Business Organizations

Front 1

Vertical Integration

Back 1

A combination of a business with its suppliers or customers

Front 2

Horizontal integration

Back 2

A combination of business engaged in the same enterprise.

Front 3

Balance Sheet

Back 3

An accounting statement that divides things you own on a particular date into assets and liabilities. It further divides those assets into those that are liquid and illiquid.

Front 4

Puts and Calls

Back 4

A real option that permits a business to do something. A financial option that connotes the standard right sold by a person other than the corporation to purchase securities of the corporation from that person. Options to buy stock that are not issued by the corporation.

Front 5

Derivative

Back 5

Bets placed on the value of stock

Front 6

Discount Rate

Back 6

The rate used to calculate the present value of future money. Interest rate in reverse

Front 7

Discounted Cash Flow

Back 7

A method of valuing an asset that will generate money in the future. It involves projecting net cash flows for a determined period, setting a terminal value of the assets at the end of the projected period and then discounting those values at a set rate to determine the net present value.

Front 8

Discounted to Present Value

Back 8

The process of determining how much money one needs to invest today to receive a given amount at a certain time in the future.

Front 9

GAAP

Back 9

Generally Accepted Accounting Principles
How to do an audit

Front 10

Liquidity

Back 10

The relative ease with which an asset may be transferred.

Front 11

Net Cash flow

Back 11

The cash generated by an asset net of the cash used to acquire or maintain the asset.

Front 12

Agency

Back 12

the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.

Front 13

Actual Authority

Back 13

A principal is bound to third parties by anything the agent does in accordance with the principal’s manifestation of assent

Front 14

Apparent Authority

Back 14

An agent’s power to bind the principal from a third party’s belief, traceable to the principal’s manifestation, that the agent is authorized to act for the principal.

Front 15

Bonding

Back 15

An assurance, such as an insurance policy or financial penalty clause in an agency agreement, that assures principals that the agents will not shirk or behave opportunistically

Front 16

Disclosed Principle

Back 16

A principal whose identity is known to a third party.

Front 17

Undisclosed Principle

Back 17

A principal is undisclosed where a third party has no knowledge that the agent is acting on behalf of any principal. Agent will be liable where the principal is undisclosed.

Front 18

Estoppel (may not need to know as it is largely covered by apparent authority)

Back 18

A theory under which a principal is liable for agent’s actions, even of neither authorized nor apparently authorized, if third parties have changed their position in reliance upon their (reasonable) belief that the action was authorized and the principal caused the belief or if the principal, knowing of the belief, did nothing to notify the third party of the facts.

Front 19

Ratification

Back 19

A doctrine under which a principal is liable for an agent’s actions, when no actual or apparent authority exists. Ratification occurs when the principal manifests assent to the agent’s actions, thus electing to treat the action as authorized.

Front 20

Respondent Superior

Back 20

A doctrine by which a principal is liable for an employee’s tort committed "within the scope of employment". Is the tort sufficiently related to the agency relationship?

Front 21

Scope of Employment

Back 21

An employee acts within the scope of employment when performing work assigned by the employee or engaging in a course of conduct subject to the employer’s control

Front 22

Corporation by Estoppel

Back 22

An equitable defense to individual liability predicated on defective incorporation. Doctrine of corporation by estoppel viable only where both parties reasonably believe they are dealing with a corporation and neither party has actual constructive knowledge that the corporation does not exist. Contract law that parties who deal with each other upon a mutual assumption of fact are prevented from disputing that fact.

Front 23

De facto Corporation

Back 23

A de factor corporation exists when an individual makes a good faith effort but ineffective attempt to incorporate.
Law authorizing corporation, good faith effort to incorporate, use and exercise of corporate powers.

Front 24

De jure corporation

Back 24

A corporation that has substantially complied with all mandatory provisions that are intended to be conditions precedent to incorporation. (they are actually a corporation).

Front 25

Domestic vs. Foreign Corporation

Back 25

Based on the state of incorporation.
Corporations must register to do business in MD, otherwise they are denied access to MD courts

Front 26

Defective Incorporation

Back 26

The situation in which obligations are incurred in the name of a corporation that has not yet been formed. The corporation’s promoter may be individually liable for such obligations.

Front 27

Blank Stock

Back 27

Stock authorized by the articles of incorporation as non-common stock, the terms of which have not been determined. The characteristics of the stock are to be set by the board of directors

Front 28

Bonds

Back 28

Debt securities issued by a corporation that are typically secured by the corporation’s assets

Front 29

Capital Gain

Back 29

The gain that an equity holder realizes when he or she sells equity in the corporation.

Front 30

Closely Held Corporation

Back 30

A corporation owned by a few share holders or even one person. Common Law term.

Front 31

Close Corporation

Back 31

Made under MD 4-401. Do away with the board, shareholders run the corporation. Majority votes to make business decisions.

Front 32

Convertible

Back 32

Stock that may be exchanged for other securities of the corporation

Front 33

Equitable subordination

Back 33

A doctrine that protects creditors of a bankruptcy corporation. The bankruptcy court may subordinate debit that the court deems to resemble shareholder interest more than debt.

Front 34

Floating Interest Rate

Back 34

A loan with an interest rate that varies over the life of the loan.

