ACCT324 Ch. 39

Par-Value Shares

Fixed face value noted on stock certificate; shareholder must pay the corporation at least this

Business Self-Dealing

When a director or officer makes decisions that benefit other companies with which they have a relationship

Personal Self-Dealing

When a director or officer makes decisions that benefit themselves personally

Self-Dealing

When directors or officers violate their duty of loyalty

Cumulative voting

a process that ensures minority shareholders have a voice in which each group (majority and minority shareholders) get a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions

Duty of Care

directors and officers must exercise due care when making decisions for the corporation

Duty of Loyalty

directors and officers must put the corporation's interests above their own when making decisions

Inside Directors

directors who are also officers or employees of the corporation

Outside Directors

directors who are not officers or employees of the corporation; split into affiliated and unaffiliated directors

3 major groups of individuals within a corporation

directors, officers, shareholders

Preemptive Rights

gives preference to shareholders to purchase shares of a new issue of stock; each shareholder receives preference in proportion to the percentage of stock they already own

Affiliated Direcors

have business contacts with the corporation

A director or officer convicted of breaching the duty of loyalty is required to cede the corporation all ________ earned as a result of the breach

profits

Stock Warrants

redeemable for a certain number of shares at a specified price within a given time period if preemptive rights exist; usually traded publicly on securities exchange

A _________ voting agreement is an agreement by multiple shareholders to vote together at a meeting

shareholder

How do shareholders elect directors?

majority vote (exception: during incorporation)

When a corporation faces an important decision, who will meet to decide what course of action the corporation will take?

board of directors

Duties of Directors and Officers

1. Duty of Care 2. Duty of Loyalty 3. Duty to Disclose Conflict of Interest

If a corporation engages in any of these behaviors, shareholders have a legal right to initiate dissolution

1. directors are deadlocked in managerial decisions and harming the corporation 2. directors are acting in illegal, oppressive, or fraudulent ways 3. assets are being wasted or used improperly 4. shareholders are deadlocked and cannot elect directors

Rights of Directors

1. right to compensation 2. right of participation 3. right of inspection 4. right to indemnification

In what year did the ABA draft the first version of the MBCA?

1946

T/F: Cumulative voting is guaranteed under the RMBCA

False

Corporations can deny shareholders the right to inspect

confidential corporate information

Business-Judgement Rule

Directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time (not a statute but common law recognized almost everywhere nationally)

What document dictates the number of members of a board of directors in a corporation?

corporate bylaws

RMBCA

Revised Model Business Corporation Act; 1984; adopted by more than half the states

Watered Stock

Stock issued below its fair market value, is also individually liable for the difference between the price she paid for the shares and their stated corporate value

Uncertified Shares

Stock issued without actual stock certificates

No-Par Shares

Stock shares without a par value; shareholder must pay market value

Oppressive Conduct

a breach of fiduciary duty by majority shareholders in a closely held corporation

Responsible Person Doctrine

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

shareholder's direct suit

a lawsuit filed by a shareholder against the corporation

shareholder's derivative suit

a suit brought by shareholders on behalf of the corporation if corporate directors fail to sue when the corporation has been harmed by an individual, another corporation, or a director

shareholders can inspect records and books only if they

ask in advance and have a proper purpose

Stock Certificates

certificates that provide evidence of stock ownership; includes corporation's name and the number of shares it represents

The business judgement rule is based on what legal authority?

common law

If directors fail to declare and distribute __________, shareholders have the right to take legal action to force them to do so

dividends

Officers

executive managers whom the board of directors hires to run the day-to-day business of the corporation

Decisions made by directors and officers must be both __________ and ___________

informed, reasonable

Officers are in a contractual relationship with a corporation, and if they are removed in violation of the contract terms, the corporation

may be liable for breach of contract

How often do shareholders meet?

once a year (but can meet more often in emergencies)

unaffiliated directors

outside directors who have no business contacts with the corporation

Right of First Refusal

the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specific period of time

With a voting trust, who is responsible for voting the shares of the trust?

the trustee

Proxy

when a shareholder authorizes a third party to attend a shareholder's meeting and vote in their place