BORGS again...

Question 1

Assets =

Answer 1

Debt + Equity

Question 2

Equity?

Answer 2

Assets - debt

Question 3

Define capital structure

Answer 3

The combination of debt and equity by which corporation is financed.

Question 4

_______ accounts = Account in the equity portion of the balance sheet.

Answer 4

Capital accounts

Question 5

What goes into capital accounts ledger for corporations?

Answer 5

1. Preferred shares
2. Capital
3. surplus
4. Retained earnings

Question 6

What goes into capital accounts ledger for partnerships?

Answer 6

Names of individual investors in the partnership.

Question 7

________ interests [liens] = Relationship between debt[obligation] and asset [collateral.] If debt not paid, secured party can force sale of collateral.

IE: Mortgage

Answer 7

Security interests

Question 8

________ priority = Means that one obligation is entitled to payment in full b4 another is entitled to payment at all.

IE: Creditors before SHs

Answer 8

Absolute priority

Question 9

__________ = Division of assets into shares

Answer 9

Securitization

Question 10

1. If a corp. has 3 shares worth $40 each. What is total assets?
2. T/F) If assets increase in value, so do the shares. IE: Assets of $240 means 3 shares would be $80 each.

Answer 10

1. $120
2. True

Question 11

___ ____ = Company has 100 shares and you own 50. The company then issues 100 news shares and you didn’t buy any. Now you own 50 out of 200. Less voting power.

Answer 11

Voting dilution

Question 12

2 types of voting dilution?
1.
2.

Answer 12

1. Entity shares share of market for money. More shares at same value as before.
2. Entity issues new shares without new asset value and each share now worth less.

Question 13

Preferred shares paid on what period schedule?
1.
2.

Answer 13

1. Annually
2. On dissolution

Question 14

1. If 99 SHs buy 100 shares at $1,000 per share. How much cash does the corporation have?
2. How much is each share worth?

Answer 14

1. $100,000
2. $1,000

Question 15

Corp assets = 100,000
Corp spends 90K to buy business worth 95K

Aggregate value of all stock?

Answer 15

105K

Question 16

T/F) Actual value of shares increase with actual value of corporation assets.

Answer 16

True [diff from book value which may remain the same]

Question 17

Corp assets = 100K
Corp pays SH 5K dividend

Aggregate value of all stock?

Answer 17

95K [Dividends reduce total value]

Question 18

T/F) Shares are worth less when corporation pays a dividend to SH.

Answer 18

True, subtract that dividend from the asset sheet.

Question 19

T/F) Shares are worth more when corp. makes a profit.

Answer 19

True, as assets increase so to does the share values equally to total the assets.

Question 20

Corp assets = 100K
Sally owned 100 shares = 1K each

Now, corp. issues 100 shares to Bob in return for 100K investment.

What is the corp. shares worth in the aggregate?

Answer 20

200K. Assuming Sally and Bob get along well, each would have 100K of shares.

Question 21

Sally’s has 100 shares at 100K.
Corp. sells 100 shares to Bob for 200K.
Assets now 300K. 200 shares outstanding. How much is each share worth?

Answer 21

1,500 [Assets 300K / shares 200]

Question 22

How to get share value?

Answer 22

Assets divided by shares outstanding

Question 23

If sally owns 100K in parent corp and parent corp also owns about 100K in shares in the subs corp…. how much total wealth is that?

Answer 23

Still 100k. The shares of parent and sub are merely a reflection of the original 100K.

Question 24

Are shares on the asset ledger or equity ledger?

Answer 24

Equity

Question 25

How is balance sheet divided up?

Answer 25

Assets = left side Liability + Equity = right side

Question 26

Whats the big difference between what you will see on equity side of ledger for corp. v. partnership?

Answer 26

Corp. = Shares Partnership = name of investors

Question 27

For problems regarding payment of common share dividends, what should you be careful too look out for?

Answer 27

If preferred SHs have not been paid yet, common gets zilch.

Question 28

For problems regarding sell of all assets in a company... where is the money paid first?

Answer 28

Your debts. IE: 1) Bank loans, 2) Investment loans, etc. Only after all debts paid can you pay SHs.

Question 29

Company sells $1million assets. Debts & Equity are as follows: Bank = 300K Inv. = 400K Preferred = 320K Common = 180K Who gets what?

Answer 29

Bank = 300K Inv. = 400k Preferred = 300K

Question 30

Company sells $3million assets. Debts & Equity are as follows: Bank = 300K Inv. = 400K Preferred = 320K Common = 180K Who gets what?

Answer 30

Now we can split evenly among them b/c each will be paid what is owed regardless. 660K each in this scenario.

Question 31

What is the default rule in partnerships for loss allocation?

