BUAD 2301 Exam 4
Stock Warrant
"rights" to buy newly issued stock at stated price by specified date that are given by the company
Red Herring Prospectus
(red ink prospectus) is indication to investors this is a preliminary prospectus that hasn't been in existence for a long time
When are Directors and Officers personally liable?
* their own torts and crimes * actions of personnel under their direct supervision
Elements of a valid gift
1. Intent 2. Delivery 3. Acceptance
Property is classified as abandoned if:
1. an owner discards the property with the intent to relinquish his or her rights to it or 2. an owner of mislaid or lost property gives up any further attempts to locate it.
Objection to a landlord's claim to a security deposit must be made within ___ days.
15
When lease had ended, the landlord has ___ days to return the security deposit
15
Creditors have _______ to make a claim before they are barred from collecting assets.
3 months
If Novo picture has 6,000 outstanding shares of voting stocks present, how many votes are needed to pass ordinary resolutions?
3,001 outstanding shares to satisfy quorum requirement;
Example of when election authorized by bylaws become invalid
5 director board, with 2 directors to be elected each year, feared newly voted directors will sway company in a different direction, voted to increase # of directors from 5 to 7. Court invalidated decision based on: director's actions attempted to diminish shareholders' influence.
If Novo pictures has 10,000 outstanding shares of voting stocks & its articles of incorp set quorum at 50% of outstanding shares with majority vote to pass ordinary matters. How many shares must be present to conduct business; how many votes are needed to pass ordinary resolutions?
5,000 outstanding shares to satisfy quorum requirement; 2501 shares needed for majority vote
Typical commission amount:
6% of sales price
Consolidation
A + B = C A & B combine to form new co. C that has all rights & obligations of A & B
Example of Successor Liability in Purchase of Assets
A bought B's asset subject to B's liabilities. Later years, even after B had shutdown business, there were lawsuits claiming B's machineries made them sick. Court find A was liable b/c contract expressed intention that A was to assume liabilities of B when they bought asset.
Warranty Deed
A deed in which the grantor grants good, clear title to the grantee. The usual covenants are possession, quiet enjoyment, right to convey, freedom from encumbrances, and defense of title to all claims.
Health Care Surrogate
A document designating a party to make all health care decisions during any period of incapacity.
Tenancy by the Entirety
A form of co-ownership of property that can be used only by married couples.
Release and Merger
A lease may also give the tenant the opportunity to purchase the property at or before the end of the lease. If the tenant does so, she is released from any more obligations under the lease.
Forfeiture
A lease may terminate if either party fails to fulfill an essential obligation under the lease.
Tenancy at Will
A leasehold estate for as long as both parties agree. (I'll let you live in my garage apartment as long as we both want) Termination: Common Law: Either party can terminate anytime without advance notice.
administrator
A person appointed by the court to handle the estate upon death.
Adverse Possession
A person who wrongfully possesses someone else's property obtains title to that property if certain statutory requirements are met. "Squatter's rights"
restrictive covenant
A private restriction on the use of someones land. "You can't paint your house purple"
License
A revocable right or privilege to come onto the land of another. Theater tickets, hotels, etc...
Example of Corporation by Estoppel
A signs contract with B for merchandise prior to finalizing corp process. B breaches contract and claims contract invalid since firm was NOT chartered at time of contract. Court ruled in favor of firm - business presented itself as corp and B believed A to be such corp when signing contract.
Example of Violation of Securities Act of 1933
A sold, installed, maintained pay phone systems. A guaranteed buyers of systems a 14% annual return. A, even though was operating at loss, borrowed funds to pay investors the fixed rate it promised. SEC sued A was in violation of Securities Act (1933). Court agreed citing pay-phone programs = security b/c it involved investment contract
Totten Trust
A trust created by the deposit of a person's own money in his or her own name as trustee for another. "Poor man's will"
Fee Simple Defeasible
A type of ownership of real property that grants the owner all the incidents of a fee simple absolute except that it may be taken away if a specified condition occurs or does not occur.
Example of Involuntary Dissolution
A was formed to own land in Colorado & provide recreational benefits to its shareholders. Articles of incorp prohibits A from selling or leasing any of its property /s approval of majority of directors. A entered into leases & contracts to sell corporate property /s notifying directors. Shareholder petitioned for dissolution & court approved based on finding that its officers had engaged in illegal, oppressive, fraudulent conduct
Holographic Will
A will that is entirely handwritten and signed by the testator.
Durable Power of Attorney
A written document authorizing a party (attorney in fact) to act on behalf of the person granting the power of attorney when the principal becomes incapacitated. •gives the party ability to access bank accounts, sell real estate, and several other things. •Comes into effect immediately upon being signed and must be signed while the person has capacity.
Example of Oppressive Conduct
A, B, C formed corp to operate Machine Shop, each owning 1/3 shares of co. When A died, his wife inherited his shares. When B & C refused to perform valuation of co, denied A's wife access to to co, didn't declare dividends, refused to elect her as a director - they (as Majority shareholders) violated their fiduciary duty to A's wife (minority shareholder)
Bonds
AKA: Debentures, Debt Securities, Fixed Income Securities - represent borrowing of funds by firms (& govts)
Stock
AKA: Equity Securities - represents purchase of ownership in business
Investment Company
AKA: Howey Test - guide to determination of what types of contracts can be considered securities transaction in which person: 1. invests 2. in a common enterprise 3. reasonably expecting profits 4. derived primarily or substantially from others' managerial/ entrepreneurial efforts
Holding Company
AKA: Parent Company - company whose business activity consists of holding shares in another company that is low (or no) tax offshore jurisdiction (ie- Cayman Islands, Dubai, Hong Kong...)
Short-Term Merger
AKA: Parent-Subsidiary Merger
Closely Held Corporation
AKA: Privately Held (or Close) Corps - small sized corporations owned by family or relatives, whose shares are NOT publicly traded nor is in any trading market; transfer of shares usually restricted
Publicly Held Corporation
AKA: Public Company - corp. whose shares are publicly traded in securities market
Fact Pattern 42-1B. Sid, a director of Tech Software Company, learns that a Tech engineer has developed "Ur Call," a new, exciting video game. Sid buys Tech stock and tells his friend Velma, who also buys Tech stock. When the new game is released three weeks later, Sid and Velma sell their stock for a big profit. Regarding Sid's profits on the purchase and sale of Tech stock, under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapture
ALL of Sid's profits.
RingTone Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is
ALMOST ANY STAKE in the ownership or debt of a company.
Players Video Game Centers, Inc., wants to issue stock of $1 million in a single offering. Players must provide all investors with material in-formation about itself, its business, and its securities if
ANY investors are UNaccredited.
Flite Airline Corporation is poised to issue securities in a transaction that, under the Securities Act of 1933, is "exempt." This enables Flite to
AVOID THE COSTS and complications of registration.
Example of Novation
After incorporation of company, it substitutes promoter in contract with subscribers.
A Will
An instrument, executed by a testator (male) or a testatrix (female) stating how that person's estate is to be distributed after death. It may also appoint guardians for children.
