the spun-off entity.
242
Leveraged Buyouts and Fiduciary Duties
The fiduciary obligations of directors in a leveraged buyout (LBO), ensuring fair treatment of shareholders when a company is acquired using significant debt.
243
Minority Squeeze-Out Protections
Legal safeguards to prevent controlling shareholders from forcing minority shareholders to sell their shares at unfair prices in freeze-out mergers.
244
Pay-to-Play Financing Clauses
Provisions requiring investors to participate in future funding rounds to maintain their equity position, often used in venture capital deals.
245
Debt-to-Equity Conversions in Restructuring
The process of converting debt into equity to improve a company’s financial position, often used in bankruptcy or distressed situations.
246
Equity Compensation Dilution Concerns
The potential reduction in existing shareholders' ownership percentages due to stock-based compensation, requiring careful board oversight.
247
Section 220 Books and Records Requests
A Delaware corporate law provision allowing shareholders to inspect company records for proper purposes, such as investigating mismanagement.
248
Corporate Sunset Provisions
Clauses that set an expiration date on certain corporate governance structures, such as dual-class stock, to ensure long-term accountability.
249
Staggered Board Repeal Initiatives
Shareholder proposals aimed at eliminating staggered boards in favor of annual director elections to enhance corporate accountability.
250
SEC Clawback Enforcement Actions
SEC actions requiring executives to return compensation received due to financial restatements or fraud, often enforced under Sarbanes-Oxley and Dodd-Frank.
251
Dual-Listed Company Governance Issues
Regulatory and governance challenges faced by companies listed on multiple stock exchanges, often involving compliance with differing jurisdictional rules.
252
Reverse Vesting in Founder Shares
A mechanism where founders’ equity vests over time, with unvested shares being subject to repurchase by the company if the founder departs early.
253
Self-Dealing Transactions and Scrutiny
Transactions where directors or officers engage in business with the company for personal benefit, often subject to heightened fiduciary scrutiny.
254
Equity Kickers in Venture Capital Deals
Additional equity incentives provided to lenders or investors as part of a financing arrangement, enhancing potential returns in high-risk investments.
255
Call and Put Rights in Shareholder Agreements
Call Rights: Allow one party to buy shares at a predetermined price. Put Rights: Allow a shareholder to sell their shares at a predetermined price, providing exit options.
256
Excessive Perquisites and Executive Compensation
Corporate governance concerns over excessive executive benefits, such as luxury travel or personal expenses, potentially leading to shareholder litigation.
257
Business Combinations with Interested Shareholders
Transactions involving significant shareholders that require heightened fiduciary review to prevent conflicts of interest and ensure fairness.
258
Golden Leash Arrangements in Proxy Contests
Compensation arrangements where activist investors pay director candidates to run for board seats, raising corporate governance concerns.
259
Founder Lock-Up Agreements
Agreements restricting founders from selling shares for a specified period post-IPO, preventing market volatility and signaling long-term commitment.
260
Fair Price Provisions in Takeover Defense
Charter provisions ensuring that all shareholders receive the same price in a takeover, preventing coercive two-tiered offers.
261
Voting Power Disparities in IPO Structures
Corporate structures in IPOs where certain shareholders (e.g., founders) receive disproportionate voting power, often through dual-class shares.
262
Non-Compete Enforceability in Business Sales
The legal validity of non-compete clauses in M&A deals, varying by jurisdiction and often scrutinized for reasonableness in scope and duration.
263
Dead Hand Proxy Puts
A provision in debt agreements allowing lenders to demand repayment if a majority of the board is replaced, potentially entrenching management.
264
Forum Selection Clauses in Corporate Charters
Provisions designating specific courts (e.g., Delaware Chancery Court) as the exclusive venue for shareholder litigation, reducing forum shopping.
265
Corporate Purpose and Public Benefit Corporations
The shift from shareholder primacy to stakeholder capitalism, including legal structures like Public Benefit Corporations (PBCs) that prioritize social impact.
266
Short Slate Proxy Contests
Proxy battles where dissident shareholders nominate only a few directors rather than seeking full board control, often used in activist campaigns.
267
Confidentiality Agreements in M&A Due Diligence
Legal agreements protecting sensitive information exchanged during M&A negotiations, preventing leaks and misuse by potential buyers.
268
Director Compensation Litigation Trends
Increasing shareholder lawsuits challenging excessive director compensation, particularly in cases lacking shareholder approval.
269
Stockholder Activism and ESG Initiatives
The growing trend of investors advocating for environmental, social, and governance (ESG) improvements through shareholder proposals and proxy voting.
270
Statutory Appraisal Rights vs. Contractual Exit Rights
Statutory Appraisal Rights: Allow dissenting shareholders to seek a court-determined fair value in M&A deals. Contractual Exit Rights: Privately negotiated rights to liquidity in investment agreements.
271
Charter Amendments and Board Consent Requirements
The legal process for amending corporate charters, often requiring board approval, shareholder consent, or supermajority votes.
