BLAW 5060 Ch 4, 5, 6

Stock Certificate

A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation.

Stock Warrant

A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period.

S Corporation

A close business corporation that has most of the attributes of a corporation, including limited liability, but qualifies under the Internal Revenue Code to be taxed as a partnership.

Holding Company

A company whose business activity is holding shares in another company.

Crowdfunding

A cooperative activity in which people network and pool funds and other resources via the Internet to assist a cause (such as disaster relief) or invest in a business venture (such as a startup).

Alien Corporation

A corporation formed in another country but doing business in the United States.

Public Corporation

A corporation owned by a federal, state, or municipal government—not to be confused with a publicly held corporation.

Close Corporation

A corporation whose shareholders are limited to a small group of persons, often family members.

Publicly Held Corporation

A corporation whose shares are publicly traded in securities markets, such as the New York Stock Exchange or the NASDAQ.

Dividends

A distribution of corporate profits to the corporation's shareholders in proportion to the number of shares held.

Business Trust

A form of business organization, created by a written trust agreement, that resembles a corporation. Legal ownership and management stay with the trustees, and the profits are distributed to the beneficiaries, who have limited liability.

cooperative

A group of fifty homeschooling parents in New Jersey get together and form a nonprofit membership organization for the purpose of buying teaching materials and supplies at a discount and selling the materials and supplies to members. The parents have probably formed a:

Syndicate

A group of individuals or firms that join together to finance a project; also called an investment group.

Limited Liability Company (LLC)

A hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantages of a partnership.

Joint Stock Company

A hybrid form of business organization that combines characteristics of a corporation and a partnership. Usually regarded as a partnership for tax and other legal purposes.

Joint Venture

A joint undertaking by two or more persons or business entities to combine their efforts or their property for a single transaction or project, or for a related series of transactions or projects. Generally treated like a partnership for tax and other legal purposes.

Outside Directory

A person on a corporation's board of directors who does not hold a management position at the corporation.

Inside Director

A person on a corporation's board of directors who is also an officer of the corporation.

Member

A person who has an ownership interest in a limited liability company.

Business Judgement Rule

A rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgment and bad business decisions that were made in good faith.

Preferred Stock

A security that entitles the holder to payment of fixed dividends and that has priority over common stock in the distribution of assets on the corporation's dissolution.

Bond

A security that evidences a corporate (or government) debt.

Common Stock

A security that evidences ownership in a corporation. A share gives the owner a proportionate interest in the corporation with regard to control, earnings, and net assets. Lowest in priority with respect to payment of dividends and distribution of the corporation's assets on dissolution.

Shareholder's Derivative Suit

A suit brought by a shareholder to enforce a corporate cause of action against a third person.

Benefit Corporation

A type of for-profit corporation, available by statute in a number of states, that seeks to have a material positive impact on society and the environment.

personally liable

Abby and Zeke begin a joint venture together selling fruitcakes door to door. Each invests $500. The joint venture generates large debts, and there is not sufficient income from the joint venture to pay them. Abby and Zeke as joint venturers are:

adopt bylaws

Acme Co. just completed the incorporation process and received its articles of incorporation from the state. At the first organizational meeting of the new company, the officers' most important task is to:

ultra vires

Acts of a corporation that are beyond its express and implied powers to undertake (the Latin phrase means "beyond the powers").

Voting Trust

An agreement (trust contract) under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf.

Shareholder Agreement

An agreement between shareholders that restricts the transferability of shares, often entered into for the purpose of maintaining proportionate control of a close corporation.

Operating Agreement

An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated.

Cooperative

An association, which may or may not be incorporated, that is organized to provide an economic service to its members. Often treated like partnerships for tax and other legal purposes.

