Chapter 44 Flashcards
Shareholder Rights in Corporations (101 cards)
1
Q
What are the two most common instruments used to provide funds for a corporation?
A
Stocks and bonds
2
Q
Ownership of a corporation is represented by?
A
Stock
3
Q
What is a corporate debt?
A
A bond
4
Q
Name for shares of a company that have been issued to stockholders.
A
Outstanding
5
Q
Declared money value of the outstanding stock of the corporation.
A
Capital stock
6
Q
Specified monetary amount assigned by an issuing corporation for each share of its stock.
A
Par value
7
Q
Value found by dividing the value of the corporate assets by the number of shares outstanding.
A
Book Value
8
Q
Does a shareholder own or have interest in any specific property of the corporation?
A
No, the corporation is the owner of all of its property.
9
Q
What is another word for stock?
A
Share, stock, and share of stock all mean the same thing.
10
Q
Capital refers to?
A
The net assets of the corporation
11
Q
Shares that have been issued to holders are said to be?
A
Outstanding
12
Q
What term refers to the value received by the corporation for its outstanding stock?
A
Capital stock
13
Q
Corporate stock may have a specified?
A
Par value
14
Q
Can shares be issued with no par value?
A
Yes, share may be issued with no par value. In that case, no amount is stated in the certificate, and the amount the subscriber pays the corporation is determined by the board of directors.
15
Q
The Revised Model Business Corporation Act (RMBCA) eliminates the concept of?
A
Par value, so stock issued by corporations in states following the RMBCA is always no par.
16
Q
The market value of a share of stock is the price at which?
A
That stock can be voluntarily bought or sold in the open market.
17
Q
Document evidencing a shareholder’s ownership of stock issued by a corporation.
A
Certificate of stock
18
Q
Stock that has no right or priority over any other stock of the corporation as to dividends or distribution of assets upon dissolution.
A
Common stock
19
Q
Stock that has a priority or preference as to payment of dividends or upon liquidation, or both.
A
Preferred stock
20
Q
A corporation ordinarily issues what as evidence of the shareholder’s ownership of stock?
A
Certificate of stock or share certificate
21
Q
A certificate of stock is also known as?
A
Share certificate
22
Q
Registered owners/stockholders may have either?
A
Physical certificates or uncertified ownership.
23
Q
The stock a corporation may be divided into?
A
Two or more classes
24
Q
What is ordinary stock that has no preferences?
A
Common stock
25
Each share of common stock usually entitles the holder to have?
One vote, receive a share of the profits in the form of dividends when declared, and to participate in the distribution of capital upon dissolution of the corporation.
26
What kind of stock has priority over common stock?
Preferred stock
27
Preferred stock is ordinarily?
Nonvoting
28
Sometimes the preferred stock is given?
The right of participation
29
A debt investment; a loan to a corporation or government entity usually for a defined period of time at a fixed interest rate.
Bond
30
Date that a corporation is required to repay a loan to a bondholder.
Maturity date
31
Unsecured bond of a corporation, with no specific corporate assets pledged a security for payment.
Debenture
32
Bonds held by owner whose names and addresses are registered on the books of the corporation to ensure proper payment.
Registered bonds
33
Instrument by which the grantor (owner of land) conveys or transfers the title to a grantee.
Deed
34
Usually a commercial banking institution, to represent the interests of the bondholders and ensure that the terms and covenants of the bond issue are met by the corporation.
Indenture trustee
35
Fixed amount of money set aside each year by the borrowing corporation toward the ultimate payment of bonds.
Sinking fund
36
Contract or agreement to buy a specific number and kind of shares when they are issued by the corporation.
Stock subscription
37
Unqualified assent to the act or proposal of another; as the acceptance of a draft (bill of exchange), of an offer to make a contract, of goods delivered by the seller, or of a gift or deed.
Acceptance
38
System of voting for directors in which each shareholder has as many votes as the number of directors to be elected, and such votes can be distributed for the various candidates as desired.
Cumulative voting
39
Authorizing someone else to vote the shares owned by the shareholder.
Voting by proxy
40
Written authorization by a shareholder to another person to vote the stock owned by shareholder; the person who is the holder of such a written authorization.
Proxy
41
Transfer by two or more persons of their shares of stock of a corporation to a trustee who is to vote the shares and act for such shareholders.
Voting trust
42
Shareholder's right upon the increase of a corporation's capital stock to be allowed to subscribe to such a percentage of the new shares as the shareholder's old shares bore the former total capital stock.
Preemptive right
43
Corporation designed to exhaust or use up the assets of the corporation, such as by extracting oil, coal, iron, and other ores.
Wasting assets corporation
44
Secondary action for damages or breach of contract brought by one or more corporate shareholders against directors, officers, or third persons.
Derivative (secondary) action
45
"Net assets of the corporation" refers to a corporation's?
Captial
46
Valuation of stock (three different ways to value stock)
- Par value (price assigned to stock
- Book value (based on company's net assets)
- Market Value (price of stock in the open market)
47
Price assigned to stock
Par value
48
Based on company's net assets
Book value
49
Price of stock in the open market
Market value
50
A certificate of stock evidences?
