Midterm

Liability of shareholders

-Are liable for the debts of the corporation, to the extent of their investments -Are liable for a breach of contract if a stock subscription agreement was signed and yet no stock was purchased -Are liable for watered stock -Can be held personally liable for receiving illegal dividends

Under Section 7.22(c) of the Revised Model Business Corporation Act (RMBCA), proxies last for _____ months.

11

Alien corporation

A business that is incorporated in a foreign country

Merger

A combination of two or more corporations in which only one of the corporations continues to exist.

Domestic corporation

A corporation located in the state in which it is incorporated

Foreign corporation

A corporation that conducts business in a state in which it is not incorporated

Closely held corporation

A corporation that does not sell stock to the general public

S corporation

A corporation that enjoys the tax status of a partnership

Public corporation

A corporation that is created by government to help administer law

Private corporations

A corporation that is created by private persons and does not have government duties.

Nonprofit corporations

A corporation that operates for educational, charitable, social, religious, civic, or humanitarian purposes, rather than to earn a profit.

Defective corporation

A corporation whose incorporation process included an error or omission.

For-profit corporations

A corporation whose objective is to make a profit

Publicly held corporation

A corporation whose stock is available to the public

Corporation by estoppel

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

Appraisal right

A dissenting shareholder's right to have his or her shares appraised and to receive monetary compensation from the corporation for their value

Dividends

A distribution of corporate profits or income that is ordered by the directors and paid to the shareholders.

Certificate of incorporation

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

Stock certificate

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

Shareholder's derivative suit

A lawsuit filed by a shareholder on behalf of the corporation

Debt securities

A security that represents a loan to a corporation. Also called bond.

Equity security

A security that represents ownership in a corporation.

Which of the following statements is true of a stock certificate?

A stock certificate includes a corporation's name and the number of shares it represents.

Par-value share

A stock share that has a fixed face value noted on the stock certificate

No-par share

A stock that does not have a par value

Hostile takeovers

A takeover to which the management of the target corporation objects

Leveraged buyout (LBO)

A takeover-resistance strategy in which a group within the target corporation buys all the corporate stock held by the public, thereby turning the company into a privately held corporation

Self-tender offer

A takeover-resistance strategy in which a target corporation offers to buy its shareholders' stock

Proxy

A writing signed by a shareholder that authorizes the individual named in the writing to exercise the shareholder's votes

Chose in action

After an acquisition, the surviving corporation's right to sue for debt and damages on behalf of the absorbed corporation

Directors have the right to access

All corporate books and records

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.

Incorporator

An individual who applies for incorporation on behalf of a corporation

Subscriber

An investor who agrees to purchase stock in a new corporation.

Self-dealing

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

A(n) __________ is a dissenting shareholder's right to have his/her shares appraised and to receive monetary compensation from the corporation for their value.

Appraisal right

A proxy can ____________ in the place of a shareholder.

Attend meetings and vote

According to the Revised Model Business Corporation Act (RMBCA), in which of the following situations can a secretary of state compel involuntary dissolution of a corporation?

Both: -The corporation failed to notify the secretary of state within sixty (60) days that its registered agent or registered office had changed -The corporation's duration as specified in its articles of incorporation has expired

According to the __________ rule, directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time of the decision.

Business judgment

The _____ rule says that directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time.

Business judgment

In the context of a merger, the surviving corporation's right to sue for debt and damages on behalf of the absorbed corporation is called a(n)

Chose in action

When more than one shareholder has suffered damages caused by the same act of a corporation, the shareholders can bring a _____ suit against the corporation.

Class action

Consolidations

Combinations of two or more corporations where none of the original corporations continue to exist as a legal entity. Old articles of incorporation are void. Articles of consolidation are formed by the shareholders. Liabilities, debts, and obligations of the original corporations are assumed by the consolidated entities.

Common stock

Corporate stock that does not convey any preference to its holders

Corporate taxation

Corporations are separate legal entities, government taxes their income directly (except S corporations)

If corporate directors fail to sue when an individual has harmed the corporation, another corporation, or a director, individual shareholders who held stock at the time of the alleged wrongdoing can file a shareholder's __________ suit on behalf of the corporation.

Derivative

Who among the following plays the role of decision makers?

