Chapter 22

Alien Corporation

Doing business country other than country of incorporation

for-profit corporation

Objective is to operate for profit; shareholders seeking to make profit purchase stock these corporations issue

Voluntary Dissolution

Occurs when directors or shareholders initiate the dissolution process

rights of shareholders:

Shareholders vote only on exceptional matters regarding the corporation

to initiate a stock purchase in an attempted corporate takeover, the ____ must appeal directly to the shareholders of the corporation it hopes to buy, known as the target corporation

aggressor

Tender offer takeover

aggressor (acquiring corporation) offers target shareholders a price above current market value of their stock

what type of corporation is an S corporation

closely held

public corporation

corporation created by government to administer law, with specific government duties to fulfill

sources of funds

debt securities and equity securities

dividend

distribution of corporate profits or income ordered by the directors and paid to the shareholders

a corporation is a _____ corporation in the state in which it is incorporated

domestic

fiduciary duties of officers and directors

duties to corporation that individuals within corporation have

shareholders-owners

elect board of directors approves major corporate decisions stock certificated, preemptive right, right to dividends, right to transfer shares, inspection rights

a corporation by __________ is a defective corporation that has conducted business with a third party and therefore cannot deny its status as a corporation to escape liability

estoppel

corporate powers

express powers and implied powers

closely held

generally does not offer stock to public (private, family, close)

courts are most likely to pierce the corporate veil

inadequate capital when corporation formed not following corporation statutes shareholders personal and corporation interests commingled shareholders attempt to commit fraud through corporation

subscriber

investor who agrees to purchase stock in a new corporation

what is the effect of a court ruling of corporation by estoppel?

it prevents a business from denying corporate status

what is a recognized part of creating a corporation

legal activities necessary for incorporation

merger

legal contract combining two or more corporations in such a manner that only one of the corporations continues to exist; in essence, one corporation absorbs another

consolidation

legal contract combining two or more corporations, resulting in an entirely new corporation; neither of the original corporations continues to exist

_____ begin the creation and organization of a corporation by arrangling for necessary capital, financing, and licenses

promoters

_____ raise capital for an infant corporation by making subscription agreements with subscribers in which the subscribers agree to purchase stock in the new corporation

promoters

officiers

run "day to day" business of firm agents of corporation rights determined in employment contract

in the context of a corporation takeover, _______ offer is a takeover resistance strategy in which the target corporation offers to buy its shareholders' stock

self-tender

publicly held

stock available to public

equity securities

stock, securities that represent ownership in a corporation (preferred, common)

common stock

stockholder owns portion of corporation, but no preferences regarding assets and dividends corporate stock that does not convey any preference to its holders

takeover

the purchase of one corporation's stock by another corporation as a means of gaining control of the selling corporation

corporate officers act as _____ of a corporation

agents

exchange tender offer takeover

aggressor offers to exchange target shareholders' current stock for stock in aggressor's corporation

procedures for mergers and consolidations

-Boards of directors of all involved corporations must approve the plan -Shareholders must approve the plan through a vote at a shareholder meeting -The corporations must submit their plan to the secretary of state -The state must review the plan, and if it satisfies legal requirements, grant an approval certificate

"Legal Death" of Corporation

-Dissolution: Legal termination of corporation -Liquidation: Process by which trustee converts corporation's assets into cash, and distributes them among corporation's creditors and shareholders

stock certificate

A document that serves as a stockholder's proof of ownership in a corporation.

"Ultra Vires" Act

Corporate action beyond scope of corporation's authority (i.e., beyond its express and implied powers)

if a US corporation wants to do business in canada, it is ____ corporation in those countries

alien

duty of loyalty

all decisions should be in the best interest of the corporation -duty to disclose conflicts of interests -cant self-deal

incorporator

an individual who applies for incorporation on behalf of a corporation

self-dealing

any instance in which directors or officers make decisions that violate their corporate duty of loyalty

debt securities

bonds, securities that represent loans to a corporation

____ self-dealing occurs when a corporate director or officer makes decisions that benefit other companies with which they have a relationship with.