Life Estate
An interest in real property that lasts for the life of a specified person. Used to avoid probate and automatically transfer ownership.
Nuncupative Will
An oral will made before witnesses. (must be made in the person's last illness)
Law for taking possession of abandoned property.
Anyone who finds abandoned property acquires title to it.
Ultra Vires
BEYOND THE POWER - corp acts are beyond express/implied powers of corps
Transfer of Tenant's Interest
Before a tenant can assign or sublet an interest, the landlord's consent may be required (it cannot be unreasonably withheld). If an assignee or sublessee later defaults, the tenant must pay the rent
Wills •Types of Gifts: a gift of personal property or money is called a ________.
Bequest (also called legacy)
During corp dissolution, priority payments goes to whom? List by order of top priority: A) Common Stocks B) Preferred Stocks C) Bonds
Bonds, Preferred, Common Stocks
Which type of corp often operates like a partnership?
C-corporation
Lara is the chief executive officer of Micro, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Lara must
CERTIFY that the reports are complete and accurate.
Kirk is the chief financial officer of Lemon Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Kirk must personally
CERTIFY that the statements are accurate.
Example of Business Judgment Rule
Citigroup continued to engage in subprime lending despite steady decline of housing mkt & red flags that warned them to change its practice. Shareholders sue for negligence on Directors' part. Court ruled in favor of Directors claiming they didn't breach their fiduciary duty, rather it was bad judgments
Example of Inside Trading
Co A found oil when drilling hole. Prior to disclosing this info to public, employees of A secretly purchased more of co A's stocks. SEC sued & won on basis that discovery of oil = material
Delivery
Control must be relinquished. No way of taking the gift back
Do Board of Directors get paid?
Corporate Articles or Bylaws specify compensation for Board of Directors
Penalties for Violations of 1933 Act
Criminal: up to 5yrs prison, $10,000 fine Civil: damages, refund of investment, injunction
Frothy Beverage Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Frothy is required to
DISCLOSE FINANCIAL and other information about its securities.
Quit-Claim Deed
Deed containing no warranty of title.
Which state has historically had the least restrictive laws that favor corporate management?
Delaware
Wills •Types of Gifts: a gift of real estate is called a _______.
Devise
Example of Watered Stock
During formation of corp, Gomez (one of incorporators) transferred his property to corp: 10,000 shares @ $100 per share (total price: $1M). When appraised, Gomez's property was only worth $500,000 hence Gomez is personally liable to the corp for the difference ($500,000)
Bild-It-Rite Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Bild-It-Rite must
FILE A REGISTRATION statement with the SEC.
The _____ Amendment to the U.S. Constitution requires that the owner be compensated for the property taken.
Fifth
Example of Respondeat Superior
Gauthier, under the authorization of Angelo Todesca Corp., was allowed to drive a delivery whose back-up alarm was broken. Due to impairment, Gauthier killed police officer working nearby. State charged Angelo and Gauthier with crime of vehicular homicide. Angelo argued corp not guilty b/c it CAN'T operate vehicle. Court ruled: if employee commits crime "while engaged in corporate business that employee has been authorized to conduct", corp. can be held liable
Exception to adverse possession:
Government and federal lands.
Hometown Shops Retail Company has assets of less than $10 million and fewer than five hundred shareholders. Interstate Outlets, Inc., has assets of more than $10 million and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to
Hometown Shops AND Interstate Outlets.
Heavy Hauling, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that Heavy Hauling's financial results are accurate and timely, the firm's senior officers must set up and maintain
INTERNAL "disclosure controls and procedures."
Confusion
Identical (fungible) goods belonging to to different people become so mixed that they can't be told apart.
Abandonment
If a tenant abandons leased property before the term of the lease expires, the landlord may treat the abandonment as terminating the lease.
Tenant's Liability: a tenant is generally liable for injuries occurring within the premises she is leasing, whether that is an apartment, a store, or otherwise.
If a tenant allows grease to accumulate on a kitchen floor and a guest slips and falls, the tenant is liable.
Assignment
If a tenant transfers all of his or her interest under a lease.
Landlord's Liability: Latent Defects:
If the landlord knows of a dangerous condition on the property and realizes the tenant will not notice it, the landlord is responsible for any injuries. Under Common Law: •Once landlord notifies tenant of latent defect, they are no longer liable.
Landlord's Liability: Negligent Repairs:
If the landlord volunteers to make repairs (even in areas where the landlord has no duty to make repairs) and does the work poorly, the landlord is responsible.
Destruction
If the leased property is destroyed, the lease will generally terminate.
Landlord's Liability: Public Use:
If the premises are being used for a public purpose, the landlord, generally, must repair any dangerous defects (the tenant is probably responsible as well).
Just compensation
In eminent domain, the amount awarded is generally the property's fair market value before the taking occurred.
Plant life and Vegetation
Includes both natural and cultivated plant life.
Real Property
Includes land and property that is permanently attached to it.
Tangible Property
Includes physically defined property. "Touchable"
Easement in Gross
Intended to benefit a particular entity like a power company. Only a servient tenant, no dominant.
Example of Alter Ego Theory
Jacobson set up Co. B after filing bankruptcy for Co. A. Everything remained same when B was set up, only change was legal name change from A to B. Court ruled Jacobson was trying to hide behind a facade of new co B to avoid debt collectors from A.
Right of Survivorship
Joint Tenancy: when one of the joint tenants dies, his/her interest passes equally to the surviving joint tenant(s). This is called The Right of __________.
A life tenant is obligated to:
Keep the property in repair and pay taxes.
Subsurface rights
Land rights from the center of the earth to the heavens. Also referred to as mineral rights
Landlord's Liability: Latent Defects, Modern law:
Landlord is responsible for fixing latent defects.
Transfer of Landlord's Interest
Landlord's may sell, gift, devise, or otherwise transfer their interests in the leased property.
Partition
Lawsuit forcing the sale of property
Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock. One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases. One month later, Della sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited
MORE THAN SIX MONTHS to sell it.
To raise capital to form Plasticity Corporation with Quinn, Rona sells bonds and stock in other companies, and plans to register an initial public offering under the Securities Act of 1933. SEC Rule l0b-5 covers
MOST forms of securities.
Possession
Method of acquiring property that applies to things in their natural state, like catching fish or picking up rocks.
Informal Probate/Summary Administration
Most states allow the assets of smaller estates to be distributed without formal probate proceedings. • less than $75,000
Fact Pattern 42-1A. Fresh Fruits & Veggies, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. If Fresh is exempt from the federal registration requirement, Fresh is
NOT NECESSARILY EXEMPT under a state registration requirement.
Fact Pattern 42-2A. Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. If Dhani is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of Eureka stock was
NOT YET PUBLIC
Example of Publicly Held Corporation
New York Stock Exchange, NASDAQ
Maple Products Corporation is a public company, which New Hampshire regulates and in which Orin invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to
PUBLIC COMPANIES.