272
SPAC Redemption and Dilution Risks
Risks associated with SPAC shareholders redeeming their shares before a merger, leading to dilution for remaining investors and affecting deal economics.
273
Legal Considerations for Founder Departures
Key legal and contractual issues when a founder exits a company, including vesting schedules, non-compete clauses, and equity repurchase rights.
274
Sunset Provisions for Dual-Class Shares
Provisions that automatically phase out dual-class stock structures over time, restoring equal voting rights and improving corporate governance.
275
Majority Board Turnover in Crisis Situations
The challenges and legal implications of replacing a majority of a board during financial or governance crises, often triggering change-of-control provisions.
276
In-Kind Distributions in Corporate Liquidations
The distribution of non-cash assets to shareholders during a corporate liquidation, often including securities, real estate, or intellectual property instead of cash.
277
Majority Voting Standard for Director Elections
A corporate governance rule requiring director nominees to receive a majority of votes cast to be elected, as opposed to a plurality standard where the highest vote-getters win.
278
Poison Pill Redemption Timing
The strategic timing for redeeming a shareholder rights plan (poison pill) to either deter a takeover or allow a negotiated deal to proceed.
279
Spring-Loaded Compensation in Executive Pay
The practice of granting stock options or bonuses to executives ahead of favorable corporate news, potentially raising concerns over fairness and disclosure obligations.
280
Zombie Directors & Holdover Boards
Directors who remain in office despite losing shareholder support, often due to staggered board structures or lack of immediate replacement mechanisms.
281
Conflicted Transactions in Private Companies
Transactions where insiders, such as executives or controlling shareholders, have financial interests that may conflict with the company’s best interests, requiring board oversight.
282
Related-Party Transactions & Board Oversight
Transactions between a company and its executives, directors, or significant shareholders, requiring independent board review and disclosure to ensure fairness.
283
Successor Liability in Mergers
The legal doctrine holding acquiring companies liable for the debts, obligations, or legal claims of the target company post-merger, unless explicitly disclaimed.
284
Unanimous Shareholder Agreements
Agreements requiring all shareholders’ consent for specific corporate actions, often used in closely held companies to ensure alignment on governance matters.
285
Voting Agreements vs. Proxy Agreements
Voting Agreements: Binding contracts where shareholders commit to vote in a specific way. Proxy Agreements: Arrangements where shareholders grant others the right to vote on their behalf.
286
D&O Indemnification & Insurance Scope
The protections provided to directors and officers through indemnification clauses and insurance policies covering legal costs arising from lawsuits related to their corporate duties.
287
Cumulative Voting vs. Straight Voting
Cumulative Voting: Shareholders can concentrate votes on a single director candidate, increasing minority representation. Straight Voting: One vote per share per director, favoring majority shareholders.
288
Control Share Acquisition Statutes
State laws limiting the voting rights of acquiring shareholders once they surpass a certain ownership threshold, preventing hostile takeovers without prior shareholder approval.
289
Inspection Rights for Hedge Fund Activists
The legal rights of activist hedge funds to inspect a company’s books and records, often used to challenge management decisions or investigate governance issues.
290
Dual-Class Share Structures & Conversion Events
Corporate structures where founders retain superior voting shares, with conversion events dictating when high-vote shares automatically convert to common shares.
291
Poison Pill Flip-in vs. Flip-over Features
Flip-in: Existing shareholders can buy additional shares at a discount (excluding the acquirer). Flip-over: Shareholders can buy shares of the acquiring company at a discount if a takeover occurs.
292
Interlocking Directorship Concerns
The antitrust and governance risks of individuals serving on multiple competing company boards, potentially leading to conflicts of interest or reduced market competition.
293
Shareholder Agreement Exit Strategies
Contractual mechanisms allowing investors to exit a company, including drag-along rights, tag-along rights, buy-sell agreements, and right-of-first-refusal provisions.
294
Supermajority Voting in Corporate Bylaws
A requirement that certain corporate decisions (e.g., mergers, amendments) receive approval by a higher threshold than a simple majority, typically two-thirds or more.
295
Board Repricing of Executive Stock Options
The practice of lowering the exercise price of previously granted stock options, often to retain executives when stock prices drop significantly.
296
Advance Notice Bylaws & Proxy Contests
Rules requiring shareholders to provide advance notice of director nominations or other proposals before a corporate meeting, often used to prevent surprise proxy battles.
297
Breakup Fees & Reverse Breakup Fees
Breakup Fee: A penalty paid by the seller for terminating a merger. Reverse Breakup Fee: A penalty paid by the buyer for failing to close the deal, often due to regulatory or financing issues.
298
Tender Offer Hedge Fund Strategies
Investment strategies where hedge funds buy shares in companies subject to tender offers, speculating on price changes and potential deal success.
299
White Squire Strategy in Takeovers
A defensive tactic where a company sells a stake to a friendly investor (white squire) who agrees not to pursue a takeover, preventing hostile bids.