Stock

An ownership (equity) interest in a corporation, measured in units of shares.

may file in a state court in Connecticut or Michigan

Anson is a citizen of Connecticut. He suffers severe injuries in a car accident. He hires a Michigan attorney to bring a multimillion-dollar claim against the car manufacturer. The attorney belongs to an LLC whose members are from several states, including Connecticut. After losing the product liability claim, Anson brings a malpractice lawsuit against the attorney. He:

she can file a lawsuit against the corporation for damages

Ariana is an officer of New Stage, a theater production company. Without telling any other officers or the board of directors, she decides that New Stage should try to sell gardening tools over the Internet. She makes contracts with suppliers and a Web-based remote-order-fulfillment company. The only action that may not be taken is:

buys stock in Arnold's Transport, Inc., a competing trucking firm

As a director and officer of Max Transport, Inc., Max would most likely be considered to have breached his duty of loyalty if he:

Proxy

Authorization to represent a corporate shareholder to serve as his or her agent and vote his or her shares in a certain manner.

for cause

Betty, a corporate director, has engaged in a number of acts that constitute a conflict of interest between her and Global Mfg., Inc. The corporation shareholders want to remove her, and in most jurisdictions can do so:

Delaware

Bridgette wants to start a corporation. She is looking for a state in which to incorporate. If she incorporates in the state with laws that favor corporate management, where many corporations have incorporated, she will select:

Private Equity Capital

Capital funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it.

an inside director

Carmen is the vice president for marketing for Nita's Web Design. She also sits on the board of directors. Carmen would be considered:

limited liability for members

Charlotte and Regina are opening a new business venture to sell gourmet cupcakes. One of the important characteristics in starting a limited liability company is:

share profits and losses equally

Creative Concepts Co. and Retail Investment, Inc., form a joint venture to purchase and sell high-end real estate to foreign buyers. Creative Concepts contributes $400,000 in capital and Retail Investment contributes $600,000 in capital. The first year resulted in $2,000,000 in profits. Unless otherwise agreed, joint venturers:

a fiduciary duty

Don, Keith, Jack, and Diane are shareholders in a close corporation. Don and Keith, as majority shareholders, owe which of the following duty to Jack and Diane as minority shareholders:

not be held responsible because of the business judgment rule

Doug is the vice president of product development for a corporation that makes flavored honey. Doug proposes to the board that they approve three new products: chili-flavored honey, seaweed-flavored honey, and black-licorice honey. Doug and his team have market tested the flavors and they received positive reviews from focus groups. The board approves the flavors, which then fail miserably and cost the company thousands of dollars. If some shareholders sue the board for its decision to market the flavors, the board most likely will:

The corporation was undercapitalized from the beginning and never had sufficient assets to operate as a viable business

Elliot is suing Acme, Inc., for a breach of contract, but because Acme, Inc., has very little in assets, he asks the court to pierce the corporate veil and hold the officers personally liable. In which of the following situations would the court likely approve Elliot's request?

Epsilon's shareholders must approve it

Epsilon Corporation has been struggling for a number of years. Zeta Corporation is interested in purchasing and making productive use of Epsilon's assets, but dissolving the corporation. In order for this sale to occur:

Venture Capital

Financing provided by professional, outside investors—that is, venture capitalists, usually groups of wealthy investors and securities firms—to new business ventures.

indemnification

Galen and Leslie are directors, but not officers, of Tropical Travels, Inc. Tropical Travels, Inc., becomes embroiled in a controversy over airline kickbacks. As directors, Galen and Leslie can be named in any lawsuit that may result from the company's actions. If they have any expenses related to the lawsuit, they may be compensated for those under their right of:

Securities

Generally, stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation.

oversee every aspect of the business, including such things as ordering merchandise and arranging for janitorial services

Genevieve is a member of the board of directors and the chief financial officer of The Shoe Fits, Inc. Under the duty of care that she owes the corporation, Genevieve does not need to:

priority over holders of common stock as to dividends

George owns 300 shares of preferred stock in a company. By owning preferred stock, George has:

Foreign Corporation

In a given state, a corporation that does business in that state but is not incorporated there.

