The Law of Corporations and Other Business Organizations

Common Stock

Shares in a corporation that depend for their value on the value of the company. These shares usually have voting rights (which other types of company stock may lack). Usually they earn a dividend (profit only after all other types of the company's obligations and stocks have been paid).

Fiduciary

1) A person who manages money of property for another person and in whom that other person and in whom that other person has a right to place great trust. 2) A relationship like that in definition 1. 3) Any relationship bewtween persons in which one person acts for another in a position of trust. ex. lawyer and client or parent and child.

Sherman Act

15 U.S.C 1, The first antitrust (antimonopoly) law, passed by the federal government in 1890 to break up combonations in restraint of tradde.

Clayton Act

15 U.S.C 12, A 1914 federal law that extended the Sherman Act's prohibition against monopolies and price discrimination.

Hart-Scott-Rodino Act

15 U.S.C. 18a, A federal law passed in 1976 that strengthens the enforcement powers of theJustice Department. The act requires entities to give notice to the Federal Trade Commission and the Justice Department prior tomergers and acquisitions when the size of the transaction is valued at 50 million or more.

Statutory Close Corporation

A closely held corp having no more than 50 shareholders that has elected to be treated as a statutory close corp under the relevant statutes of its satte of domicile.

Amalgamation

A complete joining or blending together of two or more things into one. A consolidation or merger of two or more corporations to create a single company.

Parent Corporation

A corp that fully controls or owns another company.

Subsidiary Corporation

A corp that is owned by another corp (the parent corp).

Close Corporation

A corp with total ownership in a few hands.

Closely Held Corporation

A corp with total ownership in a few hands.

Hostile Takeover

A corporate takeover that is opposed by the management and board of directors.

Foreign Corporation

A corporation incorporated in a state or county other than the state referred to. A corporation is considered a foreign corp in every state other than its state of incorporation.

Debentures

A corporation's obligation to pay money (usually in the form of a note or bond) often unsecured (not backed up) by any specific property. Usually refers only to long-term bonds.

Stock Split

A dividing of a company's stock into a greater number of shares without changing each stockholders proportional ownership.

Involuntary Dissolution

Dissolution that is not approved by the board of directors or shareholders of a corporation, often initiated by creditors of an insolvent corporation.

Articles of Amendment

Doc filed with the secretary of state or other appropriate state authority to amend a corporation's articles of incorporation.

Articles of Dissolution

Document filed with the secretary of state or other appropriate state authority to dissolve the corporation.

Articles of Share Exchange

Document filed with the secretary of state or other appropriate state authority to effect a share exchange.

Articles of Mergers

Document filled with the secretary of state or other appropriate authority to affect a merger.

Plan of Merger

Document required by state statute that sets forth the terms of the agreement between the two merging parties in detail.

Plan of Exchange

Document required by statute that sets forth the terms of the agreement between the parties to a statutory share exchange.

Punitive Damages

Extra money given to punish the defendant and to help keep a particular bad act from happening again.

Federal Trade Commission Act

Federal Act passed in 1914, establishing the Fed Trade Commission to curb unfair trade practices.

Federal Commission

Federal agency created in 1914 to promote free and fair competition and to enforce the provisions of the Federal Trade Commission Act, which prohibits 'unfair or deceptive acts or practices in commerce'.

Antitrust Laws

Federal and state laws to protect trade from monopoly control and from price fixing and other restraints of trade. The main federal antitrust laws are the Sherman, Clayton, Federal TRade Commission and Robinson Patman Acts.

Inspectors of Election

Impartial Individuals who are often appointed to oversee the election of directors at the shareholder meetings of large corporations.

Registered Agent

Individual appointed by a corp to receive service of process on behalf of the corp and perform such other duties as may be necessary. REgistered agents may be required in the corp's state of domicile.

Triangle Merger

Merger involving three corporations, whereby a corporation forms a subsidiary corporation and funds it with sufficient cash or shares of stock to perform a merger with the target corporation which is merged into the subsidiary. The parent and subsidiary corporations survive.

Downstream Merger

Merger whereby a parent corporation is merged into a subsidiary.

Upstream Merger

Merger whereby a subsidiary corporation merges into its parent.

Sinking Fund

Money or other assets put aside for a special purpose, such as to pay off bonds and other long term debts as they come due or to replace, repair, or improve machinery or buildings when they wear out or become outdated.

Collateral

Money or property subject to a security interest.

Registered Office

Office designated by the corp as the office where process may be served. The secretary of state must be informed as to the location of the registered office.