Example of Misappropriation Theory
Patricia was wife of Scott, chief exec of Cubist Pharmaceuticals. When she learned one of key drug had failed test, she told her brother about it hence he sold he stock shares B4 info was made known to public. When info was announced to public, stock prices fell but since Patricia's brother already sold his shares, he wasn't affected. SEC sued claiming Patricia had tricked her husband into revealing confidential info so that she could tell her brother & avoided the loss. Patricia claimed she had not "misappropriated the info since she informed her husband of her intention to tell her brother. Court determined Patricia engaged in inside trading under misappropriation theory
Personal Representative
Person designated by the decedent's will or by a court to administer a decedent's estate.
Criminal Penalties of Rule 10(b) & 10b-5
Person: $5M & 20 yrs in prison Corp/Partnership: $25M Sarbanes-Oxley: 25 yrs in prison
Chattels or goods
Personal property is sometimes referred to as _____ or ______.
Which corporations are ID by: P.C., S.C., P.A.; is made up of physicians, lawyers, dentists, accountants - with each professional liable for any malpractice committed within scope of business by others in that firm?
Professional Corporations
Incorporation Process
Promotion --> Name Search --> Subscribers --> File Articles of Incorporation --> State Charter (recognized by State) --> 1st Organizational Meeting
Concurrent Ownership
Property ownership by 2 or more people
Patent
Property right of an invention
Production
Property rights can be acquired by creating something.
Mislaid Property
Property that is intentionally put somewhere, but then forgotten.
Personal Property
Property that is not attached to the land.
Creditors claims on real estate
Real estate is protected by homestead law and creditors lose out
Intangible Property
Represents rights that cannot be reduced to physical form. Stocks, bonds, patents, copyrights, airline tickets...
Rico, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm. Rico buys 20,000 shares of Shur-2-Gro stock. He tells Taylor, who buys 15,000 shares. After the new hybrid is announced publicly, the price of Shur-2-Gro stock increases. Rico and Taylor sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on
Rico AND Taylor ONLY.
Air rights
Rights to 3 dimensional parcels of air that can be sold or released. Buildings can be built above others.
Violations of 1934 Act
Scienter (knowingly) or intent violator must have had intent to defraud (false statements/wrongfully failed to disclose material facts)
What is designed to protect investors from deceptive, unfair & manipulative practices when buying or selling securities?
Securities Act (1933) & Securities Exchange Act (1934)
Easement by Prescription
Someone uses an easement without the owner's consent in an open and obvious way. Example: walking across someone property to get to the beach for an extended period of time.
donor
Someone who gives a gift
Donee
Someone who receives a gift
Common Stock
TRUE ownership of corporation - voting shares that represent ownership interest in corp
White Knight
Target corp solicits merger w/ 3rd party that's a better match to rescue from target
Tenancy at Sufferance
Tenancy continues after the lease has expired. Also called holdover tenant. Termination: The landlord has two options. Legal action or can accept rent creating a new lease hold.
Easement by Necessity
The dominant absolutely must make use of other property. Example: Leaser of an apartment on the 5th floor gains an easement to use the elevator
Easement Appurtenant
The dominant estate is adjacent to the servient estate
Law for taking possession of lost property
The finder obtains title, except if the true owner comes forward
Surrender by Agreement
The landlord and tenant may agree to terminate the lease before it expires.
The landlord's first important duty:
The landlord's duty is to deliver possession of the premises at the start of the tenancy.
Probate
The legal process required to establish the validity of a will and to administer the decedent's estate.
Law for taking possession of Mislaid Property
The owner of the premises has the right to take possession of the property, except when the rightful owner returns.
beneficiaries
The people who are designated in the will to receive property
Estate Planning
The process of planning for the transfer of a person's estate before or after death.
eminent domain
The right of the federal and state governments, as well some other entities with governmental powers, to take privately owned real property for the public benefit
Profit
The right to obtain a possessory interest in some aspect of another's land, such as crops, timber, or minerals.
Dominant Tenant
The tenant that benefits from an easement.
Servient Tenant
The tenant who owns the land burdened by the easement.
Leasehold Estate
The tenants interest in a property
Testamentary Capacity
The testator must have been of legal age (18) and of sound mind when the will was made.
Intent
There has to be a present voluntary desire to make a gift. Must be immediate.
Mortgage
This warranty provides that the house has been constructed in a workmanlike manner and is fit for human habitation.
Implied Warranty of Habitability
This warranty provides that the leased premises must be fit, safe, and suitable for ordinary residential use.
Example of Preemptive Rights
Tron Corp. originally authorized & issued 1,000 shares of stock of which Loren purchased 10% (100 shares). Later, Board issued another 1,000 shares (total outstanding = 2,000). Loren purchased another 100 shares to maintain her relative position as a shareholder. If Loren not purchase another 100 shares of newly issued stocks, her proportionate control and voting power would've been diluted from 10% to 5% (because of the additional 1,000 shares issued).
Testamentary Trust
Trust established while the grantor is still alive • (Helen is Bill's second wife. Helen will receive the income from the trust while she is alive and when she dies, it goes to my children.)
Constructive Trust
Trust imposed by a court to avoid fraud, unjust enrichment, and injustice. (using embezzled money from your job and trying to give it to your spouse)
Resulting Trust
Trust that arises from the conduct of the parties, where one party holds legal title to another's property, but only for the other's benefit.
Implied Trusts
Trusts that are imposed by law or by conduct of the parties. Such trusts are divided into two categories: constructive trusts and resulting trusts.
Readmore Bookstore Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by
UNsophisticated investors.
Example of Public Corporation
US Postal Service, Tennessee Valley Authority, AMTRAK, cities and towns that incorporate
Under this covenant, the landlord may not interfere with the tenant's quiet and peaceful possession, use, and enjoyment of the leased premises.
Under this covenant, the landlord may not interfere with the tenant's quiet and peaceful possession, use, and enjoyment of the leased premises.
When stocks are sold/transferred, when will new owners assume legal rights of stocks?
Voting Lists: all rights (voting, notice to shareholders' meetings, dividends) remain with current record owner until new owner is recorded in corporate stock book cut off date: 70 days ahead of action)
Fact Pattern 42-1A. Fresh Fruits & Veggies, Inc., wants to make an initial public offering of securities. Fresh believes that it qualifies for an exemption under Regulation A from the full registration requirement of the federal Securities Act of 1933. Fresh decides to sell its new securities via the Internet. This offering
WILL AVOID THE PAYMENT of commissions to brokers or underwriters.
Flo-Thru Plumbing Corporation is poised to issue securities that, under the Securities Act of 1933, are "exempt." This means that the securities can be sold
WITHOUT BEING REGISTERED.
Example when corporation engages in transaction in which officer/director has personal interest.
When Ballo Corp needs ofc space, Colson (one of 5 Board members) has bldg available for lease. Even though it's conflicting interest, but Colson can still offer bldg for lease if she: 1. makes full disclosure 2. abstain from voting If other members UNANIMOUSLY approve it, contract is valid
Easement by Implication
When an owner subdivides land.
Fixtures
When certain personal property become so attached to real property that it becomes a part of real property. Windows, doorknobs, water heaters, etc...
Joint Tenancy
When one of the tenants dies, his/her interest passes equally to the surviving tenant(s).