Ownership (some states allow uncertified shares to be issued)
51
Ordinary stock; entitles the holder to vote, receive dividends, and participate in the distribution of capital upon dissolution.
Common stock
52
Non-voting; has priority over common stock regarding dividend and capital distribution.
Preferred stock
53
What are the two types of preferred stock?
Cumulative preferred and Participating preferred
54
Life of the corporation
Duration of shares
55
What kind of stocks/shares may be issued by the corporation?
Fractional shares
56
A long-term loan which obligates the company to pay the principal back at the maturity date with interest.
Bond
57
Unsecured bonds
Debenture bonds
58
Bond's that are on the corporation's books
Registered bonds
59
Contractual terms for a particular bond issue are set forth in a?
Bond indenture or deed agreement
60
Bondholders' interest are represented by an indenture trustee who is responsible for?
Ensuring that the corporation complies with the terms of the bond indenture
61
Under the Statute of Frauds, a contract for sale of shares must?
Be in writing
62
Can subscription before incorporation take place?
Yes. In some states, it must be accepted by corporation. In other states, it's automatically a binding contract.
63
In order for subscription after incorporation to take place, the corporation must?
Accept the offer
64
Restrictions on the transfer of shares, are they allowed?
Restrictions are valid if not unreasonable
65
Interest Transferred: May be absolute, partial or?
Done for security
66
Delivery of certificate, endorsed by owner in blank or to a specified person, or via an intermediary are the?
Mechanics of transfer (how a transfer works)
67
In order for the transfer to be valid it must?
Satisfy requirements of any property transfer
68
In terms of negotiability, various defenses cannot be raised against a person...
acquiring the certificate for value in good faith
69
A secured transaction may be used as collateral for?
Loans, which is a pledge that does not transfer ownership
70
The corporation is entitled to treat the person whose?
Name is on the corporate book as owner of share/stock
71
Lost, Destroyed, and Stolen Share Certificates
Owner is entitled to replacement if an indemnity bond is filed and request made in a reasonable time before acquired by a bona fide purchaser.
72
The owner's of stock are given right to?
Certificate(s) of stock and they are allowed to transfer their stock/shares (unless limited by a valid restriction)
73
Who may vote?
Common shareholders of record (persons whose names are on the books)
74
Straight voting gives each shareholder?
1 vote on each matter
75
Under a cumulative voting plan, each shareholder has as many votes as?
The number of shares owned multiplied by the number of directors being elected.
(# of shares x # of directed being elected)
76
What authorizes another to vote one's shares?
Voting by proxy
77
A voting trust is created when a group of shareholders do what?
Transfer their shares to one or more persons as trustees
78
Preemptive Offer of Shares
Right to subscribe to same percentage of new shares that their stock currently represents
79
Can one or more persons act as inspectors (inspection of books)?
Yes
80
Form of books
There is no specific requirements for how exactly a corporation should keep their books, as long as they have them and they are organized
81
Financial statements
Must be furnished (accommodated) annually
82
There must be an earned surplus (retained earnings) in order to?
Declare dividends
Except for "wasting asset corporations" that may pay out of current profits!
83
As to when dividends are declared, that discretion is of the?
Directors
84
Dividends are usually distributed in the form of money but may also be?
Property or shares of stock
85
Effect of Transfer of Shares
Dividends are declared as of a "declaration date" and payable to shareholders as of the "record date". The "payment date" follows.
86
Owner on the record date receives the dividend even if shares are?
Transferred before payment date
87
Upon dissolution, shareholders are entitled to receive any balance of corporate assets after?
Creditors are paid (certain classes of stock may have a preference)
88
Can a shareholder bring a derivate action against corporation on behalf of stockholders?
Yes
89
When a special litigation committee (SLC) is formed (by board of directors) to decide on the suit, what may happen?
Demand on entire board may be excused
90
Courts will only defer to special litigation committee's (SLC) if?
Directors are independent
91
Liability of shareholders is generally?
Limited
92
Ignoring the corporate entity can also be called?
"Piercing the Corporate Veil"
93
Court may disregard the corporate entity when there is? (5 things)
Failure to maintain adequate records and commingling of assets
Grossly inadequate capitalization
Diversion of corporate funds or assets
Formation of corporation to avoid existing obligation or commit fraud
Determine that injustice would result
94
"Alter Ego" Theory
When an individual controls a corporation to the extent that separate personalities of the corporation and individual no longer exist
95
Obtaining Advantages of Corporate Existence
Courts will not go behind the corporate identity merely because the corporation was formed to obtain tax advantages or limited liability
96
Wage claims
May accrue to all shareholders or only to corporate officers
97
Unpaid subscriptions
Allow creditors to go after stockholders for balance
98
Unauthorized dividends
If dividends are paid out of capital, shareholders are generally liable to creditors for the depletion of capital
99
Act of Shareholder in Creating Liability
Usually requires that share ownership be limited to duly licensed professionals.
100
Liability of a shareholder for malpractice is...
NOT affected by the fact of incorporation
101
Malpractice Liability of an Associate
Liability varies from state to state. Statutory reference is often not clear and courts are left to resolve the question.