300
Go-Shop vs. No-Shop Provisions
A seller can seek higher offers post-agreement.
301
Tender Offer Best-Price Rule
A legal requirement that all shareholders in a tender offer receive the highest price paid to any single investor, preventing preferential treatment.
302
Top-Up Options in Mergers
A provision allowing an acquirer to purchase additional shares from a target company post-tender offer to reach the threshold required for a short-form merger.
303
Fairness Opinions in M&A
Independent financial evaluations assessing whether a merger or acquisition price is fair to shareholders, often used by boards to justify deal terms.
304
Drag-Along Rights in Private Equity
A contractual right allowing majority investors to force minority shareholders to sell their shares in a sale, ensuring control over exit strategies.
305
Roll-Up Transactions in Consolidation Deals
The acquisition of multiple smaller companies in the same industry, combining them into a larger entity to create economies of scale and increase market share.
306
Auction vs. Negotiated Sale in M&A
Auction Sale: A structured process inviting multiple bidders to compete. Negotiated Sale: A private negotiation with a single buyer, often for confidentiality and efficiency.
307
SEC Rule 14a-8 & Shareholder Proposals
A rule allowing shareholders meeting ownership thresholds to submit proposals for inclusion in a company’s proxy statement, often used for ESG activism.
308
Private Placement Safe Harbors (Reg D)
Exemptions under Regulation D allowing companies to raise capital from accredited investors without SEC registration, facilitating private fundraising.
309
Bad Actor Disqualification under Rule 506
A provision barring individuals with certain securities law violations from participating in private securities offerings under Regulation D.
310
Quiet Periods & Gun-Jumping Rules
Quiet Period: A restriction on public statements before and after an IPO. Gun-Jumping: Prohibited promotional activities before a securities offering that may influence investors.
311
Wells Notices in SEC Enforcement Actions
A notification from the SEC to individuals or companies under investigation, giving them an opportunity to respond before formal charges are filed.
312
Rule 144 & Affiliate Stock Resale Restrictions
A rule allowing restricted and insider (affiliate) stock to be sold in public markets under specific conditions, including holding periods and volume limits.
313
Rule 10b5-1 Plans for Insider Trading Defense
Pre-arranged stock trading plans that allow insiders to buy or sell shares at predetermined times, reducing the risk of insider trading liability.
314
Disclosure Controls under Sarbanes-Oxley
Internal procedures mandated by the Sarbanes-Oxley Act ensuring accurate financial reporting and preventing fraudulent disclosures.
315
Foreign Private Issuer Status under U.S. Securities Law
A classification providing non-U.S. companies with reduced regulatory burdens, including exemptions from certain SEC reporting and proxy rules.
316
PCAOB Auditing Requirements for Public Companies
Standards established by the Public Company Accounting Oversight Board (PCAOB) governing the audits of publicly traded companies to ensure financial integrity.
317
Contingent Value Rights in Mergers
A contractual right granted to target company shareholders in an M&A deal, entitling them to additional payments if certain future performance milestones or stock price targets are met.
318
Earn-Out Structures in Private M&A
A deal mechanism in private mergers where part of the purchase price is contingent on the target company achieving predefined financial or operational milestones post-closing.
319
Founder Equity Vesting in Startups
A structure where startup founders earn ownership of their shares over time, often with a four-year vesting schedule and a one-year cliff, to incentivize long-term commitment.
320
Investor Side Letters in Venture Capital
Agreements between venture capital funds and specific investors granting customized terms, such as preferential rights, reduced fees, or co-investment opportunities, without altering the main fund agreement.
321
Debt Covenants in Leveraged Buyouts
Restrictions imposed by lenders on a borrower’s financial and operational activities in a leveraged buyout (LBO), including limits on additional debt, dividend payments, and asset sales.
322
Waterfall Distribution in Private Equity Funds
A structured allocation of profits in private equity, prioritizing returns to limited partners (LPs) before the general partners (GPs) receive their share of carried interest.
323
PIPE Financing Dilution Concerns
The risk that private investment in public equity (PIPE) transactions may dilute existing shareholders’ ownership and voting power due to discounted share issuance.
324
Recapitalization Transactions & Shareholder Dilution
Corporate restructuring that alters a company’s capital structure, often involving new debt or equity issuance that may dilute existing shareholders’ stakes.
325
Spin-Offs vs. Split-Offs vs. Carve-Out IPOs
A company distributes shares of a subsidiary to existing shareholders, creating an independent company.
326
Stock Repurchase Safe Harbors (Rule 10b-18)
A SEC rule providing legal protection to public companies repurchasing their shares from allegations of market manipulation, as long as the repurchases comply with volume, price, and timing restrictions.
327
Carve-Out IPO
A company sells a portion of a subsidiary’s shares to the public while retaining control.
328
Split-Off
Shareholders exchange parent company shares for subsidiary shares.
329
No-Shop
A seller is restricted from soliciting alternative offers, preventing bidding wars.