Shareholder's Derivative Suit
When shareholders perceive corp. directors are not acting in best interests of corp, they can sue directors on BEHALF of Corp. (Successful recoupment from suit are paid to corp treasury - NOT shareholders)
Operation of Law
Wills •Revocation: due to marriage, divorce, annulment, or the birth of one or more children after the will was executed. •divorce is treated as though spouse died. Insurance policies are still valid though
Physical Act
Wills •Revocation: intentionally burning, tearing, canceling or otherwise destroying the will or directing another to do so in the testator's presence.
Subsequent Writing
Wills •Revocation: intentionally making a new will or amending or revoking any or all of a will by means of a codicil.
elective share statute
You can not disinherit you spouse. Spouse receives 30% of estate.
A trust
_____ is a legal arrangement under which one person (the grantor) delivers and transfers legal title to property to another person (the trustee) to be held and used for the benefit of a third person (the beneficiary).
Deeds
____are used to convey real property by sale or gift.
Catalina promises high returns to Darby and other investors, who then agree to trust their funds to Catalina. She uses these funds to pay previous investors. This is
a Ponzi scheme.
Celfone Corporation is required to file a registration statement with the Securities and Exchange Commission. This statement must contain
a description of securities being offered for sale.
As part of a stock offering for Equine Corporation, Flem, Equine's accountant, intentionally misrepresents material facts in the prospectus. Gigi buys the stock unaware of the misrepresentation and suffers a loss. Flem may be subject to
a fine, imprisonment, AND damages.
Unconscionability
a lease containing one or more material, unconscionable terms may be void as a matter of law. "Lease says landlord is not responsible for providing hot water"
Tenancy for years
a leasehold estate for a specified period of time. (tenancy for a term) Termination: Automatically expires at end of term
Periodic Tenancy
a leasehold estate for a period determined by the frequency of rent payments. Termination: (either party can terminate by giving advance notice)
Zoning
a legislative action, usually at the municipal level. It regulates the use of property, including the types of construction permitted within different zoning district
Easement
a limited right to use another person's land for a specific purpose
Squeaky Clean Corporation wants to make an offering of securities to the public. This offering is not exempt from registration under the Securities Act of 1933. Before Squeaky sells its securities, it must provide investors with
a prospectus.
Charitable Trust
a trust in which the property held by a trustee must be used for a charitable purpose, such as the advancement of health, education, or religion.
Daystar Company is a private, for-profit corporation that (1) was formed to market business office software, (2) is owned by ten shareholders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Daystar is a. a closely held corporation. b. a nonprofit corporation. c. an S corporation. d. a professional corporation.
a. a closely held corporation.
Macro Corporation and Micro Company combine and a new organization, MM, Inc., takes their place. This is a. a consolidation. b. a merger. c. a purchase of assets. d. a purchase of stock.
a. a consolidation.
Tasty Pastries, Inc., is a consumer products firm. As a source of authority for its organization functions, its articles of incorporation are a. a primary source. b. a secondary source. c. a source of final resort. d. not a reliable source.
a. a primary source.
Precision Corporation and Quotient Company consolidate to form PQ, Inc. PQ assumes Precision's and Quotient's a. assets and liabilities. b. assets only. c. liabilities only. d. neither assets nor liabilities.
a. assets and liabilities.
Mortar & Brick, Inc., merges with Net Online Corporation. Only Net Online remains. After the merger, Net Online acquires Mortar & Brick assets a. automatically. b. only after completing certain additional statutory procedures. c. only if Mortar & Brick's former shareholders expressly approve. d. only if the acquisition is a specified result of the merger.
a. automatically
Federico is a director of Green Energy Corporation. As a director, Federico owes Green a duty of a. care and loyalty. b. care only. c. loyalty only. d. neither care nor loyalty.
a. care and loyalty
Joeli is a shareholder of Agro Implement Company. As a shareholder, Joeli does not have a right to a. compensation. b. dividends. c. inspect corporate books and records. d. transfer shares.
a. compesation
Medical Supplies Company issues common stock for sale to the public. If Nero buys ten shares of the stock, he has a proportionate interest with regard to a. control, earnings, and net assets. b. control only. c. earnings and net assets only. d. none of the choices.
a. control, earnings, and net assets.
Nanobyte Company makes and sells computer chips. Like most corporations, Nanobyte's officers are hired by its a. directors. b. incorporations. c. officers. d. shareholders.
a. directors
Koz is a shareholder of Lil' Biz Company, Inc. A court might "pierce the corporate veil" and hold Koz personally liable for Lil's debts a. if Koz's personal interests commingle with Lil's interests to the extent it has no separate identity. b. if Lil' calls too many shareholders' meetings. c. if Lil' is overcapitalized. d. under no circumstances.
a. if Koz's personal interests commingle with Lil's interests to the extent it has no separate identity.
Responsibility for the overall management of Fashionista Stores, Inc., a corporation, is entrusted to a. the board of directors. b. the corporate officers and managers. c. the owners of the corporation. d. the promoters of the corporation.
a. the board of directors.
Fee Simple Absolute
absolute ownership entitling the property owner to possess, use, or dispose of the property as the owner chooses.
Purchase of Assets
acquiring corp extends its ownership & control over physical assets of another company - NO shareholders' approval required
Due Care (Duty of Care)
act in good faith like that of an ordinary prudent (careful) person would in similar circumstances & do what is in best interest of corp
What did corps do to prevent itself from encountering Ultra Vires?
adopt broad purposes - organized for "any legal business"
Fact Pattern 42-1B. Sid, a director of Tech Software Company, learns that a Tech engineer has developed "Ur Call," a new, exciting video game. Sid buys Tech stock and tells his friend Velma, who also buys Tech stock. When the new game is released three weeks later, Sid and Velma sell their stock for a big profit. Under SEC Rule l0b-5, Sid would not be liable if he had waited to buy Tech stock until
after the PUBLIC RELEASE of the game.
Voting Trust
agreement where shareholder assigns right to vote his/her shares to trustee for specified period of time; trustee votes on behalf of all shareholders in trust
Duty to make informed Decisions
allow director to rely on info furnished by experts (attorneys, accountants...)
Implied Powers of Corporation
allows corps to perform all acts reasonably appropriate & necessary to accomplish its corp purposes
Articles of Merger
amended articles of incorp of surviving corp to include changes
Mountain View Corporation is a non-investment company that wants to issue stock of $3 million in a twelve-month period. Mountain View, with less than $20 million in annual sales, qualifies as a small business issuer. Before Mountain View sells the stock, it must provide investors with
an offering circular.
Corner Café Company offers its stock for sale only in a single state. The law in Corner's state is like the law in most states. Corner's offer is subject to state securities statutes that include
antifraud AND disclosure provisions.
Seller's duty to disclose:
any known defect that materially affects the value of the property, which the buyer could not reasonably discover.