Answer 31

If not decided by partners, losses are allocated the same as profits. IE: If partners decided it would be 75, 25, 10% among three partners, you use that.

Question 32

The right to inspect corporate records is a personal statutory right. [T/F]

Answer 32

True so a denial is grounds for direct/class action shareholder suit. [Not derivitive]

Question 33

1. If the harmed party is individual SH? 2. If the harmed party is the entity?

Answer 33

1. Direct / Class 2. Derivative

Question 34

_________ voting is the mechanism that gives minority SHs real power to elect at least one director.

Answer 34

Cumlative voting

Question 35

Voting _____ = SHs transfer legal title of their shares to a trustee who votes the shares per the terms of the _____.

Answer 35

Voting trust

Question 36

_______ agreement = A K between SHs agreeing to vote their shares a certain way.

Answer 36

Pooling agreement

Question 37

T/F) The default rules for voting favor the minority class.

Answer 37

False. It is straight voting. Minorities need cumlative.

Question 38

SH request to inspect corporate records must be for a ___ ____.

Answer 38

Proper purpose

Question 39

Default rule for election of directors in a corporation?

Answer 39

Plurality voting = Candidates who receive highest number of votes are elected to the board through straight voting system.

Question 40

Is straight voting or cumlative voting the default rule for electing directors?

Answer 40

Plurality of straight votes. IE: One share = one vote.

Question 41

What is the default rule for when directors are elected?

Answer 41

Annually. Minority rule is "staggered" which must be opted into.

Question 42

What is a quorum?

Answer 42

The minimum number of people who must be present at a meeting to legally conduct business.

Question 43

What is the quorum for SH voting?

Answer 43

Majority of SHs entitled to vote

Question 44

Quorum for directors to vote?

Answer 44

Majority of directors entitled to vote

Question 45

How to change the fundamental docs?

Answer 45

1. Board proposes it 2. Shareholder votes on it by majority. Must have quorum.

Question 46

T/F) In partnership agreement, losses are allocated to mirror profit allocation if losses were not defined in partnership agreement.

Answer 46

True!

Question 47

______ provision is a clause that eliminates personal liability of a director. Except in cases breach of fiduciary duty or intentional misconduct.

Answer 47

Exculpation clause

Question 48

___ ___ liability allows plaintiff to hold each member of group liable for actions of any one member when engaged in joint enterprise that cause harm.

Answer 48

Joint Enterprise liability

Question 49

In partnership, how is payment dolled out to the partners? What about LLC? What about LP?

Answer 49

Per capita = equal payments. Same for LLC. For LP, its per contribution.

Question 50

1. T/F) Each partner is entitled to equal share of partnership distributions. 2. What about their losses?

Answer 50

1. True. Per capita. 2. Proportional to the partner's share of distributions. [It mirrors profit allocation]

Question 51

T/F) Unless stated otherwise in fundamental docs, partnership losses are dolled out in same manner as partnership profit allocation.

Answer 51

True

Question 52

What are the 3 requirements under the "Duty of care?"

Answer 52

1. Become informed 2. GF decision making [BJR may protect] 3. BF lack of oversight

Question 53

T/F) If duty of care is satisfied, then you can argue BJR to protect your directors.

Answer 53

True! Big one.

Question 54

Duty of care?

Answer 54

1. Become informed -can rely on others 2. GF decision making 3. Sufficient oversight of said decisions - liability for bad faith or conscious disregard

Question 55

If duty of care applies, what rule protects?

Answer 55

BJR!!

Question 56

T/F) Under the duty of care factor (1) Becoming informed: directors are fully protected in relying in GF on expert opinions.

Answer 56

True

Question 57

Under duty of care (3) directors are liable for oversight lacking when?

Answer 57

1. BF 2. Conscious disregard

Question 58

Alternate argument: If your director fails the Duty of Care duty test, what can you argue to protect him?

Answer 58

Exculpation clause for breach of duty of care.

Question 59

T/F) If a partner leaves the partnership is immediately dissolved and exists only for the purpose of winding up, unless the partnership elects to buy out Gabriel’s interest.

Answer 59

True!!

Question 60

T/F) Default rule for profits is per capita – IE: Share equally unless specified otherwise

Answer 60

True

Question 61

One share = one vote [T/F]

Answer 61

True - Default rule and also straight voting by plurality

Question 62

Default rule for when directors elected?

Answer 62

Annually

Question 63

What systems of voting/voting tools help SHs?

Answer 63

1. Cumlative voting 2. Voting pools 3. Voting trusts

Question 64

What is a conflict of interest really?

Answer 64

1. Material financial interest 2. Or related to someone with that

Question 65

If BJR applies, it PRECLUDES courts from reviewing.

Answer 65

True! Used in duty of care scenarios.