Business Law - Chapter 36

Preferred stockholder

person who owns preferred stock.

Par value share

Common stock on which the corporation has set the lowest price at which the shares may be issued by the corporation.

Subchapter S Revision Act

Congress enacted the Subchapter S Revision Act to allow the shareholders of some corporations to avoid double taxation by electing Subchapter S corporation status.

Characteristics of a corporation

Corporations have certain characteristics such as a corporation is a legal person and it has perpetual existence.

Close corporations

Small corporations that have made a special election in order to be able to dispense of many of the formalities required of corporations.

Corporation code

State statutes that regulate the formation, operation, and dissolution of corporations.

General corporation statutes

Statutes that permitted corporations to be formed without the separate approval of the legislature.

Cumulative preferred stock

Stock for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends.

Participating preferred stock

Stock that allows the preferred stockholder to participate in the profits of the corporation along with the common stockholders.

Redeemable preferred stock

Stock that permits the corporation to buy back the preferred stock at some future date.

Convertible preferred stock

Stock that permits the preferred stockholders to convert their shares into common stock.

Arrearages

The amount of unpaid cumulative dividends is called dividend arrearages.

Registered office

The articles of incorporation must identify a registered office with a designated registered agent in the state.

Articles of incorporation

The basic governing documents of a corporation. It must be filed with the secretary of state of the state of incorporation.

Corporate management

The directors and the officers form the corporate management.

Termination

The ending of a corporation that occurs only after the winding up of the corporation's affairs, the liquidation of its assets, and the distribution of the proceeds to the claimants.

Domain name

The name of a website that a corporation uses to conduct business over the Internet.

Authorized shares

The number of shares provided for in the articles of incorporation.

Incorporator

The person or persons, partnerships, or corporations that are responsible for incorporation of a corporation.

Winding up and liquidation

The process by which a dissolved corporation's assets are collected, liquidated, and distributed to creditors, shareholders, and other claimants.

Liquidation preference

The right to be paid a stated dollar amount if a corporation is dissolved and liquidated.

Dividend preference

The right to receive a fixed dividend at stipulated periods during the year.

Not-for-profit corporation

These are formed for charitable, educational, religious, or scientific purposes.

Model Business Corporation Act

This act was intended to provide a uniform law regulating the formation, operation, and termination of corporations.

Delaware General Corporation Law

This law is the most advanced corporation law in the country, and the statute is particularly written to be of benefit to large corporations.

Certificate of authority

Where a foreign corporation is required to qualify to conduct intrastate commerce in a state, it must obtain a certificate of authority from the state.

Noncumulative preferred stock

With noncumulative preferred stock, there is no right of accumulation.

Court of chancery

a special court in Delaware .

Treasury shares

Shares of stock repurchased by the company itself.

General purpose clause

A clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law.

Limited purpose clause

A clause that can be included in the articles of incorporation that stipulates the activities that the corporation can engage in. The corporation can engage in no other purposes or activities.

Promoters' contracts

A collective term for such things as leases, sales contracts, contracts to purchase property, and employment contracts entered into by promoters on behalf of the proposed corporation prior to its actual incorporation.

Indenture agreement

A contract between the corporation and the holder that contains the terms of a debt security.

S corporations

A corporate election designed to pass through taxation to the personal taxes of the shareholders, avoiding the double taxation of C corps.

Profit corporation

A corporation created to conduct a business for profit that can distribute profits to shareholders in the form of dividends.

Statutory close corporation

A corporation formed by entrepreneurs with few shareholders who often work for the corporation and manage its day-to-day operations.

Professional corporation

A corporation formed by lawyers, doctors, or other professionals.

Private corporation

A corporation formed to conduct privately owned business.

Government owned corporation

A corporation formed to meet a specific governmental or political purpose.

Foreign corporation

A corporation in any state or jurisdiction other than the one in which it was formed.

Domestic corporation

A corporation in the state in which it was formed.

Legal entity

A corporation is a separate legal entity (or legal person) for most purposes.

Closely held corporation

A corporation owned by one or a few shareholders.

Voluntary dissolution

A corporation that has begun business or issued shares can be dissolved upon recommendation of the board of directors and a majority vote of the shares entitled to vote.

Publicly held corporation

A corporation that has many shareholders and whose securities are often traded on national stock exchanges.

Alien corporation

A corporation that is incorporated in another country.

Parent corporation

A corporation which owns all or most of the stock in a subsidiary corporation, but is separated by a liability shield.