Free-Writing Prospectus
any type of written, electronic, or graphic offer that describes issuer or its securities & includes legend indicating investor may obtain prospectus at SEC's web site
Executive Committee
appointed by Directors to handle ordinary, interim management decisions between Board of Directors' meetings
Audit Committee
appointed by Directors to supervise independent public accountants who audit corp's financial records
In a warranty deed, the buyer is granted protection from any title defects__________
arising during that seller's ownership and even before that seller's ownership.
Digital Equipment, Inc., sells computer products. Which of the following may Digital's board of directors do without shareholder approval? a. Amend the articles of incorporation. b. Buy substantially all of the assets of another corporation. c. Dissolve the corporation. d. Sell substantially all of the assets of Digital.
b. Buy substantially all of the assets of another corporation.
HomeBase Corporation invests in intrastate businesses. In HomeBases's state, as in most states, the number of directors that must be present before its board can transact business is a. all of the directors authorized in the articles. b. a majority of the number authorized in the articles or bylaws. c. any odd number. d. one.
b. a majority of the number authorized in the articles or bylaws.
Spice Corporation and Sugar, Inc. combine so that only Spice remains, as the surviving corporation. This is a. a consolidation. b. a merger. c. a purchase of assets. d. a purchase of stock.
b. a merger
The board of directors of Orion, Inc., announces a cash dividend. A cash dividend may be paid from a. accumulated surplus. b. gross profits. c. net profits. d. retained earnings.
b. gross profits
Farsight Software, Inc., plans to consolidate with Games Unlimited, Inc., to form Farsight Games Corporation. This requires the approval of a. neither their boards of directors nor their shareholders. b. their boards and their shareholders. c. their boards only. d. their shareholders only.
b. their boards and their shareholders.
Who has to approve ordinary business matters?
board of directors
Who has to approve extraordinary matters?
board of directors & shareholders
Who is held responsible for distribution of illegal dividends?
board of directors held personally liable for amount of payment
Oppressive Conduct
breach of fiduciary duties by those who control a closely held corporation
Jeans & Sweats Corporations uses cumulative voting in its elections of directors. Kyla owns 3,000 shares. At an annual meeting at which three directors are to be elected, Kyla may cast for any one candidate a. 1,000 votes. b. 3,000 votes. c. 9,000 votes. d. 27,000 votes.
c. 9,000 votes
Chewy files a suit against Dinner Cafe Company. While the suit is pending, Eateries, Inc., merges with Dinner Cafe. Eateries absorbs Dinner Cafe. After the merger, liability in the suit rests with a. Chewy. b. Dinner Cafe. c. Eateries. d. the court.
c. Eateries.
Vaughn is a shareholder in Whirly Gigs, Inc. Vaugh could typically exercise appraisal rights if Whirly Gigs was involved in a. a consolidation only. b. a merger only. c. a consolidation or a merger. d. neither a consolidation nor a merger.
c. a consolidation or a merger.
Simplex Corporation substantially complies with all conditions precedent to incorporation. Simplex a. is a corporation by estoppel. b. has de facto existence. c. has de jure existence. d. none of the choices.
c. has de jure existence.
Fillmore Pharmaceutical, Inc., issues bonds. Bonds a. are issued by S corporations only. b. are sometimes referred to as "stock with preferences." c. have fixed maturity dates. d. require periodic interest payments from their owners.
c. have fixed maturity dates.
Like other corporations, Distribution Services, Inc., issues securities most likely to a. increase its market share. b. increase its visibility. c. obtain financing. d. reduce its distribution costs.
c. obtain financing.
Robin is a director of Sherwood Forest Company. Robin has a right to a. compensation. b. first refusal. c. participation. d. preemption.
c. participation
Perla is a director of Quik Purchasing Corporation. Without informing Quik, Perla goes into business with Rapid Buys, Inc., to compete with Quik. This violates a. the business judgement rule. b. the duty of care. c. the duty of loyalty. d. none of the choices.
c. the duty of loyalty
DozeNot Corporation and Eversleep, Inc., plan to merge. Most likely, the articles of merger will be filed with a. a country recording office. b. the Securities and Exchange Commission. c. the state secretary of state. d. the U.S. Treasury Department.
c. the state secretary of state.
Private Equity Capital
capital from wealthy investors that buys entire corporation & reorganize as publicly held corps
Venture Capital
capital provided to start-up businesses & high risk enterprises
Tenancy in Common
co-ownership of property in which each party owns an undivided interest in the whole property.
What are the types (classes) of stocks authorized for issuance by corps?
common and preferred
Which stock has lowest repayment priority in corp dissolution?
common stocks
Subscription Agreements
contract to purchase stock when corp becomes chartered
Novation
contract to substitute a 3rd party in place of the one of one of the original contracting parties
Poison Pill
corp gives shareholders to purchase > stocks
Target Corporation
corporation being acquired
Foreign Corporation
corporation created in home state but doing business in different state
Domestic Corporation
corporation formed and operated in home state
Public Corporation
corporation formed by government
Alien Corporation
corporation formed in another country (ie- Mexico) and doing business in USA
Surviving Corporation
corporation that remains after a merger
Receiver
court appointed person for winding up corporate affairs & liquidate corporate assets (involuntary dissolution or when Board of Directors deemed unfit for winding up)
Corporations
creature of statute, an artificial person
White Collar Crime
crimes committed by corporate employees
Oldway, Inc. is unprofitable. In a suit against Oldway, a court might order dissolution if the firm does not a. but its stock from its shareholders. b. declare a dividend. c. make a profit this year. d. pay its taxes.
d. pay its taxes.
Metal Fasteners Company (MFC) is a coporation. MFC has the implied power to a. amend the corporate charter. b. declare dividends. c. file a derivative suit. d. perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.
d. perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.
The management of Orchards & Vines, Inc., is at odds with the shareholders over some recent decisions. The shareholders may file a shareholders' derivative suit to a. compel dissolution of Orchards & Vines. b. compel payment of a properly declared dividend. c. enforce a right to inspect corporate records. d. recover damages from the management for an ultra vires act.
d. recover damages from the management for an ultra vires act.
Blaine and Cory want to incorporate to buy, play, sell, and trade video games. The first step in the incorporation procedure is to a. file the articles of incorporation. b. hold the first organizational meeting. c. obtain a corporate charter. d. select a state in which to incorporate.
d. select a state in which to incorporate.
Dylan and Evette are officers of Fullfit Clothing Corporation. As officers, their rights are set out in a. international agreements. b. state corporation statutes. c. the firm's certificate of authority. d. the officers' employment contracts.
d. the officer's employment
Ernie contracts to buy securities from Freda. Later, believing that Freda committed fraud in the deal, Ernie files a suit against her. If Freda is found liable, Ernie may obtain
damages to the extent of Freda's illegal profits OR rescission of Ernie's contract to buy securities from Freda.
