BLaw 5332 test 2

Inside director v. outside director?

An inside director might be the company's top executives, such as the COO or CFO, or a representative of one of the company's biggest shareholders. An inside director compares with an outside director, who is a member of a company's board of directors but is not an employee or stakeholder in the company.

The controlling rules for management and operation of a corporation is called

Bylaws

internal controls and certification requirements.

Internal controls are typically comprised of control activities such as authorization, documentation, reconciliation, security, and the separation of duties. And they are broadly divided into preventative and detective activities.

Dog House case

It awarded Dog House punitive damages in the amount of $10,000. The trial court found that Mr. Teal is the owner of Teal Properties and that Teal Properties "is merely a sham or dummy corporation and is the alter ego of Jerry Teal."

What are preemptive rights?

It gives investors the right to maintain a proportionate interest in the company stock.

MBW Exploration case.

LLC won't protect personal assets

Short form merger vs. Consolidation

MERGERS [A Corp. merges into B Corp.] CONSOLIDATIONS [A Corp. and B, Inc. form C Corp.]

A limited liability company is formed by ________ and each signs _________ that determine its method of management . The blanks are in order:

Members... the operating agreement

Venture capital

Money that is invested in new or emerging companies that are perceived as having great profit potential

Purchase of Assets/ stocks

One corporation can extend its business operations by purchasing the assets of another company

Approval Process

One or more decision makers consider a proposed change and the impact of the change, including funding. If the change, the impact, and the funding are acceptable, the change is permitted.

Blue Sky Laws

State laws that regulate the offering and sale of securities for the protection of the public.

All corporations issue or offer to sell stock. All corporations must also issue bonds. In order, these two statements are

T and F

Common stock

Term used to describe the total amount paid in by stockholders for the shares they purchase.

How are LLCs taxed?

The LLC can either elect to be treated as a C-Corp or will the IRS will default it into a category

history of Security and exchange commission

The SEC was created in 1934 as one of President Franklin Roosevelt's New Deal programs to help fight the devastating economic effects of the Great Depression and prevent any future market calamities.

Piercing the Corporate Veil

The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.

What is a quorum?

The amount of members present required to conduct a meeting.

franchisor/franchisee

The franchisor (supplier) grants the franchisee (foreign dealer) the right to sell products or services in exchange for a fee

What is indemnification?

The insured is restored to his or her approximate financial position prior to the occurrence of the losses

Under the MBW Exploration case, facts supporting a piercing of the corporate veil under an alter ego theory to allow holding the entity owners personally liable for debts of the entity include

Undercapitalization of the entity Failure to observe entity legal formalities Failure to hold regular director and shareholder meetings

Sole proprietorship

a business owned and managed by a single individual

Common Carriers

a communication or transportation business, such as a phone company or a taxi service, that is required by law to offer service on a first-come, first-served basis to whoever can pay the rate; such companies do not get involved in content

target company

a company that another company wants to buy

What is holding company?

a company whose primary business is owning a controlling share of stock in other companies

Ultra Vires Doctrine

a corporation cannot undertake any transaction unless its charter permits it

Assumed name certificate or DBA

a document that serves as proof that your company has the legal right to use a specific name (Assumed Name is a name for a business that is different from its legal registered name)

Private Securities Litigation Reform Act of 1995

a federal law passed in 1995 that significantly reduced potential damages in securities-related litigation

Limited Liability Company (LLC)

a form of business ownership that offers both limited liability to its owners and flexible tax treatment

Ponzi schemes

a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

registration statement

a long, complex document that firms must file with the SEC when they sell securities through a public offering

cumulative voting

a procedure in which a shareholder may cast all votes for one member of the board of directors

articles of incorporation

a written legal document that defines ownership and operating procedures and conditions for the business

LLP (Limited Liability Partnership)

all partners are limited partners, managed by partners (not a board), not responsible for other partners

tender offer

an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares

insider trading

an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friendships

equity financing

money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital)

non-profit entities

organizations that are not motivated by profit

limited partnership

partnership in which only one partner is required to be a general partner

General Partnership

partnership in which partners share equally in both responsibility and liability

Crowdfunding

raising money for a project or venture by obtaining many small amounts of money from many people

Pay disclosure rule

requires that a public company disclose the annual total compensation of its median employee, as well as the ratio of such compensation to the annual total compensation of its principal executive officer (the Pay Ratio Rule)

FTC Rule

requires that dealers fully disclose to buyers what is and is not covered under warranty for the used vehicle

stock options

rights to buy a certain number of shares of stock at a specified price

Business Judgment Rule (BJR)

rule that allows management immunity from liability for corporate acts where there is a reasonable indication that the acts were made in good faith with due care

preffered stock

stock that gives stockholders preference in earnings and other rights

Corporate Governance

the system of governing a company so that the interests of corporate owners and other stakeholders are protected

How is a LLC formed?

treated by the IRS as hybrid of partner and corporation

Sole Proprietorship disadvantages

unlimited liability, lack of continuity, lack of money, limited management skills, difficulty in hiring employees

joint ventures

when two or more companies join forces - sharing resources, risks, and profits, but not actually merging companies - to pursue specific opportunities

Dirks Case and Test

• Dealt with issue of tippees in relation to insider trading • Defines insider trading

Contents of the Registration Statement

-The securities being offered for sale, including their relationship to the registrant's other capital securities -The corporation's properties and business (including a financial statement certified by an independent public accounting firm) -Management of the corporation, including all benefits, and any interests of directors or officers in any material transactions -How the corporation intends to use proceeds of the sale -Any pending lawsuits or special risk factors

Proxy Statements are

1) available on EDGAR 2) A good source of info abt the qualifications of board members and management.