business

an alien corporation is a business incorporated in another

country

characteristics of corporation

legal entity with rights creature of state limited lability of shareholders transferability of corporation shares perpetual existence corporate taxation liability of officers

what corporation operates for educational, claritable, social, religious, civic, humanitarian purposes rather than to earn a profit

non profit corporation

duty of good faith

not a conscious disregard for responsibilities -duty of oversight, moitioring

hostile takeover

one which the management of the target corporation objects

major type of stock

preferred

private persons create ___ corporations for private purposes

private

an accurate statement about private corporations and government duties

private corporations do not have government duties

retained earnings

profits that a corporation keeps

corporation created by government to help administer law

public corporation

the federal deposit insurance corporation is an example of a

public corporation

what kind of corporation is a corporation whose stock is available to the public

publicly held

directors and officers have a fiduciary duty of loyalty to a corporation, duty to ____

put the corporation's interests above their own

Stock is considered what kind of property

transferable

directors-power

vote on important corporation decisions appoint and supervise officers make financial decisions manage corporate right to compensation, participation, inspection, indemnification

implied powers

whatever actions necessary (within the law) to execute express powers

shareholders meet once every

year

cash tender offer takeover

Aggressor offers to pay the target shareholders cash for their stock

remedies for defective incorporation

-"De Jure" Corporation: Lawful corporation; a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation, that minor deflects in incorporation process -"De Facto" Corporation: Corporation in fact; that has not substantially met the requirements of state incorporation statutes, but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who reasonably believed it was properly incorporated -Corporation by Estoppel: defective Corporation that has conducted business with a third party and therefore prevented by the court from denying its corporate status to escape liability Piercing Corporate Veil: Shareholders personally liable when they have used a corporation to engage in illegal/wrongful acts

right of first refusal

A method of restricting stock transferability whereby a corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified time frame

what kind of corporation enjoys the tax status of a partnership

S corporation

subscription agreement

An agreement between promoters (persons raising capital for a new corporation) and subscribers (investors) in which the subscribers agree to purchase stock in the new corporation.

foreign corporation

Doing business in states other than state of incorporation

domestic corporation

Doing business within state of incorporation

Primary Fiduciary Duties

Duty of Care Duty of Loyalty Duty to ( Good Faith) Disclose Conflict of Interest

Non-Profit Corporation

May earn profits, but they do not distribute these profits to shareholders (non-profit corporation does not issue stock, nor does it have shareholders); instead, corporation reinvests profits in business corporation that operates for educational, charitable, social, religious, civic, or humanitarian purposes rather than to earn a profit

express powers

Perpetual existence; right to litigate; right to make contracts; right to borrow/loan money; right to make charitable donations; ability to establish rules for managing corporation

formation of corporation

Promoters: organize corporate formation Subscribers: offer to purchase stock in corporation in formation process State selected for incorporation

business judgement rule

Provides that directors and officers are not liable for a mistake of judgement /decisions that harmed corporation if they were acting in good faith and in the reasonable belief their decision was in the best interest of the corporation, at time of decision

classifications of corporations

Public/Private For-Profit/Non-Profit Domestic/Foreign/Alien Publicly Held/Closely Held S-Corporation Professional Corporation

Legal Process of Incorporation

Selection of corporate name Drafting and filing articles of incorporation w state First organizational meeting held

appraisal right

Shareholder's right to have his/her shares appraised, and to receive monetary compensation for their value

Involuntary Dissolution

State government forces the corporation to close

no-par shares

Stock shares without a par value

preferred stock

Stockholder enjoys preferences regarding assets and dividends stock that conveys preferences to its holders with respect to assets and dividents

shareholder's direct suit

a lawsuit filed by a shareholder against the corporation

shareholder's derivative suit

a lawsuit filed by a shareholder on behalf of the corporation

defective corporation

a corporation about which an error or omission was made during its incorporation process

Private Coporation

a corporation created for private purposes and does not have government duties

certificate of incorporation

a document certifying that a corporation is incorporated in the state and is authorized to conduct business

articles of incorporation

a document that contains basic information about a corporation and is filed with the state

stock warrant

a type of security issued by a corporation (usually together with a bond or preferred stock) that gives the holder the rights to purchase a certain amount of common stock at a stated price

bylaws

rules and regulations that govern a corporation's internal management

par-value shares

stock shares that have a fixed face value noted on the stock certificate

watered stock

stock that is issued to individuals below its fair market value

leveraged buyout

takeover-resistance strategy Occurs when group within a corporation (usually management) buys all outstanding corporate stock held by the public; group turns the corporate operations by "going private" (i.e., becoming a privately-held corporation)