C corporation

A corporation with more than 75 shareholders or one that does not elect to become an S corporation. It is taxed at both the corporate level and dividends distributed to shareholders are taxed on the personal income tax.

Note

A debt security with a maturity of five years or less.

Corporate seal

A design that contains the name of the corporation and the date of incorporation.

Bylaws

A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation.

Fixed dividend

A dividend preference is the right to receive a fixed dividend at set periods during the year.

Preferred stock certificate

A document that represents a shareholder's investment in preferred stock in the corporation.

Common stock certificate

A document that represents the common shareholder's investment in the corporation.

Corporation

A fictitious legal entity that is created according to statutory requirements.

Limited liability

A general rule of corporate law that provides that generally shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation.

Bond

A long-term debt security that is secured by some form of collateral.

Debenture

A long-term unsecured debt instrument that is based on the corporation's general credit standing.

Organizational meeting

A meeting that must be held by the initial directors of a corporation after the articles of incorporation are filed.

Board of directors

A panel of persons who are elected by the shareholders that make policy decisions concerning the operation of a corporation.

Registered agent

A person or corporation that is empowered to accept service of process on behalf of a corporation.

Promoter

A person who organizes and starts a corporation, finds the initial investors to finance the corporation, and so on.

Common stockholder

A person who owns common stock.

Novation

A three-party agreement in which the corporation agrees to assume the contract liability of the promoter with the consent of the third party.

Preferred stock

A type of equity security that is given certain preferences and rights over common stock.

Common stock

A type of equity security that represents the residual value of a corporation.

Articles of amendment

After the shareholders approve an amendment, the corporation must file articles of amendment with the secretary of state of the state of incorporation.

Form 2553

An S corporation election is made by filing Form 2553 with the Internal Revenue Service (IRS).

Service corporation

An abbreviation used to identify professional corporations.

Ultra vires act

An act by a corporation that is beyond its express or implied powers.

Professional association

An association of professionals.

Unissued shares

Authorized shares that have not been sold by the corporation.

Outstanding shares

Shares of stock that are in shareholder hands.

Double taxation

C corporations are taxed first at the corporate level and then the profits distributed by dividend payments are taxed as part of the personal income of the shareholders.

Corporate officers

Employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation.

Articles of dissolution

For a voluntary dissolution to be effective, articles of dissolution must be filed with the secretary of state of the state of incorporation.

Decree of dissolution

If a court judicially dissolves a corporation, it enters a decree of dissolution that specifies the date of dissolution.

Dividends

In return for their investment, common stockholders receive dividends.

Certificate of dissolution

In the case of administrative dissolution, the secretary of state issues a certificate of dissolution that dissolves the corporation.

Administrative dissolution

Involuntary dissolution of a corporation that is ordered by the secretary of state if the corporation has failed to comply with certain procedures required by law.

Revised Model Business Corporation Act

It arranges the provisions of the act more logically, revises the language of the act to be more consistent, and makes substantial changes in the provisions of the model act.

Issued shares

Shares that have been sold by the corporation.

Nonparticipating preferred stock

It does not give the holder a right to participate in the profits of the corporation beyond the fixed dividend rate.

Model Nonprofit Corporation Act

It governs the formation, operation, and termination of not-for-profit corporations.

Model Statutory Close Corporation Supplement (Supplement)

It was added to the RMBCA to permit entrepreneurial corporations to choose to be close corporations under state law.

Promoters' liability

Liability of those people who organize and start a corporation.

Municipal corporation

Local government corporations.

No par value share

No par value shares do not have an assigned par value.

Judicial dissolution

Occurs when a corporation is dissolved by a court proceeding instituted by the state.

Shareholders

Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation.

Implied powers

Powers beyond express powers that allow a corporation to accomplish its corporate purpose.

Express powers

Powers given to a corporation by (1) the U.S. Constitution, (2) state constitutions, (3) federal statutes, (4) state statutes, (5) articles of incorporation, (6) bylaws, and (7) resolutions of the board of directors.

Nonconvertible preferred stock

Preferred stock that does not have a conversion feature is called nonconvertible preferred stock.

Nonredeemable preferred stock

Preferred stock that is not redeemable is called nonredeemable preferred stock.

Equity securities

Representation of ownership rights to a corporation.

Debt securities

Securities that establish a debtor-creditor relationship in which the corporation borrows money from the investor to whom the debt security is issued.