Entity Conversion

Process whereby a domestic corporation becomes an unincorporated entity or an unincorporated entity becomes a corporation.

Stock Dividend

Profits of stock ownership (dividends) paid out by a corporation in more stock rather than in money. This additional stock reflects the increased worth of the company.

Corporate Compliance Program

Programs established by corporate management to prevent and detect misconduct among officers, directors, and employees of the corporation, and to ensure that corporate activities are conducted legally and ethically.

Capital Surplus

Property paid into a corporation by the shareholders in excess of capital stock liability.

Bylaws

Rules or regulations adopted by an organization such as a corporation, club, or town.

Equity Securities

Securities that represent an ownership interest in the corporation.

Debt Securities

Securities that represent loans to the corporation, or other interests that must be repaid.

Reverse Triangle Merger

Three-way merger whereby a subsidiary corporation is merged into the target corporation. The end result is the survival of the parent corporation and the target corporation, which becomes a new subsidiary.

Perfection

To tie down or 'make perfect'. To perfect title is to record it in the proper place so that your ownership is protected against all persons, not just against the person who sold to you.

Authorized Shares

Total number of shares, provided for in the articles or certificate of incorporation, that the corporation is authorized to issue.

Share Exchange

Transaction whereby one corporation acquires all of the outstanding shares of one or more classes or series of another corporation by an exception by an exchange that is compulsory on the shareholders of the target corporation.

Consolidation

Two corporations joining together to form a third, new one.

Sister Corporations

Two or more companies with the same or mostlt the same owners.

Voluntary Dissolution

Dissolution that is approved by bthe directors and shareholders of the corporation.

Merger

The union of two or more corporations, with one corporation ceasing to exist and becoming a part of the other.

Bond

A document that states a debt owed by a company or a government. The company, government, or government agency promises to pay the owner of the bond a specific amount of interest for a set period of time and to repay the debt on a certain date. A bond, unlike stock, gives the holder no ownership rights in the company.

Representative Action

A lawsuit brought by one stockholder in a corporation to claim rights or to fix wrongs done to many or all stockholders in the company.

Derivative Action

A lawsuit by a stockholder of a corporation against another person (usually an officer of the company) to enforce claims the stockholder thinks the corporation has against that person.

Direct Action

A lawsuit by a stockholder to enforce his or her own action against a corporation or its officers rather than to enforce the corporation's rights in a derivative action.

Commercial Paper

A negotiable instrument related to business - for example: a bill of exchange. Sometimes, the word is restricted to a company's control.

Transfer Agent

A person (or an institution such as a bank) who keeps track of who owns a company's stocks and bonds. Also called a registrar. A transfer agent sometimes also arranges dividend and interest payments.

Affiliate Corporations

A person or company with an inside business connection to another company. Under BK, securities, and other laws, if one company owns more than a certain amount of another company's voting stock, or if the companies are under common control, they are affiliates.

Proxy

A person who acts for another person (usually to vote in place of the other person in a meeting the other cannot attend). A document giving that right.

Promoter

A person who forms a corporation.

Domicile

A person's permanent home, legal home, or main residence. The words abode, citizenship, habitancy and residence sometimes mean the same as domicile and sometimes not. A corporate domicile is the corporation's legal home (where its headquarters is located); an elected domicile is the place the persons who make a contract specify as their legal homes in the contract.

Scrip

A piece of paper that is a temporary indication of a right to something valuable. Scrip includes paper money issued for temperary use, partial shares of stock after a stock split. certificates of a deferred stock dividend that can be cashed in later, and so on.

Letter of Intent

A preliminary written agreement setting forth the intention of the parties to enter into a contract.

Secured Transaction

A secured deal involving goods or fixtures that is governed by Article Nine of the Uniform Commercial Code.

Dividend

A share of profits or property; usually a payment per share of a corporations stock.

Long-term Statute

A state law that allows the courts of that state to claim jurisdiction over persons outside the state who have allegedly committed torts or other wrongs inside the state. Even with a long-term statute, the court will not have jurisdiction unless the person sued has certain minimum contacts with the state.

Watered Stock

A stock that is sold as if fully paid for, but that is not (often because some or all of the shares were given out for less than full price).

Statutory Merger

A type of merger that is specifically provided for by state statute.

Preferred Stock

A type of stock that is entitled to certain rights and privileges over other outstanding stock of the corporation.

Preincorporation Transaction

Actions taken by promoters or incorporators prior to the actual formation of the corporation.

