Business Law ch 15-16

Corporate veil

the liability protection afforded to shareholders, directors, and offers of a corporation whereby they are insulated from personal liability in the event the corporation runs up large debts or suffers some liability

True

(T/F) Board of director meetings may be held through video or web conferencing and do not have to be face to face in person.

False

(T/F) The board of directors is always reported on the articles of incorporation.

Manager-managed LLC

LLC management structure in which the members name a manager (or managers) who generally has the day-to-day operational responsibilities

Member-managed LLC

LLC management structure similar to that of a general partnership, with all the members having the authority to bind the business

D

When a court finds that the directors of a corporation are abusing the corporate structure and have created a shell to protect them from liability and further determine that the directors are acting solely in their own interests, the court may disregard the corporate structure and impose personal liability on the directors. This is called: A) breaching the corporate protection B) breaking the corporate shelter. C) shattering the corporate shield D) piercing the corporate veil

Privately held corporation

a corporation that does not sell ownership interests through sales via a broker to the general public or to financial institutions or investors

Corporation

a fictitious legal entity that exists as an independent "person" separate from its principals

Duty of care

a fiduciary duty owed to shareholders by officers and directors; requires that the fiduciaries exercise the degree of skill, diligence, and care that a reasonably prudent person would exercise under the same circumstances, acting in good faith and in a manner that is reasonably calculated to advance the best interests of the corporation

Piercing the corporate veil

action in which a court discards the corporate veil and holds some or all of the shareholders personally liable because fairness demands doing so in certain cases of inadequate capitalization, fraud, and failure to follow corporate formalities

Officers

individuals appointed by the board of directors to carry out the directors' set course of direction through management of the day-to-day operations of the business

True

(T/F) Every state has in some way recognized the business judgment rule as a defense to a claim of lack of care by a board member or officer.

True

(T/F) Not all states have adopted the Revised Model Business Corporation Act (RMBCA).

False

(T/F) The business judgment rule requires that corporate officers and directors always act in the best interests of the shareholders and make decisions that produce the maximum profit to the corporation and its shareholders.

A

A Subchapter S corporation: A) eliminates double taxation B) avoids personal liability C) pays taxes on behalf of the principals D) avoids double taxation and personal liability

B

Day to day management of a corporation is the responsibility of the: A) board of directors B) officers C) shareholders D) promoters

C

Double taxation occurs because: A) both officer and employee salaries and dividends are taxed B) a corporation has a higher tax rate than individuals that is twice as high C) both corporate income and dividends paid to shareholders are taxed D) the corporation pays taxes every six months which is twice per year

Dissolution

In the context of an LLC, a liquidation process triggered by an event that is specified in the operating agreement (such as the death of a key member) or by the decision of the majority of membership interests (or the percentage called for in the operating agreement) to dissolve the company

A

Regarding shareholder liability for corporate debts: A) it is limited to the amount invested when purchasing stock B) it will vary depending on the amount of shares owned without regard to the price paid C) it does not exist as shareholders have no liability for corporate debts D) it is unlimited

Duty of loyalty

a fiduciary duty owed to shareholders by officers, directors, and controlling shareholders; requires that the fiduciaries put the corporation's interests ahead of their own and do not engage in self-dealing or conflicts of interests

Limited liability company (LLC)

a multi-person form of business entity that offers liability protection for its principals along with various tax options

Business judgment rule

a principle that protects corporate officers and directors from liability when they have made an unwise decision that results in a loss to the corporation but they have acted in good faith, had no private financial self-interest, and used diligence to acquire the best information related to the decision

Articles of organization

document filed to create an LLC; in most states, requires only basic information such as the name of the entity, the location of its principal place of business, and the names of its members

Statement of qualification

document filed to form a limited liability partnership by converting a general partnership

Operating agreement

document that governs an LLC; sets out the structure and internal rules for operation of the entity

Limited liability partnership (LLP)

form of business entity that provides the same level of liability protection to a general partner in an LLP as is provided to a limited partner in a limited partnership form of entity

Directors

individuals responsible for oversight and management of the corporation's course of direction

Revised Model Business Corporation Act (RMBCA)

model act drafted by the American Law Institute and adopted by over half of the states as a template for compiling their own statutes governing corporations

Business corporation law

often the title for a specific state law that covers such matters as the structure of the corporation, oversight of the activity of the corporation's managers, rights of the principals in the case of the sale of assets or ownership interests, annual reporting requirements, and other issues that affect the internal rules of the business venture

Personal guarantee

pledge from LLC members of personal assets to guarantee payment obligations of the business venture

Dissociation

process in which an individual member of an LLC exercises the right to withdraw from the partnership

Articles of incorporation

the document filed with a state authority that sets in motion the incorporation process, includes the corporation's name and purpose, number of shares issued, and address of the corporation's headquarters

Shareholders

the owners of a corporation; act principally through electing and removing directors and approving or withholding approval of major corporate decisions

Insider trading

trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company; any individual who becomes aware of non-public information and trades on that basis may be guilty

Non-managing LLC investors

typically investors with little input on the course of business taken by the entity except for major decisions