Directors

The three (3) major groups of individuals within a corporation are

Directors, officers, and shareholders

The most influential power of shareholders is to

Elect and remove directors

The secretary of state can compel involuntary dissolution when a corporation

Fails to notify the secretary of state within 60 days that its registered agent or office has changed

__________ are takeovers to which the management of the target corporation objects.

Hostile takeovers

Novation

In a contract, the substitution of a third party for one of the original parties. The duties remain the same under the contract, but one original party is discharged and the third party takes that original party's place

Which of the following statements is true of the liquidation phase of termination?

In case of involuntary dissolution, courts automatically appoint a receiver to handle liquidation duties

Identify the correct statement regarding a short-form merger.

It occurs when a parent corporation merges with a subsidiary corporation

De facto corporation

Latin for "corporation in fact"; a corporation that has not substantially met the requirements of the state incorporation statutes.

De jure corporation

Latin for "lawful corporation"; a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation.

A __________ occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist.

Merger

In a consolidation, __________ continue(s) to exist legally.

Neither of the original corporations

Hostile takeovers are takeovers in which the management of the target corporation _________ the takeover.

Objects to

__________ typically manage the day-to-day business of the firm.

Officers

Affiliated directors are _____________who have business contacts with a corporation.

Outside directors

A short-form merger is also known as a

Parent-subsidiary merger

Retained earnings

Profits that a corporation keeps

In a beachhead acquisition, the aggressor gradually accumulates a substantial number of the target corporation's shares and then initiates a(n)

Proxy fight

Corporations can extend their operations by

Purchasing another corporation's stock

Directors

Role: Decision makers The directors share in the power of deciding the course of action for the corporation. Directors also appoint and supervise officers and declare and pay corporate dividends. Goal: To ensure that the institution survives and that they keep their jobs.

Shareholders

Role: Owners The shareholders own the stock of the company. Goal: To increase the value of the company's stock

Bylaws

Rules and regulations that govern a corporation's internal management

The goal of the _____ within a corporation is to raise the value of a company's stock.

Shareholders

__________ typically approve/disapprove of major decisions of the board.

Shareholders

The ________ issues a certificate to grant approval for a merger or consolidation.

State legislature UCC Secretary of State IRS

Preferred stock

Stock that conveys preferences to its holder with respect to assets and dividends

Watered stock

Stock that is issued to individuals below its fair market value

The right of first refusal is a method of restricting

Stock transferability

Beachhead acquisition

The aggressor gradually accumulates a substantial number of the target corporation's shares and then initiates a proxy fight

According to the Revised Model Business Corporation Act (RMBCA), in which of the following situations can a secretary of state compel involuntary dissolution of a corporation?

The corporation did not have a registered agent or office in the state for sixty (60) days or more

Which of the following is not a procedural requirement for a merger or consolidation?

The officers of all involved corporations must approve the plan by a super-majority vote

In a consolidation,

Two or more corporations combine to form an entirely new corporation, with its own legal status

A shareholder who receives __________ stock, or stock issued below its fair market value, is individually liable for the difference between the price she paid for the shares and their stated corporate value.

Watered

Liability of Directors and Officers

-Can be held personally liable for their own tort and crimes -Can be held personally liable for the tort and crimes of other employees that they supervise -Cannot be held liable for decisions that hard the company if they were acting in good faith at the time of the decision

Articles of Incorporation

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

Right of first refusal

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

Promoter

A person who begins the corporate creation and organization process

Stock warrant

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

Tender offer

A type of takeover in which an aggressor corporation offers the target shareholders a price above their stock's current market value

A _____ occurs when a legal contract combines two or more corporations such that only one of the corporations continues to exist.

Merger

In a tender offer, the aggressor

Offers target shareholders a price above the current market value of the stock

According to the ___________ doctrine, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity.

Responsible person

According to the _____, a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity.

Responsible person doctorine

Officers

Role: The managers The officers manage the day-to-day activities of running the business, including acting as agents for the corporation Goal: To ensure that the institution survives and that they keep their jobs

When directors or officers violate their duty of loyalty, they are

Self-dealing

In a _____, the target corporation offers to buy its shareholders' stock.

Self-tender offer

Exchange offer

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

Cash tender offer

The aggressor offers to pay cash for the target corporation's stock

Surviving Entity

What remains after a merger. Shareholders must amend its articles of incorporation according to the specific conditions of the merger. The surviving corporation becomes liable for all debts and obligations of the absorbed corporation. It obtains the absorbed corporation's property and assets. It acquires the absorbed corporation's rights, powers, and privileges.