Flashcards in Chapter Fifteen Deck (50):
A distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held.
The portion of a corporation's profits that has not been paid out as dividends to shareholders.
A legal entity formed in compliance with statutory requirements that is distinct
In a given state, a corporation that does business in, and is organized under the law of, that state.
In a given state, a corporation that does business in the state without being incorporate therein.
A designation in the United States for a corporation formed in another country but doing business in the United States.
A corporation whose shareholders are limited to a small group of persons, often only family members. In a close corporation, the shareholders' rights to transfer shares to others are usually restricted.
A close business corporation that has met certain requirements set out in the Internal Revenue Code and thus qualifies for special income tax treatment. Essentially, an S corporation is taxed the same as a partnership, but its owners enjoy the privilege of limited liability.
Articles of Incorporation
The document filed with the appropriate governmental agency, usually the secretary of state, when a business is incorporated. State statute usually prescribe what kind of information must be contained in the articles of incorporation.
A set of governing rules adopted by a corporation or other association
A latin term meaning "beyond the powers"; in corporation law, acts of a corporation that are beyond its express and implied powers to undertake.
Piercing the Corporate Veil
An action in which a court disregards the corporate entity and holds the shareholders personally liable for corporate debts and obligations.
To put funds or goods together into one mass so that they are mixed to such a degree that they no longer have separate identities. In corporate law, if personal and corporate interets are commingled to the extent that the corporation has no separate identity, a court may "pierce the corporate veil" and expose the shareholders to personal liabilities.
A member of the board of directors who is also an officer of the corporation.
A member of the board of directors who does not hold a management position at the corporation.
The number of members of a decision-making body that must be present before business may be transacted.
Business judgement rule
A rule that immunizes corporate management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.
In corporation law, a written agreement between a stockholder and another party in which the stockholder authorizes the other party to vote the stockholder's shares in a certain manner.
A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation
Rights held by shareholders that entitle them to purchase newly issued shares of a corporation's stock, equal in percentage to shares already held, before the stock is offered ton any outside buyers. Preemptive rights enable shareholders to maintain their proportionate ownership and voice in the corporation.
A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period.
Shareholder's Derivative Suit
A suit brought by a shareholder to enforce a corporate cause of action against a third party.
Shares of stock issued by a corporation for which the corporation receives, as a payment, less than the stated value of the shares.
Types of Corporations
-Domestic, Foreign and Alien Corporations
Limited number of stockholders (often times family members); stock is not traded on a stock exchange
Stock is traded on a stock exchange; is likely to have many shareholders.
Created for associations of lawyers, doctors, accountants.
Created under subchapter S of the internal revenue code; limited liability of a corporation, "passthrough" status of a partnership
S corporation details
Limited number (no more than 100) of shareholders and specific limitations as to who can be a shareholder- no non resident aliens (foreign investors) can invest in a S corporation.
Duty of Loyalty
The duty of loyalty prohibits managers from making a decision that benefits them at the expense of the corporation or from engaging behavior that constitutes
"Using corporate funds or confidential corporate information for personal advantage" is a violation of the duty of loyalty
Mangers/Officers are in violation of the corporate opportunity doctrine if they compete against the corporation without its consent
Corporate Opportunity Case
Guth v. Loft Inc.
Business Judgement Rule
The board member and corporate management has a duty of loyalty and a duty of care.
The Business Judgement rule must act
Must act without a conflict of interest, with the care of an ordinary prudent person and in the best interests of the company.
The business Judgement this rule allows directos
This rule allows directors to do their job with out fear of excessive court intervention (and encourages people to serve as directors.)
Duty of Care
The duty of care requires officers and directors "to be honest and use prudent business judgement in the conduct of corporate affairs.
Duty of Care list
-Decision must have a rational business purpose
-Decision and actions are legal
-Decision must be "informed"
-Also includes a duty to exercise reasonable supervision of other officers and employees.
The owners of a corporation are called shareholders.
Legal "entities"/Persons" (With legal rights and privileges) created by state statute.
Corporations overall responsibility
The overall responsibility for managing a corporation rests with the board of directors. The board of directors is elected by shareholders. the board of directors hires managers (corporate officers like the chief executive officer) to take care of day-to-day operations of the corporation.
Corporation v Partnership
A corporation, unlike a partnership, can be owned by a single person.
Shareholders elect the corporation's board of directors but generally are not involved in the day-to-day management of the business.
Corporate officers are appointed by the board of directors.
The "Double Taxation" issue
must pay federal corporate tax on profits and shareholders must pay tax on the dividends they receive from the corporation.
Corporate shareholders normally are not personally liable for the obligations of the corporations beyond the extent of their investments.
Piercing the Corporate Veil
The usual rule is that shareholders are not held personally liable for corporation's debts- beyond their capital contributions.
Pierce the Corporate Veil in some cases
In some cases, however, courts may "pierce the corporate veil, and make the shareholders personally liable for the corporation's debts/obligations
Pierce the corporate veil case
Schultz v. General Electric healthcare Financial Services (2010)