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