Front 35

Initial public offering

Back 35

The sale of a companies securities to the public for the first time. Be sure to register your stock!

Front 36

Affirmative Covenants

Back 36

Things that a borrowing corporation agrees to do or refrains from doing in order to make the loan less risky, such as maintaining certain financial rations or agreeing to make ally payments of other loans in a timely fashion.

Front 37

Option

Back 37

The power but not the obligation to do something, or a power granted by a corporation to a particular person to purchase securities.

Front 38

Preemptive Rights

Back 38

The equitable right of shareholders to purchase shares proposed to be issued so that their respective economic and managerial interests will be preserved.

Front 39

Redemption

Back 39

The right of the corporation, contained in the articles of incorporation, to repurchase shares of a particular class or series.

Front 40

Securities

Back 40

The standardized rights granted by a corporation in return for money investments. Stocks, bonds and debentures are typical securities

Front 41

Subordinated

Back 41

Debit that has a lower priority of repayment.

Front 42

Subscription agreement

Back 42

Contracts to purchase shares, usually in a corporation that has not yet been formed

Front 43

Venture capital

Back 43

Money invested in non-public corporations by entities unconnected with the corporation with a view to preparing the corporation to go public.

Front 44

Insolvency Test

Back 44

A test to determine whether a corporation has lawfully declared a dividend. Whether the corporation’s assets will exceed its liabilities and whether the corporation can pay its debits as they come due.

Front 45

Reverse Stock Split

Back 45

An amalgamation of shares at a fixed ration into fewer shares.

Front 46

Fraudulent Conveyances

Back 46

A doctrine designated to protect a corporation’s creditors. If a corporate debtor transfers assets for less than fair value at the time when it was insolvent and for the purpose of harming its other creditors, those other creditors can trace the transferred assets to the hands of the transferees. Intent to defeat the creditors is necessary

Front 47

Piercing the Corporate Veil

Back 47

An equitable doctrine that holds a corporation’s shareholders liable for the corporation’s debits if the corporation is unable to pay

Front 48

50. Successor Liability

Back 48

A doctrine that holds the corporations liable for the debits of a second corporations that sold all its assets to the first corporation.

-There is an express or implied agreement to assume liabilities,
-The transaction amounts to a consolidation or merger,
-The successor entity is a mere continuation of reincarnation of the predecessor entity
-The transaction was fraudulent, not made in good faith, or made without sufficient consideration.

Front 49

Voidable Preferences

Back 49

Corporate property transferred to a certain corporate insiders with one year prior to the corporation’s bankruptcy if the transfer was for an antecedent debit, had the effect of giving insiders more than they would have receive in bankruptcy, and was made while the corporation was insolvent. Voidable preferences may be recovered for the benefit of the corporation’s creditors.

Front 50

Amotion

Back 50

The power of shareholders to remove directors during their term

Front 51

Classified Board

Back 51

A board in which the power to elect at least one director is vest in or denied to at least one class of stock

Front 52

Waste

Back 52

An exchange of corporate assets for consideration so disproportionately small as to lie beyond the range at which any reasonable person might be willing to trade. Could be a breach of the duty of care.

Front 53

Duty of Care

Back 53

The fiduciary duty of a directors to act on an informed basis of with care that a person in a like position would reasonably believe appropriate under similar circumstances.

Front 54

Duty of Loyalty

Back 54

The fiduciary duty to take and approve only those actions the director believes to be in the corporation’s best interest.

Front 55

Self-Dealing

Back 55

Self-dealing occurs when a director or officer enters into a contract with the corporation, usually to buy something from or sell something to the corporation.

Front 56

Entire Fairness

Back 56

The standard of review of a directors’ action in which the burden is on the defendants to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain. It has two components, fair dealing and fair price.

Front 57

Derivative Action

Back 57

A lawsuit filed by shareholders on behalf of the corporation to redress harm to the corporation that the board will not redress. Winnings go into the corporate coffers.

Front 58

Deadlock

Back 58

An impasse among directors or shareholders. Could be grounds for dissolution, 25% of share voting power must bring the action.

Front 59

Oppression

Back 59

A cause of action my minority shareholders. Under one approach, oppression is conduct that substantially defeats the minority shareholders’ reasonable expectations. Under a second approach, oppression is inequitable conduct by the majority shareholders.

Front 60

Charging Order

Back 60

A court order seizing a partner or member’s transferable interest for the benefit of a judgment creditor of that partner. Similar to a lien.

Front 61

Dissociated

Back 61

When a partner ceases to be co-owner of a partnership. Leaving partner is entitled to their share of the business or a buyout.

Front 62

Dissolution

Back 62

The process by which a partnership or an LLC ceases to exist. All assets are disposed of, all creditors are paid, and the partners or members receive distributions of the any remainder.

Front 63

Strait C Corporation

Back 63

A corporation that is taxed as a separate entity, meaning the corporation’s income is taxed twice, once at the corporate level and again when distributed to the shareholders.

Front 64

S Corporation

Back 64

A corporation that has elected to be taxed under subchapter S of the IRC. S corporations are not taxed separately. Profits and losses are directly allocated to the shareholder who include those profits and losses on their own tax returns.

Front 65

Market Capitalization

Back 65

The value of all the shares of the corporation. This is not the same as the actual value of the corporation's assets.