exam 4 study guide

What is a proxy?

Authorization to vote another's shares at a shareholder meeting

What is a direct suit?

Brought by a shareholder or a class of shareholders against the corporation based upon the ownership of shares

How to form a corporation or LLC: And Once approved, what now? and where from

Choose a name for the LLC Make sure it is available File the articles of incorporation with the secretary of state Wait to get them approved. get a tax ID and from the IRS

Which form of business association is responsible for most of the wealth creation in the country?

Corporations are the key creators of wealth in this country

How can we tell if a person is an employee or a partner?

Do they share some of the profit? Do they have any control?

When are directors elected?

Every year, at the annual shareholder's meeting Most states provide that when a corporation's board consists of 9 or more directors, that is, a division onto 2 or 3 classes to be nearly as equal in number as possible and to serve staggered terms

John is one of the promoters of company A. He wants to have the company sign a contract with another company owned by Jane, john's wife. Which duty does this transaction activate as to company A?

Fiduciary Duty, obligation to put interest of corporation before your personal interest

What risk do the shareholders of a closely held corporation take when they ignore corporate formalities?

Forfeiting their limited liability Being held responsible

What is the right to inspect books and records?

If the demand is made in good faith and for a proper purpose Right covers all records relevant to the shareholders legitimate interest

How does business judgement protect directors?

If this standard of conduct has not been met, the directors action must be shown to be the proximate cause of damage to the corporation

Durable power of attorney

If you give someone power of attorney and then you become mentally incompetence, this makes the appointment voidable

Example of durable power of attorney

If you want to choose a trusted person to be in charge of your affairs when you become incompetent

Name four possible legal statuses of a person involved with a partnership?

Independent contract Employee Partner Investor p.e,ic,i

What is the difference between inside and outside directors?

Inside have connection to the corporation they know the ins and outs of the business completely Outside- no relation to the business have no connection to the corporation

how is direct suit different from derivative suit

It's different because they enforce a right belonging to the corporation

How does agency terminate?

Lapse of time Death Incapacity Revocation of authority Mutual agreement

WHats is LLLP

Limited liability limited partnership

What is a quorum?

Minimum number of shares necessary to be present at a meeting to transact business Things can't be voted on or passed if a certain number of members are not there

Are shareholders personally responsible for the debts and obligations of the corporations? Why?

No, because they have limited liability for the corporation's debts Shareholders have limited liability for the corporation's debts, their liability does not extend beyond the amount of their investment They are not personally liable

A forms a corporation and leaves it with no assets. He signs contracts in the corporation's name with a number of customers. A decides it's easier just to keep the money from the customers and not do the work agreed on. Is A personally liable to the customers? What do the customers need to allege to get a judge to hold A personally liable to the customers? What do we call the court's disregarding of the corporate entity?

No, they have to allege some wrongdoing, piercing the corporate as well Not responsible if signed as "present of corp" you have to prove the fraud piercing the corporate veil

What is the business judgment rule

Precludes imposing liability on the directors or officers for honest mistakes of judgement if they act in good faith, and in a manner reasonably believed to be in the best interest of the corporation

Public means _______ Public corporation is a ______ Private owned by ______

Public means government Public corporation is a county Private owned by private corporations

What should one do before agreeing to serve on a corporate board?

See if they have the time Make sure they have enough time to obligate to the duty

What is the most common form of business association in the US?

Sole Proprietorship

A is a publicly held corporation. The biggest shareholders are not happy about all the requirements for publicly held corporations such as the mandates of Sarbanes Oxley (SOX). What can they do to avoid having to incur the expenses to comply with SOX requirements?

They could turn into a closely held corporation Become a closely or privately held corporation, have the big shareholders buy all of the small ones

Name some factors to be considered in choosing a business association form

Transferability Continuity Ease of formation Management and control External liability Taxation

what is Power of attorney

Written, formal appointment of an agent

Derivative-

a cause of action brought by one or more shareholders ON BEHALF OF the corporation to enforce a right belonging to it. This may happen when the board of directors refuses to so act on the corporation's behalf

What is conflict of interest

agent has a duty not to deal with the principal as, or on behalf of, to prevent a transaction connected with the agency relationship

A general power of attorney

allows the friends to do almost everything that you can

Self-dealing

an agent has a duty not to deal with the principal as an adverse party in a transaction connected with the agency relationship

The corporation is a

business entity form that allows a larger number of people to join together to create wealth

Employer has right to

control employees

What is the difference between a for- profit and a not for profit corporation?

for profit- created for purpose of operating business non profit- ones whose profits must be exclusively for the charitable, educational, or scientific purpose for when it was formed

Non-profit

founded for the purpose of charity, education, or scientific purpose for which it was formed

Profit-

founded for the purpose of making money

A profit corporation is

founded for the purpose of operating a business for profit

Shareholders authorization to an agent to vote

his shares at a particular meeting or on a particular question generally must be in writing, limited to 11 months

What is LLC

limited liability company

A non-profit corporation is

one who's profits is one's who profits must be used exclusively for the charitable, educational, or scientific purpose for which it was formed

Corporate veil

overcoming limited liability

Independent contractor

person who contracts with another to do a particular job that is not subject to the other's control over the manner and means of conducting the work

An agents is one who

represents another, the principal, in business dealings with a third person

Veil is

separating you from the shareholders

Employee relationship

the employer has the right to control the manner and means of the employee's performance of work

Direct-

to enforce a claim the shareholder has against the corporation, based on her ownership of shares. Any recovery of a direct suit goes to the shareholder plaintiff