Domestic Corporation

In a given state, a corporation that is organized under the law of that state.

are distributed to pay off creditors first and member capital contributions next. Any remaining amounts are then distributed to members in equal shares or according to the operating agreement

Jason, Julian, and Rebecca are members of a longstanding and successful LLC. The three members want to dissolve their LLC and distribute their assets, but they know the LLC has debts as well. Once all the LLC's assets have been sold, the proceeds:

de jure corporation

Keenan wants to incorporate his business. He buys business cards and labels with the name "Keenan's Kwips" on them and begins selling gag gifts. Keenan follows the rules for incorporation in his state, including a statement that he is the sole shareholder, and he is granted a certificate of incorporation. The only problem is that Keenan has an error in his address on all the paperwork. Keenan's business is probably a:

a preemptive right

Lysco, Inc., gives to all 15,000 of its shareholders the right to purchase newly issued shares of Lysco, Inc., stock in proportion to the percentage of shares they currently own and before anyone else is offered the shares. This right is known as:

there is no uniform law governing LLCs in the United States

Mack is an oil executive. He wants to start a new company with different partners to explore some drilling opportunities. His attorney advises him about the various business forms. When discussing the LLC form, his attorney mentions that one of the biggest disadvantages of the LLC form is that:

dividends

Mandy's Muffins, Inc., makes a profit in 2015. The managers of Mandy's Muffins, Inc., decide to distribute the profits to the corporation's shareholders in proportion to the number of shares held. The profits distributed to the shareholders are known as:

can because of the implied powers of the corporation

Marguerite starts a corporation. Her articles of incorporation specifically state that the corporation will work in the beauty products industry. Marguerite would like to take out a loan on the company's behalf. She:

fully disclose his interest to the other board members and abstain from voting on the matter

Mark is a director of Bromley Corp. Mark also owns a printing company named BooksMark. If Bromley Corp. needs a marketing brochure printed and BooksMark is being considered as the printer for that brochure, Mark must:

and it adopts the contracts, it can then enforce the contract terms

Marvin and Maria start selling handmade jewelry to distributors nationwide, and intend to form an LLC. Marvin and Maria enter into four contracts with distributors while the LLC is in the process of being formed, but before the LLC is formally in existence. Once Marvin and Maria form the LLC:

the members could be liable for $10,000 each, the amount of their investment

Mary, Thomas and Franklin form an LLC for the purpose of running a restaurant. Each invests $10,000 into the LLC. Two weeks after the LLC is formed, Joanne patronizes the restaurant and suffers from severe food poisoning. If Joanne sues the LLC:

the LLC must purchase Matt's interest at fair value within 120 days

Matt and Chad form an LLC, and Matt later decides to withdraw as a member. They do not have a provision in their operating agreement regarding withdrawal of a member, but they do live in a state that has adopted the ULLCA, which means that:

the other members may continue to carry on the LLC's business, unless the operating agreement provides otherwise

Product Management, LLC, has forty members. Two of the members died the previous year. Under the Uniform Limited Liability Company Act (ULLCA), on the death of the two members:

an S corporation

Micah and Jonah want to start a corporation but prefer it to be taxed as a partnership. They should form:

use cumulative voting

Nikki and Jim own a corporation together. Nikki owns forty-eight shares of stock and Jim owns fifty-two. They consider themselves investors, so they elect a board of three directors to oversee the business. To ensure that Nikki can elect at least one director, the corporation should:

a foreign corporation, and she will probably have to obtain a certificate of authority to do business there

Rena incorporates her business, Rena's Rhinestones, in her home state of Maryland. She wants to expand and sell some of her jewelry in Virginia. In Virginia, her company will be considered:

illegal, because the Sarbanes-Oxley Act requires all publicly held corporations to have an audit committee

Ruis Corporation, a publicly held corporation, has thirty-five members on its board of directors. In order to conduct business efficiently, the chairman of the board is proposing that five committees be created: the executive committee, the human resources committee, the marketing committee, the research and development committee, and the sales committee. Seven members of the board would serve on each committee and each board member would serve on only one committee. This is:

pierce the corporate veil due to Sarah's commingling of interests

Sarah owns half of Smith Realty, Inc., and her brother, Bill, owns the other half. Sarah routinely uses the company car, which is supposed to be only used for taking clients to view property, to run her personal errands. She also routinely uses company funds for personal uses, but always pays the money back in to the corporation. When Smith Realty failed to pay its lawyer for work completed on its behalf, the lawyer sued both Smith Realty, Inc., as well as Sarah and Bill personally. In this situation the court likely will:

