Module 4 Exam

ultra vires

A Latin term meaning "beyond the powers" that in corporate law, describes acts of management that are beyond the corporation's express and implied powers to undertake.

pass-through entity

A business entity that has no tax liability. The entity's income is passed through to the owners, and the owners pay taxes on the income.

stock certificate

A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation.

stock warrant

A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period.

S corporation

A close business corporation that has most corporate attributes, including limited liability, but qualifies under the Internal Revenue Code to be taxed as a partnership.

close corporation

A corporation whose shareholders are limited to a small group of persons, often only family members. In a close corporation, the shareholders' rights to transfer shares to others are usually restricted.

alien corporation

A designation in the United States for a corporation formed in another country but doing business in the United States.

dividend

A distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held.

benefit corporation

A for-profit corporation that seeks to have a material positive impact on society and the environment. This new business form is available by statute in a growing number of states.

limited liability company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership.

limited liability partnership (LLP)

A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership. Like a partnership, an LLP is a pass-through entity for tax purposes, but the personal liability of the partners is limited.

corporation

A legal entity formed in compliance with statutory requirements that is distinct from its shareholder-owners.

outside director

A member of the board of directors who does not hold a management position at the corporation.

inside director

A member of the board of directors who is also an officer of the corporation.

limited partnership (LP)

A partnership consisting of one or more general partners (who manage the business and are liable to the full extent of their personal assets for debts of the partnership) and one or more limited partners (who contribute only assets and are liable only up to the extent of their contributions).

member

A person who has an ownership interest in a limited liability company.

business judgment rule

A rule that immunizes corporate management from liability for decisions that result in corporate losses or damages if the decision-makers took reasonable steps to become informed, had a rational basis for their decisions, and did not have a contract of interest with the corporation.

bond

A security that evidences a corporate (or government) debt.

shareholder's derivative suit

A suit brought by a shareholder to enforce a corporate cause of action against a third party.

information return

A tax return submitted by a partnership that only reports the income and losses earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership.

articles of partnership

A written agreement that sets forth each partner's rights and obligations with respect to the partnership.

partnership

An agreement by two or more persons to carry on, as co-owners, a business for profit.

stock

An ownership (equity) interest in a corporation, measured in units of shares.

franchise

Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright in the selling of goods or services.

venture capital

Financing provided by professional, outside investors (venture capitalists) to new business ventures.

private equity capital

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

securities

Generally, stocks, bonds, and other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation.

foreign corporation

In a given state, a corporation that does business in the state without being incorporated therein.

domestic corporation

In a given state, a corporation that does business in, and is organized under the law of, that state.

operating agreement

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

general partner

In a limited partnership, a partner who assumes responsibility for the management of the partnership and liability for all partnership debts

limited partner

In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business. The limited partner assumes no liability for partnership debts beyond the capital contributed.

proxy

In corporate law, a written or electronically transmitted form in which a stockholder authorizes another party to vote the stockholder's shares in a certain manner.

joint and several liability

In partnership law, a doctrine under which a plaintiff can file a lawsuit against all of the partners together (jointly) or one or more of the partners separately (severally, or individually). All partners in a partnership can be held liable regardless of whether the partner participated in, knew about, or ratified the conduct that gave rise to the lawsuit.

joint liability

In partnership law, partners share liability for partnership obligations and debts. Thus, if a third party sues a partner on a partnership debt, the partner has the right to insist that the other partners be sued with him or her.

franchisor

One licensing another (the franchisee) to use the owner's trademark, trade name, or copyright in the selling of goods or services.

franchisee

One receiving a license to use another's (the franchisor's) trademark, trade name, or copyright in the sale of goods and services.

entrepreneur

One who initiates and assumes the financial risks of a new business enterprise and undertakes to provide or control its management.

preemptive right

Rights that entitle shareholders to purchase newly issued shares of a corporation's stock, equal in percentage to shares already held, before the stock is offered to outside buyers.

common stock

Shares of ownership in a corporation that give the owner of the stock a proportionate interest in the corporation with regard to control, earnings, and net assets.

watered stock

Shares of stock issued by a corporation for which the corporation receives, as payment, less than the stated value of the shares.

preferred stock

Stock that has priority over common stock as to payment of dividends and distribution of assets on the corporation's dissolution.

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.

buyout price

The amount payable to a partner on his or her dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation.

certificate of limited partnership

The basic document filed with a designated state official by which a limited partnership is formed.

articles of incorporation

The document containing basic information about the corporation that is filed with the appropriate governmental agency, usually the secretary of state, when a business is incorporated.

articles of organization

The document filed with a designated state official by which a limited liability company is formed.

dissolution

The formal disbanding of a partnership or a corporation

bylaws

The internal rules of management adopted by a corporation or other association.

quorum

The number of members of a decision-making body that must be pre-sent before business may be transacted.

retained earnings

The portion of a corporation's profits that has not been paid out as dividends to shareholders.

winding up

The second of two stages in the termination of a partnership or corporation, in which the firm's assets are collected, liquidated, and distributed, and liabilities are discharged.

dissociation

The severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business.

sole proprietorship

The simplest form of business, in which the owner is the business. The owner reports business income on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business.

commingle

To put funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities.