Chapter 22
Alien Corporation
Doing business country other than country of incorporation
for-profit corporation
Objective is to operate for profit; shareholders seeking to make profit purchase stock these corporations issue
Voluntary Dissolution
Occurs when directors or shareholders initiate the dissolution process
rights of shareholders:
Shareholders vote only on exceptional matters regarding the corporation
to initiate a stock purchase in an attempted corporate takeover, the ____ must appeal directly to the shareholders of the corporation it hopes to buy, known as the target corporation
aggressor
Tender offer takeover
aggressor (acquiring corporation) offers target shareholders a price above current market value of their stock
what type of corporation is an S corporation
closely held
public corporation
corporation created by government to administer law, with specific government duties to fulfill
sources of funds
debt securities and equity securities
dividend
distribution of corporate profits or income ordered by the directors and paid to the shareholders
a corporation is a _____ corporation in the state in which it is incorporated
domestic
fiduciary duties of officers and directors
duties to corporation that individuals within corporation have
shareholders-owners
elect board of directors approves major corporate decisions stock certificated, preemptive right, right to dividends, right to transfer shares, inspection rights
a corporation by __________ is a defective corporation that has conducted business with a third party and therefore cannot deny its status as a corporation to escape liability
estoppel
corporate powers
express powers and implied powers
closely held
generally does not offer stock to public (private, family, close)
courts are most likely to pierce the corporate veil
inadequate capital when corporation formed not following corporation statutes shareholders personal and corporation interests commingled shareholders attempt to commit fraud through corporation
subscriber
investor who agrees to purchase stock in a new corporation
what is the effect of a court ruling of corporation by estoppel?
it prevents a business from denying corporate status
what is a recognized part of creating a corporation
legal activities necessary for incorporation
merger
legal contract combining two or more corporations in such a manner that only one of the corporations continues to exist; in essence, one corporation absorbs another
consolidation
legal contract combining two or more corporations, resulting in an entirely new corporation; neither of the original corporations continues to exist
_____ begin the creation and organization of a corporation by arrangling for necessary capital, financing, and licenses
promoters
_____ raise capital for an infant corporation by making subscription agreements with subscribers in which the subscribers agree to purchase stock in the new corporation
promoters
officiers
run "day to day" business of firm agents of corporation rights determined in employment contract
in the context of a corporation takeover, _______ offer is a takeover resistance strategy in which the target corporation offers to buy its shareholders' stock
self-tender
publicly held
stock available to public
equity securities
stock, securities that represent ownership in a corporation (preferred, common)
common stock
stockholder owns portion of corporation, but no preferences regarding assets and dividends corporate stock that does not convey any preference to its holders
takeover
the purchase of one corporation's stock by another corporation as a means of gaining control of the selling corporation
corporate officers act as _____ of a corporation
agents
exchange tender offer takeover
aggressor offers to exchange target shareholders' current stock for stock in aggressor's corporation
procedures for mergers and consolidations
-Boards of directors of all involved corporations must approve the plan -Shareholders must approve the plan through a vote at a shareholder meeting -The corporations must submit their plan to the secretary of state -The state must review the plan, and if it satisfies legal requirements, grant an approval certificate
"Legal Death" of Corporation
-Dissolution: Legal termination of corporation -Liquidation: Process by which trustee converts corporation's assets into cash, and distributes them among corporation's creditors and shareholders
stock certificate
A document that serves as a stockholder's proof of ownership in a corporation.
"Ultra Vires" Act
Corporate action beyond scope of corporation's authority (i.e., beyond its express and implied powers)
if a US corporation wants to do business in canada, it is ____ corporation in those countries
alien
duty of loyalty
all decisions should be in the best interest of the corporation -duty to disclose conflicts of interests -cant self-deal
incorporator
an individual who applies for incorporation on behalf of a corporation
self-dealing
any instance in which directors or officers make decisions that violate their corporate duty of loyalty
debt securities
bonds, securities that represent loans to a corporation
____ self-dealing occurs when a corporate director or officer makes decisions that benefit other companies with which they have a relationship with.