ABC has 27 members on its Board A special meeting of the Board is called. Assuming the normal rules of governance apply, and the minimum number of members are present to constitute a quorum to conduct ordinary business, what is the fewest of members present who can vote at this meeting to pass any resolution/conduct business?

8

Franchise

A business established or operated under an authorization to sell or distribute a company's goods or services in a particular area

Texas Gulf Sulfur Case

A corporation in the mining field who thought there was gold in the hills in the remote part of Canada. They buy thousands of acres of land. They tell the SEC in a disclosure law that they have news that will impact their stock and set a date. Some executives of the company decided to purchase shares of their stock before the announcement. After it was announced, the shares went up 8 points which made them a profit. The court found them guilty of insider trading and they had to disgorge their earnings.

Sarbanes-Oxley Act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate.

shareholder derivative lawsuit

A lawsuit brought by a shareholder on behalf of a corporation against a third party.

short-form merger

A merger between a subsidiary corporation and a parent corporation that owns at least 90 percent of the outstanding shares of each class of stock issued by the subsidiary corporation. Short-form mergers can be accomplished without the approval of the shareholders of either corporation.

What is a limited partnership?

A partnership with at least one general partner AND at least one limited partner.

Meinhard v. Salmon

Co-adventurers, like partners, have a fiduciary duty to each other, including sharing in any benefits that result from the parties' joint venture.

Jack is a venture capitalist. He agrees to invest much money in a new , start-up company venture. He will likely ask for in return for his investment.

Common Stock

Some of the differences between corporate-issued bonds and common stock may be stated as

Common shares represent equity and ownership of the company-bonds represent a debt of the company

Partnership Buy-Sell Agreements

Contract that determines in advance of an 'event', how remaining partners will buy-out partners' interest.

Howey Test

Created by the U.S. Supreme Court; it defines a security as an investment in a common enterprise that earns profits from the efforts of others.

A website offers investors an opportunity to buy stock in a new business starting in Arlington. Information about the company is posted on the website including its share price and general financial information. This is an example of and the maximum amount which can be invested in total by this method is

Crowdfunding..., $1,000,000

Sole Proprietorship Advantages

Ease of start-up and closure Pride of ownership Retention of all profits No special taxes Flexibility of being your own boss

stock certificate

Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.

FEIN

FEIN stands for Federal Employer Identification Number. It's also known as an EIN, an Employer Identification Number, or a business tax ID. The IRS issues FEINs to businesses for tax purposes. An FEIN is different from an employer state ID number.

DEF is incorporated in New York and has its main office in New York CityIf it conducts business in Texas from a Dallas office, it will have to be registered in Texas with the Secretary of State in Austin as a

Foreign Corporation

private equity capital

Funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it.

Operating Agreement (LLC)

In a limited liability company, an agreement in which the members set forth the details of how the business will be managed and operated.

Tipper-tippee

In some situations, material, non public information is passed from one person (the tipper) to another person (the tippee) who has the change to trade on the information. If the tippee and the tipper knew or should have known that the information was private they have violated insider trading rules.

cumulative preferred stock

Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid.

Appraisal Rights

Rights of dissenting shareholders after a merger or takeover to be paid the value of their shares before the takeover or merger

Rule 505 (Reg D)

Rule 505: Up to $5mm deal, <35 Non-Accredited, no limit on Accredited

Rule 506 - Regulation D

Rule 506 merely requires that the securities not be advertised to the general public and not be sold to more than 35 unaccredited investors. Any type of security may qualify for this exemption, including stocks and debentures. There is no limit on the dollar value of the issue, so long as the other restrictions are met.

What are ways to classify corporations

S corps, C corps, non-profit corporations, and LLCs.

_________ elect the members of the Board of Directors ("Board") of a corporation . The Board appoints ________ and they in turn hire the __________

Shareholders, Corporate Officers, employees

prospectus

document issued to possible buyers of a stocks and bonds outlining the financial condition of the company issuing those securities

debt financing

funds raised through various forms of borrowing that must be repaid

What events cause disassociation or termination?

if a partner acted wrongfully; A partner's bankruptcy; A partner's death or incapacity; or. Other statutory circumstances

Why is Business Judgment Rule so important in M&A area?

it limits judicial scrutiny of the directors' decisions if they acted with due care, in good faith and in a disinterested manner.