Maturity Date (Bonds)
date when principal (FV) of bond (loan) is returned (paid) to investors
SEC Registration Statement
description of registrant's: * offering & how they intend to use proceeds from sale * properties & business * management
Uniform Securities Act
designed to regulate state & federal regulations - uniformity b/n federal & state securities law
Rights of Inspection (Rights of Directors)
director can access corp books, records, facilities, premises to make informed decisions & exercise necessary supervision over corporate officers/employees
Rights to Indemnification (Rights of Directors)
director can get reimbursement for legal costs, fees, damages incurred - liability insurance
Outside Director
director who does not hold management position
Inside Director
director who is also an officer of corporation
Rights to Participate (Rights of Directors)
directors are entitled to participate in all board of directors' meetings & should be notified of these meetings
Dissenting Directors
directors who disagrees with majority - unless dissent is entered in minutes & registered w/ corp secretary, director is presumed to have assented (rarely held liable for mismanagement)
How do dissenting directors not get held individually liable to corp for decisions?
dissenting directors (present/absent from meetings) must register dissent with secretary of board regarding actions taken at the meeting
Appraisal Right
dissenting shareholder's statutory rights to be paid FMV for his/her shares; must give written notice of dissent prior to vote & make demand for payment of shares at FMV (calculated prior to voting date)
What are the ways a corp can terminate?
dissolution & or liquidation
Dividend (paid from: R/E, Net Profits, Surplus)
distribution of corporate profits/income ordered by directors & paid to shareholders in proportion to their respective shares.
General gifts
do not identify the specific property from which the gift is to be made (such as a cash amount that can come from any source in the decedent's estate).
S Corporation
domestic corporation that meets subchapter S of IRS; can avoid double taxation imposed on regular corp. Requirements: < 100 shareholders, one class of stock, can't be non-resident alien
Since shareholders have no responsibility for daily management of corp, how can they influence corp's operation?
election or removal (for a CAUSE) of board of directors - who have control of daily operations removal of Directors must be passed by majority vote
Stock Option
enables officers of corp to purchase shares of corp's stock at a set price
Participating Preferred
entitles owner to receive: 1. Preferred stock dividend 2. additional dividends after corp has paid dividends on common stocks
residuary gifts
established by a clause in the will (I give my daughter the remainder of my property)
Stock Certificate
evidence of ownership of specified # of shares in corporation Today: stock shares are uncertificated - no tangible certificates are issued
Pierce the Corporate Veil
exposing shareholders to personal liability
Proxy Materials
facts to allow you to figure out if you want to invest in securities or not
Loyalty (Duty of Loyalty)
faithfulness to one's obligations & duties - requires subordination of personal interests to the welfare of corp
What must be done for corp to dissolve voluntarily?
file Articles of Dissolution to notify its creditors of dissolution whereby which all claims are to be paid 120 days from dissolution
Step 4 of Incorporation Procedures
file articles of incorporation with secretary of state
How can a director be removed?
for CAUSE - failing to perform required duty
Formal Probate/Formal Administration
for larger estates and for smaller estates that require the appointment of a guardian, the probate court generally supervises every aspect of the payment of the decedent's surviving obligations and the distribution of the decedent's assets. •over $75,000
Expressed Powers of Corporation
found in articles of incorporation allowing corps to issue stocks/bonds, buy/sell assets, pay employees, etc. - laws of state of incorporation; may grant or limit corp's express powers
Title search
generally performed to determine if the grantor has marketable title.
devise
giving real property by will
Hobie, the chief executive officer of Ideal Gamers, Inc. (IGI), intentionally understates the amount of IGI's debts in information provided to investors as part of an issue of IGI stock. Jack buys the stock and suffers a loss. Hobie may be subject to
government prosecution AND Jack's suit.
Shareholder Voting Agreement
group of shareholders agree in writing prior to shareholders' meeting to vote their shares together in specified manner.
When a person dies without leaving a valid will, _____________. •In such cases, the deceased's property passes according to law, rather than according to his wishes.
he is said to have died intestate.
How do board of directors conduct business?
hold formal meetings with recorded minutes; Special meetings can be called, with notification to all directors
To raise $12 million to expand operations, Star Corporation makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. Star plans to notify the SEC of sales. Under the Securities Act of 1933, this issue may qualify as an "exempt" transaction
if ALL OF THE INVESTORS are also given certain material information.
Sublease
if a tenant transfers only some of his or her rights under the lease.
Business Judgment Rule
immunizes director from liability for corporate decision as long as it was w/in power of corp & authority of director to make & was: informed, reasonable, loyal decision
When does implied power bind corp?
in ordinary business affairs of corp
__________ elects 1st Board of Directors; thereafter, __________ elects following Board of Directors
incorporators; shareholders
Sarbanes-Oxley Act (2002)
increase corporate accountability - requires CEO to take responsibility for accuracy of financial statements filed w/ SEC; provides protection for whistleblowers
Securities and Exchange Commission (SEC)
independent federal regulatory agency that enforces federal securities laws: * regulates disclosures * investigates frauds * registration & regulation of securities: brokers, dealers, advisors
Tipper
insider giving tip/info
Violations of 1933 Act
intentionally or negligently defrauding investors by: * misrepresentation/omitting * material facts * in registration statement/prospectus
Bylaws
internal rules of management adopted by corp at its first organizational meeting
Redeemable (Callable) Preferred Stock
issued with express condition that issuing corp has right to repurchase shares as specified
Bond Indenture
lending agreement that speciries features & terms of particular bond issued
tenant
lessee
landlord
lessor
Fact Pattern 42-2A. Dhani, an accountant for Eureka, Inc., learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu, each of whom buy 100 shares. They knows that Fay got her information from Dhani. When Eureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Under the Securities Exchange Act of 1934, Fay is most likely
liable for INSIDER TRADING.
The purpose of the _________ is to direct the provision, the withholding or withdrawal of life prolonging procedures in the event one should have a terminal condition.
living will
Crown Jewel (Tender Offer)
management makes company < attractive by selling most valuable asset
Parent-Subsidiary Merger
merger of substantially owned subsidiary corp into its parent corp - NO shareholders approval needed; Parent must own 90% of each class of stock of subsidiary corp
Quorum
minimum # of members of body of officials (groups) that must be present for business to be validly transacted
De Jure
minor defect the courts will overlook for improper incorporation (ie- incorrect address) CAN'T be attacked by state of 3rd party
If security does NOT qualify for exemption under Securities Act (1933), what must be done PRIOR to offering to public?
must file registration statement & prospectus w/ SEC & state securities agencies
What type of corporations are formed without a profit-making purpose - charitable, educational, religious orgs, hospitals?
nonprofit (not-for-profit) corporations
A tenant who is being constructively evicted must:
notify the landlord in writing Landlord must fix problem in a reasonable time. If not fixed, they may sue for damages and remain on the property or vacate property and sue for damages.
Insider Trading What to look for to determine Inside Trading or not: 1. If they knew info 2. When info was disclosed 3. Whether or not info was material
occurs when persons buy or sell securities on basis of information that is not available to public (B4 disclosure to public then ILLEGAL)
Retaliatory eviction
occurs when the landlord evicts a tenant for complaining to the appropriate authorities about the improper condition of the leased premises or forming a tenant organization.
