Business Law Chapter 15

Piercing the Corporate Veil

The action of a court to disregard the corporate entity and hold the shareholders personally liable. The corporation is set up never to make a profit, is formed to evade an existing legal obligation, personal and corporate interests are commingled.

Difference between stocks and bonds?

Stocks represent ownership, bonds represent property

Quorum

The number of members that must be present before business may be transacted

(T/F) Corporate officers and other executive employees are hired by the board of directors.

True

(T/F) Corporations enjoy many of the same rights and privileges under state and federal law that U.S. citizens enjoy

True; they are recognized as "persons"

Preferred stock is often considered a more conservative (less aggressive) investment than common stock because: a. it is less volatile and more like a bond. b. its holders have voting right, unlike stockholders. c. it never pays dividends.

A

C Corp

May face double taxation. Can have >100 shareholders

Acme Company has just completed the incorporation process and received its articles of incorporation from the state. At the first organizational meeting of the new company, the officers' most important task is to a. amend the articles of incorporation b. adopt bylaws c. determine the details of the stock sale d. create a hiring policy

B

Individual corporate directors have the ability, as agents of a corporation, to bind the corporation: a. As long as the articles of incorporation allow it. b. Not at all, as individual directors do not have agency power. c. In all situations.

B

The reason most states either permit or require the use of cumulative voting when electing directors is to: a. allow directors to have a greater input into the election process. b. allow minority shareholders a greater chance at representation on the board. c. reduce fraud among voters.

B

A major power held by shareholders is the power to: a. Appoint corporate officers b. declare dividends c. manage the daily operations d. vote to amend the articles of incorporation or bylaws

D

(T/F) A corporation normally has a ten-year existence.

False

(T/F) Any corporate director who sits on more than one board is engaging in illegal activity

False

(T/F) Once a quorum is present, shareholders do not have the inherent power to pass resolutions by a majority vote.

False

Business Judgement Rule

Immunizes an officer from liability from bad decisions if they had rational reasoning for their decisions

Corporation

Legal entity that may be owned by one person, or shareholders. Recognized as a "person." Limited Liability.

Liftco gives to all 15,000 of its shareholders the right to purchase newly issued shares of Liftco's stock in proportion to the percentage of shares they currently own and before anyone else is offered the shares. This right is known as: a. preemptive right b. proxy right c. warrant agreement d. attachment right

A

The business judgment rule states that: a. directors and officers are immune from liability for exercising poor business judgment in certain circumstances. b. directors may never be held liable for corporate harms or losses so long as they have attended board meetings and agreed to corporate actions. c. directors and officers are never immune from liability for exercising poor business judgment, regardless of the circumstances.

A

De Facto Corporation

A company acting as a corporation without without completing all of the legal steps to be incorporated

Alien Corporation

A corporation formed in another country but does business in the U.S.

De Jure Corporation

A corporation in good standing under the law of the state in which it has been incorporated

Foreign Corporation

A corporation that does business in a state without being incorporated there

Domestic Corporation

A corporation that does business in and is organized under the laws of a state

One of the first steps in corporation process is a. drafting a prospectus b. drafting bylaws c. deciding in which state to incorporate d. completing the articles of incorporation

C

S Corp

Pass through entity for taxes. <100 shareholders

(T/F) A proxy is a written or electronically transmitted form in which a stockholder authorizes another party to vote the stockholder's shares in a certain manner.

True

(T/F) In the absence of expressed, constitutional, statutory, or other prohibitions, the corporation has the implied power to perform all acts reasonably necessary to accomplish its corporate purpose.

True

(T/F) Most corporate enterprises in the U.S. fall into the category of close corporation.

True

(T/F) Private equity firms use their private equity capital to invest in existing corporations.

True