Preincorporation Agreement

Agreement entered into between parties setting forth their intentions with regard to the formation of a corporation.

Stock Subscription

Agreement to purchase a specific number of shares of a corporation.

Voting Group

All shares of one or more classes that are entitled to vote and be counted together collectively on a certain matter under the corporations articles of incorporation or the pertinent state statute.

Assignment of Error

Alleged errors of the trial court specified by an appellant in seeking a reversal, vacation, or modification of the trial courts judgment.

Buy-Sell Agreement

An agreement among partners or owners bof a company that if one dies withdraws from the business, his or her share will be bought by the others or disposed of according to a prearranged plan.

Corporation

An organization that is formed under state or federal law and exists, for legal purposes, as a separate being or an "artificial person."

Charter

An organization's basic starting document. (Art of Inc)

Security Interest

Any right in proerty that is held to make sure money is paid or that something is done.

DEbt Capital

Capital raised with an obligation in terms of interest and principal payments. Debt capital is often raised by issuing bonds.

Certificate of Authority

Certificate issued by secretary of state or similar state authority granting a foreign corporation the right to transact business in that state.

Monopoly

Control by one or few companies of the manufacture, sale, distribution, or price of something. A monopoly may be prohibited if, for example, a company deliberately drives out competition.

Administrative Dissolution

Dissolution of a corporation by the state of the corporation's domicile, usually for failing to pay income taxes or file annual reports.

Common Stock

Shares in a corporation that depend for their value on the value of the company. These shares usually have voting rights. Usually, they earn a dividend (prpofit) only after all other types of the company's obligations have been paid.

Treasury Shares

Shares of stock that have been rebought by the corporation that issued them

Certificate of Good Standing

Sometimes referred to as a certificate of existence. Certificate issued by the secretary of state or other appropriate state authority proving the incorporation and good standi9ng of the corporation in that state.

Door-closing Statute

State statute providing that a corporation doing business in the state without the necessary authority is precluded from maintaining an action in that state.

White-Collar Crime

Term signifying various types of unlawful, nonviolent conduct committed by corporations and individuals, including theft or fraud and other violations of trust committed in the course of the offender's occupation (e.g., embezzlement, commercial bribery, racketeering, anti-trust violations, price-fixing, stock manipulation, insider trading, and the like). RICO laws are used to prosecute many tupes of white-collar crimes.

Indemnification

The act of compensating or promising to compensate a person who has suffered a loss or may suffer a future loss.

Articles of Incorporation

The doc used to set up a corp. Articles of incorporation contain most basic rules of the corporation and control other corporate rules such as the bylaws.

Proxy Statement

The document sent or given to stockholder when their voting proxies are requested for a corporate decision. The SEC has rules for when the statements must be given out and what must be in them.

Par Value

The nominal value assigned to shares of stock, which is imprinted upon the face of the stock certificate as a dollar value. Most statutes do not require corporations to assign a par value to their shares of stock.

Quorum

The number of persons who must be present to make the votes and other actions of a group (such as a board) valid. This number is often a majority (over half) of the whole group, but is sometimes much less or much more.

Business Judgment Rule

The principle that if persons running a corporation make honest, careful decisions within thier corporate powers, no court will interfere with these decisions even if the results are bad.

Preemptive Right

The right of somestockholders to have the first opportunity to buy any new stock the company issues.

Novation

The substitution by agerement of a new contract for an old one, with all the rights under the old contract ended. The new contract is often the same as the old one, except that one or more of the parties is different.

Stated Capital

The total amount of capital contributed by stockholders to a corporation. The capital or equity of a corporation as it appears in the balance sheet.

Issued and Oustanding Shares

The total shares of stock of corporation that have been authorized by the corporation's articles or certificate of incorporation and issued to shareholders.

Cumulative Voting

The type of voting in which each person (or each share of stock, in the case of a corporation) has as many votes as there are positions to be filled. Votes can be either concentrated on one or on a few candidates or spread around.

Cumulative Dividend

Type of dividend paid on preferred stock that the corporation is liable for in the next payment period if not satisfied in the current payment period. Cumulative dividends on preferred stock must be paid before any dividends may be paid on common stock.

Liquidation

Winding up the affairs of a business by identifying assets, converting them into cash, and paying off liabilities (liquidate the company).

Tortious

Wrongful. A civil (as opposed to criminal) wrong (tort), other than a breach of contract. For an act to be a tort, there must be: a legal duty owed by one person to another, a breach (breaking) of that duty and harm done as a direct result of the action. Examples of torts are negligence, libel and battery.