Constructive eviction
occurs when the landlord wrongfully causes the leased premises to become unfit for its intended use "Disconnecting the tenants utilities or changing locks"
What is the term for Board of Directors?
one year
Dividends
pays profits to shareholders
What happens if firms don't include in their corp names the type of corporation they are by use of: Corp., Inc., Co., Ltd.?
person who signed contract for corp. is held personally liable for transaction
Misappropriation Theory
person who wrongfully obtains inside info & trades (doesn't have access to info based on job duties)
Incorporators
person(s) who execute (sign) articles of incorporations
Commingle
personal and corporate interests are mixed together (to the extent corporation has no separate identity)
Accredited Investor
persons whose income/net worth exceeds certain threshold (banks, ins co's, investment co's...)
Subscribers
potential investors (future shareholders) who promises to purchase stocks of corp once it's chartered
Preemptive Rights (do not exist unless specified in articles of incorp)
preference given to shareholders to purchase/subscribe to prorated share of new issued stocks to maintain same % level of ownership as current status (to maintain proportionate control)
What type of stock may or may not have voting privileges?
preferred stocks
Step 3 of Incorporation Procedures
prepare articles of incorporation
Articles of Incorporation
primary document needed to incorporate business; includes basic info, future org, business fcns - (purpose, duration, capital structure)
What type of corporations are created for private benefits (profit) like those of electric or gas utility companies?
private corporations - most corps fall in this category
Winding Up
process by which corporate assets are liquidated (converted into cash & distributed among creditors & shareholders)
Retained Earnings
profits retained in company for further investments
SEC Rule 10b-5
prohibits commission of fraud in connection w/ purchase or sale of security - applies to ALL cases relating to trading securities (everyone involved, not just insiders)
Rule 10(b) (Securities Exchange Act _1934)
prohibits fraud w/ insider trading & disclosure regulations - can't use manipulative/deceptive device or contrivance in rules & regulations of SEC
What do you call the person who organize & seek subscribers to invest in business PRIOR to incorporation of business?
promoter
Lost Property
property that the owner has unknowingly or accidentally left it somewhere or dropped it somewhere.
Private Security Litigation Reform Act (PSLRA) of 1955
provide safe harbor for public companies making forward looking statements (to help investors make informed decisions)
Rule 14(a) (Securities Exchange Act _1934)
proxy regulations - minority shareholders can have some power by binding together via individual (proxy) & asked to vote on behalf of shares of other shareholders
Lex, a salesperson for Macro Corporation, learns that Macro will increase the dividend it pays to shareholders. Lex buys 1,000 shares of Macro stock. When the price increases, Lex sells his shares for a profit. Lex would not be liable for insider trading if the information about the dividend was
public BEFORE he bought the stock.
Tender Offer
publicly advertised offer addressed to all shareholders of target at a higher price than market value per share but conditioned on acquisition of certain % of shares
Takeover
purchase of substantial # of voting shares (up to 51%) of target co's stocks
Remote Tippee
receives tip/info from another Tippee
Blue Sky Laws
regulate offer & sale of securities w/in state borders to prevent speculative schemes which have no basis
Securities Act (1933)
regulates solicitation, buying, selling of securities (stocks/bonds)
Corporate Governance
relationship b/n corp & its shareholders; specifies rights & responsibilities among different corporate participants (including stakeholders) & spells out rules & procedures for making decisions on corporate affairs
Cumulative Preferred
required dividends NOT paid in given year must be paid in subsequent year B4 common stock dividends paid
When selling of assets, what does corp. need?
requires both board & shareholder approval
Rule 16(b) (Securities Exchange Act _1934)
requires reports of profit realized (short swing profits: profits w/in 6mos' of inside info) to SEC
Securities Exchange Act (1934)
resale of securities - registration of securities exchanges; requires continuous disclosure system (national exchanges, assets > $5M & >500 shareholders)
What are the rights of Directors?
rights of participation, inspection, compensation, indemnification
Title to real property may be transferred by
sale, gift, will, inheritance, and adverse possession.
Ponzi Schemes
scam that promises high returns to investors & then uses their funds to pay previous investors; convince investors to invest offshore; claims to offer risk-free/low-risk investments
Step 2 of Incorporation Procedures
secure corporation name
Exempt Securities
securities that don't need to file registration statements: * bank securities prior to 1933 * commercial paper (<9mos) * securities from: charitable orgs, reorganization/bankruptcy orgs, issued to finance RR eqpt * Regulation A
Step 1 of Incorporation Procedures
select state of incorporation
Prospectus
selling tool for issuing corp - disclosure document that describes security being sold, financial operations of issuing corp, investment or risk attaching to security
Watered Stock
shareholder buys stocks that is below stock's par value shares has values less than their fair market value (difference between BV & FV must be paid by purchaser & he/she is personally liable for that amount).
How are shareholders able to change co. policy & put their ideas up for vote?
shareholders who own stocks worth at least $1,000 are eligible to submit proposals for inclusion in corp. proxy materials for significant policy considerations (not ordinary business operations)
Share Exchange
shares of one corp exchanged with another corp but both corps continue to exist
Preferred Stock
shares of stock that have priority over common-stock shares as to payment of dividends & distribution fo assets
Proxy
signed appointment form or electronic transmission authorizing agent to vote the shares of minority shareholders
Tombstone
simple ad similar to tombstone indicating where & how to obtain prospectus
Regulation A
small offering up to $5M in 12mo period to "test the waters"
executor
someone we name in our will to distribute the estate as set forth in the will
specific gifts
specifically named pieces of property
Shareholder Agreement
specifies what happens to stocks in corp when shareholders dies or stock division; includes restriction of stock transfers
Securities
stocks and bonds that finance corps
Treasury Share
stocks that have been repurchased by company thus no longer outstanding
__________________ vote of shares represented at meeting is usually required to pass resolutions.
straight majority
De Facto
substantial defect that might affect status of incorporation (ie- failure to hold org's meeting to adopt bylaws) can ONLY be attacked by state
_______________ is needed for important matters (sale of assets, etc)
super majority (2/3 votes, 67%...)
Articles of Consolidation
take place of the combined co's (A & B) original corp article to form new co's corp. article
Scorched Earth (Tender Offer)
target co. sells off assets or takes out loans to make co unattractive to hostile takeover
Tombstone Ads
tell potential subscribers/investors where they can get preliminary prospectus - tells you what you need to know in order to invest (corp. capital structure, business location & type...)
Begin Anew Enterprise, Inc., completes its registration process and issues a free-writing prospectus. This tells prospective investors
that they may OBTAIN THE PROSPECTUS at the SEC's Web site.
Dave, an accountant, does not work for Emergent Company, but wrong-fully obtains inside information concerning Emergent. Based on the information, Dave buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prosecutes Dave, arguing that he is liable because he stole information rightfully belonging to another. This argument is
the MISAPPROPRIATION theory.
Ridgeline Sports Gear, Inc., is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 16(b) of the act covers
the SHORT-SWING ACTIVITIES of Ridgeline's insiders.
Excel Aviation Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates
the SOLICITATION of proxies from Excel's shareholders.
GR8 Stuf Company files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. GR8 Stuf is charged with violating the Securities Act of 1933. GR8 Stuf's best defense is
the UNTRUE statements were not material.