Professional Corporation

Several lawyers in Plainsville decide to start a law firm together. They use their names as the name of the firm. The law firm of Adams, Bell, and Clyde has the letters "P.C." at the end of its name. The letters stand for:

Watered Stock

Shares of stock issued by a corporation for which the corporation receives, as payment, less than the fair market value of the shares.

proxy

Suzy signs a written agreement with Phillip giving him the right to cast her votes for a certain group of people nominated for the board of directors at Syllibar Corporation. This agreement between Suzy and Phillip is known as a:

limited to her investment in the stock

Tammi purchases stock in Vivaldi Corporation. Vivaldi Corporation later encounters legal issues and faces significant legal claims. As a shareholder, Tammi's liability is:

Pierce the corporate veil

The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.

file an action to require the directors to declare a dividend

The directors and officers of Sports Color, Inc., vote to refuse to declare a dividend. Believing that the refusal is unreasonable, the shareholders can:

Articles of Organization

The document filed with a designated state official by which a limited liability company is formed.

Articles of Incorporation

The document that is filed with the appropriate state official, usually the secretary of state, when a business is incorporated and that contains basic information about the corporation.

Bylaws

The internal rules of management adopted by a corporation at its first organizational meeting.

Quorum

The number of members of a decision-making body that must be present before business may be transacted.

Retained Earnings

The portion of a corporation's profits that has not been paid out as dividends to shareholders.

Preemptive Rights

The right of a shareholder in a corporation to have the first opportunity to purchase a new issue of that corporation's stock in proportion to the amount of stock already owned by the shareholder.

the state LLC statute will apply to the dispute

The seven members of Fast Commerce, LLC, want to start their company as quickly as possible. The members, in their haste, do not bother to draft an operating agreement. If a dispute arises between two of the members:

a close corporation

To make, sell, and distribute candy that Ethan has developed, he incorporates his business and designates his sister and brother as corporate officers. He sells them shares of stock. No shares are offered to the public. The three agree that if any one of them decides to leave the business, the others will buy that person's stock. Ethan's corporation is most likely:

Commingle

To put funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities.

retained earnings

Tough TVs, a corporation, makes a profit in its first year of existence. The managers of the corporation decide to reinvest the profits. The reinvested profits are called:

vote

Trey owns 250 shares of common stock in a toy-store company. This means that he owns a percentage of the company based on the proportion of shares he owns out of the total shares issued by the company. With this ownership he also acquires rights to:

a majority of states

Tuller wants to start a commercial trucking business and also wants to form his own limited liability company (LLC). Tuller, as the only member of the LLC, will make all relevant decisions, contribute all of the investment, and be responsible for all of the risks and rewards. Tuller's proposed LLC will be accepted by:

apply state partnership law

Tyler and Stanton are members of an LLC. They have no operating agreement. Tyler and Stanton have a dispute. They look to the LLC statute for an answer, but the statute does not cover this situation. In this case, courts often:

not dismiss the case against Fields, Inc., but will also not pierce the corporate veil.

Wilson, Bart, and Susan Fields decide to set up a corporation together called Fields, Inc. They follow the correct procedures for establishing their corporation, but once it is established they do not hold regular corporate meetings. Since they are all related, they conduct communications and business related to the corporation at their family gatherings and over casual phone conversations. When Fields, Inc., is sued for failing to pay some outstanding debts, the court likely will:

the managers may be members, nonmembers, or a combination of both

Xavier consults with an attorney and some business acquaintances from the Chamber of Commerce about the management of his LLC. He is told that management may take one of two forms, a member-managed LLC or a manager-managed LLC. In the second form: