BizOrgs (Walker) Flashcards
(40 cards)
This form of business is where 1 person owns all the assets, is not an entity outside its owner, and requires little formality.
In a sole proprietorship one person owns the assets and is not separate from the business. Very little formality is required for formation.
This form of business is similar to a sole proprietorship but involves 2 or more people.
A partnership is similar to a sole proprietorship, except that 2 or more people own the business. All that is required to form is the intent to share profits.
What characteristics of a separate entity do partnerships have?
Property may be held in the name of a partnership. Suits can be maintained in the name of the partnership. Partnerships do not generally continue beyond the lives of its owners (unless otherwise agreed in a partnership agreement.
What business organizations are considered “pass-through” businesses?
Sole-proprietorships, partnerships, LPs, LLPs, LLCs, and S-corps are pass-through businesses.
Which business organizations require some filing with the state?
LLPs, LLCs, and Corporations require the appropriate filing be recorded in the state.
What filing is required to form a corporation?
Articles of Incorporation must be filed with the state. They must state the name of the corporation, the maximum shares authorized, the names and addresses of board members, incorporators, and a registered agent.
What are the written rules of conduct and operation that must be adopted by the incorporators or directors?
The by-laws of a corporation must be first adopted by the incorporated or directors. By-laws may be modified by either the directors or the shareholders, depending on any reservations in the articles of incorporation.
What is the meaning of “ultra vires”?
Corporations must have their business purpose included in the Articles. When that purpose statement is narrow, the corporation may not undertake action beyond that purpose. If it does, this is an “ultra vires” act.
Purpose statements generally include “any other lawful purpose” to prevent ultra vires acts.
How is notice given for annual shareholder or board meetings?
Generally, annual meetings are required and notice is provided by the by-laws. Special meetings or emergency meetings must also provide notice to shareholders.
Who is liable for the obligations of a corporation?
Generally, shareholders are not personally liable, beyond the value of their individual stocks. The exception occurs when the doctrine of Piercing the Corporate Veil applies.
What is Piercing the Corporate Veil?
When the Veil is Pierced, courts allow a shareholder to be personally liable. This can occur when the shareholder has so dominated the corporation (ex. personal uses) it may be considered an alter ego of the shareholder.
It can also occur where the shareholder fails to follow corporate formalities, if there is undercapitalization, or fraud or illegal acts are present.
What are the 2 general classes of stock?
Common Stock and Preferred Stock
What is common stock?
Common stock is the lowest priority stock. Holders exercise ownership control by voting and electing directors.
What is preferred stock?
Preferred stockholders have priority over other (common stockholders) when it comes to payment of dividends or distributions at liquidation.
Preferred stockholder do not ALWAYS have voting rights, it depends on the by-laws and articles.
What is required for a special meeting of shareholders?
Persons authorized under the articles, or 10% of the shareholders may call a special meeting. the board may call a special meeting for a limited purpose.
Notice must be given to the shareholders stating the purpose of the meeting, and it must be 10-60 days prior (depending on the state).
What is the quorum required for a special meeting?
Generally a majority of the shareholders entitled to vote make a quorum, unless the articles state otherwise.
What is cumulative voting?
In cumulative voting, each share gets as many votes as there are seats and may use as many votes on any seat as they wish. If cumulative voting is not expressed in the articles/by-laws, voters generally have 1 vote per share (straight or direct voting).
What is a proxy vote?
A proxy vote allows a shareholder to vote through another person. A proxy must be in the form of a signed or verifiable electronic form.
When are proxies revocable?
A proxy is always revocable, unless the proxy holder has an economic interest in the shares represented.
When does a shareholder not have the right to inspect the books and records?
A shareholder must have proper purpose to inspect, meaning the purpose must be reasonably related to the shareholder’s interest.
A written demand to inspect is required, and the inspection must occur at the principal office in regular hours.
Who owes a corporation a Duty of Care?
Directors and Officers owe a fiduciary duty of care to the corporation. This includes: Reasonable steps to monitor the management; work in the corporation’s best interest; disclose material information to the board; and make reasonably informed decisions.
What is the Business Judgment Rule?
Under the Business Judgment Rule, courts will not second guess decisions made in:
Good Faith;
Made with the care of an ordinarily prudent person in similar situation; AND
Made with the reasonable belief it was in the best interests of the corporation.
How does the Duty of Loyalty apply to directors and officers?
Directors and Officers can not act on their personal interests when it conflicts with the corporate interest. A conflict occurs when the director or officer is a party to the transaction or has a significant beneficial interest enough to influence his judgment.
How can a Director or Officer in a conflict of interest be protected?
When disinterested shareholders approve the conflicting transaction; OR when non-interested members authorize; OR based on the circumstances the transaction was fair to the corporation.