Subsidiary Corporation
the corporation that is wholly owned by another company (parent)
Parent Corporation
the corporation that owns ALL of the shares of another corp
Flux Corporation is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, Flux is subject to the direct corporate governance requirements of
the federal government.
In a deed, the buyer and seller are referred to as _______
the grantee and the grantor
Landlord's Liability: Common Areas:
the landlord is usually responsible for maintaining the common areas.
Common Areas
the landlord must maintain all areas used by or accessible to all tenants, such as hallways, stairs, elevators, and laundry rooms.
New Discoveries Corporation, and its officers, directors, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to
the purchase or sale of ANY security.
Nouveau Riche Corporation, and its officers, directors, and shareholders, buy and sell securities. SEC Rule 10b-5 applies to
the purchase or sale of ANY security.
Tippee
those that receive tips from insider ==> outsider (receiver) of tip/info
When do corps have right to refuse inspection?
to protect trade secrets or other confidential information
Greenmail (Tender Offer)
to regain control, target company repurchase stocks at price higher than mkt value
Self-Tender
to resist takeover, target co offers to acquire stock from its own shareholders & retain corp. control
Golden Parachute (Tender Offer)
top management "bails out" of target corp w/ forced "retirement" benefits
Voluntary Dissolution
unanimous vote from shareholders or specially called meeting from board (or at annual shareholder meeting)
Convertible Preferred Stock
under certain conditions, can be converted into specified # of common shares in issuing corp or another corp
Pumping and Dumping
using chat rooms to manipulate stock prices: online chat rooms: ppl say reallyl good things about particular stock to get you to buy so they can sell
Mutual Fund
well-known type of investment company
Corporation by Estsoppel
when business presents itself as being a corporations but has made no attempt to incorporate, the firm may be prevented from denying corporate status in lawsuit by 3rd party
Involuntary Dissolution
when corp is deadlocked - dissolution can be initiated by shareholders, State, or Court
Alter Ego Theory
when corporation is so dominated & controlled by individual or group that the separate IDs of the person (group) & corp are no longer distinct
"Freeze Out" (Oppressive Conduct)
when majority shareholders exclude minority shareholders from certain benefits of participating in firm
Example of Ultra Vires
when member A of nonprofit corp carried out tasks that exceeded his authority (without board's approval), even entering into contract with 3rd party for personal gains - members sued A on behalf of corp. based on: Beyond the Power reasoning
Start-Up Enterprises, Inc., completes its registration process and begins advertising the availability of its new issue of securities. Start-Up places a tombstone ad in the financial papers. This ad tells prospective investors
where to OBTAIN A PROSPECTUS.
Subscription
written irrevocable contracts to purchase capital stock of corporation PRIOR to incorporation
The Lease Agreement; •Many state laws make it illegal for:
• a lease to require the tenant to pay the landlord's attorneys' fees; •a landlord to rent a structure that is in disrepair or not in compliance with building codes; •a landlord to lease for an illegal purpose; or •a landlord to refuse to lease based on race, color, religion, national origin, sex, or handicap
Codicil
• the legal way to change an existing will. • a separate document that must be executed with the same formalities as a will.
In Adverse Possession The occupation must be:
•Actual and Exclusive •Open, Visible, and Notorious •Continuous and Peaceful •Hostile and Adverse (without permission of owner)
Evidence for a purchase of personal property
•Bill of sale •Certificate of title
Methods for Creation of easements and profit
•Deed •Will •Contract •Implication •Necessity •Prescription
advantages of a trust
•Keeps information private •Avoids probate •provides for asset management •Helps reduce estate taxes
The sale of real property generally involves the following:
•Listing the property for sale by owner or through the use of real estate agent. •Contract of sale, which must be in writing to be enforceable. •Title search •Mortgage •At closing, delivery of the deed to the buyer, who pays the purchase price. The money is then disbursed.
Courts typically look at the following four factors in determining whether a landlord will be liable for a criminal attack:
•Nature of the crime; •Reasonable person standard; •Foreseeability; and •Crime in the area.
2 ways to leave estate to children
•Per Stirpes •Per Capita
Non-Probate Assets:
•Property owned by husband and wife as tenants by the entirety (goes to surviving spouse). •A life insurance policy, annuity, or IRA account that is payable to a specific beneficiary.
5 ways to Acquire an Ownership Interest in Personal Property
•Purchase •Possession •Production •Confusion •Gift
Real property consists of:
•Subsurface rights •Air rights •Plant life and Vegetation •Fixtures.
For a will to be valid, it must meet the following requirements:
•Testamentary Capacity •Writing Requirement: generally, wills must be in writing to be valid. •Testator's Signature: the testator's signature must appear on the face of the will. (an "X" is an acceptable form of signature) •Attestation by Witnesses: wills must be attested to by mentally competent witnesses.
Tenant's Implied Covenants to Landlord
•The tenant may not create a nuisance that substantially interferes with others' quiet enjoyment of their own property rights. •The tenant is obligated not to commit waste by abusing or destroying the leased property. •The tenant is responsible for all damages to the premises caused by the tenant or tenant's guests and invitees, except for ordinary wear and tear.
Per capita
•each person takes an equal share of estate. •both children and grandchildren receive equal amount.
Per stirpes
•each surviving descendant divides the share that his or her parent would have taken if the parent would have survived. •If the child is not deceased, the grandchildren take nothing.
A lease agreement should:
•express an intent to establish a landlord-tenant relationship; •provide for transfer of possession of the property to the tenant at the beginning of the lease; •provide for the reversion of possession of the property to the landlord at the end of the lease's term; •describe the property; •clearly indicate the length of the lease term, the amount of rent due, and how and when rent is to be paid; and •provide for other covenants.
Duties of the Personal Representative include:
•identifying, gathering, safeguarding, and inventorying the decedent's assets, and having them appraised, as necessary; •managing the estate's assets and preventing them from being wasted or unnecessarily depleted; •receiving and paying valid claims of the decedent's creditors and objecting to improper claims and defending suits brought on such claims; •paying or arranging for payment of income, estate, and inheritance taxes due; •distributing the remaining assets of the estate to the decedent's beneficiaries; and •preparing a final accounting of the estate/closed probate administration.
To have testamentary capacity, the testator must:
•intend the document to be his last will; •comprehend the kind and character of the property being distributed by the will; and •comprehend and remember the "natural objects of his bounty." (must be able to name your children)
A valid deed must be in writing and must, at the minimum, contain:
•the names of the buyer and seller; •words of conveyance "i hearby sell" •a precise, legally sufficient description of the land; •the grantor's signature; and •the deed must be delivered to the grantee
If the landlord's failure to maintain or repair the leased premises affects the tenant's use or enjoyment of the premises, the tenant may:
•withhold rent; •repair and deduct the cost of repair from rent due; •cancel the lease; or •sue for the lost use of the premises and/or the cost of repair.
If a tenant fails to pay rent, the landlord may do one or more of the following:
▫secure a lien on the tenant's personal property; ▫subject to any duty to mitigate, sue for the unpaid rent and the costs incurred collecting it; or ▫retake possession of the property by legal means.