business
an alien corporation is a business incorporated in another
country
characteristics of corporation
legal entity with rights creature of state limited lability of shareholders transferability of corporation shares perpetual existence corporate taxation liability of officers
what corporation operates for educational, claritable, social, religious, civic, humanitarian purposes rather than to earn a profit
non profit corporation
duty of good faith
not a conscious disregard for responsibilities -duty of oversight, moitioring
hostile takeover
one which the management of the target corporation objects
major type of stock
preferred
private persons create ___ corporations for private purposes
private
an accurate statement about private corporations and government duties
private corporations do not have government duties
retained earnings
profits that a corporation keeps
corporation created by government to help administer law
public corporation
the federal deposit insurance corporation is an example of a
public corporation
what kind of corporation is a corporation whose stock is available to the public
publicly held
directors and officers have a fiduciary duty of loyalty to a corporation, duty to ____
put the corporation's interests above their own
Stock is considered what kind of property
transferable
directors-power
vote on important corporation decisions appoint and supervise officers make financial decisions manage corporate right to compensation, participation, inspection, indemnification
implied powers
whatever actions necessary (within the law) to execute express powers
shareholders meet once every
year
cash tender offer takeover
Aggressor offers to pay the target shareholders cash for their stock
remedies for defective incorporation
-"De Jure" Corporation: Lawful corporation; a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation, that minor deflects in incorporation process -"De Facto" Corporation: Corporation in fact; that has not substantially met the requirements of state incorporation statutes, but courts recognize it as a corporation for most purposes to avoid unfairness to third parties who reasonably believed it was properly incorporated -Corporation by Estoppel: defective Corporation that has conducted business with a third party and therefore prevented by the court from denying its corporate status to escape liability Piercing Corporate Veil: Shareholders personally liable when they have used a corporation to engage in illegal/wrongful acts
right of first refusal
A method of restricting stock transferability whereby a corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specified time frame
what kind of corporation enjoys the tax status of a partnership
S corporation
subscription agreement
An agreement between promoters (persons raising capital for a new corporation) and subscribers (investors) in which the subscribers agree to purchase stock in the new corporation.
foreign corporation
Doing business in states other than state of incorporation
domestic corporation
Doing business within state of incorporation
Primary Fiduciary Duties
Duty of Care Duty of Loyalty Duty to ( Good Faith) Disclose Conflict of Interest
Non-Profit Corporation
May earn profits, but they do not distribute these profits to shareholders (non-profit corporation does not issue stock, nor does it have shareholders); instead, corporation reinvests profits in business corporation that operates for educational, charitable, social, religious, civic, or humanitarian purposes rather than to earn a profit
express powers
Perpetual existence; right to litigate; right to make contracts; right to borrow/loan money; right to make charitable donations; ability to establish rules for managing corporation
formation of corporation
Promoters: organize corporate formation Subscribers: offer to purchase stock in corporation in formation process State selected for incorporation
business judgement rule
Provides that directors and officers are not liable for a mistake of judgement /decisions that harmed corporation if they were acting in good faith and in the reasonable belief their decision was in the best interest of the corporation, at time of decision
classifications of corporations
Public/Private For-Profit/Non-Profit Domestic/Foreign/Alien Publicly Held/Closely Held S-Corporation Professional Corporation
Legal Process of Incorporation
Selection of corporate name Drafting and filing articles of incorporation w state First organizational meeting held
appraisal right
Shareholder's right to have his/her shares appraised, and to receive monetary compensation for their value
Involuntary Dissolution
State government forces the corporation to close
no-par shares
Stock shares without a par value
preferred stock
Stockholder enjoys preferences regarding assets and dividends stock that conveys preferences to its holders with respect to assets and dividents
shareholder's direct suit
a lawsuit filed by a shareholder against the corporation
shareholder's derivative suit
a lawsuit filed by a shareholder on behalf of the corporation
defective corporation
a corporation about which an error or omission was made during its incorporation process
Private Coporation
a corporation created for private purposes and does not have government duties
certificate of incorporation
a document certifying that a corporation is incorporated in the state and is authorized to conduct business
articles of incorporation
a document that contains basic information about a corporation and is filed with the state
stock warrant
a type of security issued by a corporation (usually together with a bond or preferred stock) that gives the holder the rights to purchase a certain amount of common stock at a stated price
bylaws
rules and regulations that govern a corporation's internal management
par-value shares
stock shares that have a fixed face value noted on the stock certificate
watered stock
stock that is issued to individuals below its fair market value
leveraged buyout
takeover-resistance strategy Occurs when group within a corporation (usually management) buys all outstanding corporate stock held by the public; group turns the corporate operations by "going private" (i.e., becoming a privately-held corporation)