The Legal Environment Of Business University Of Alabama Lgs200 Chapter 16

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Corporation

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A fictitious legal entity that is created according to statutory requirements.

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Corporation codes

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State statutes that regulate the formation, operation, and dissolution of corporations.

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Limited liability of shareholders

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A general rule of corporate law which provides that generally shareholders are liable only to the extent of their capital contributions for the debts and obligations of the corporation and are not personally liable for the debts and obligations of the corporation.

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Publicly held corporation

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A corporation that has many shareholders and whose securities are usually traded on national stock exchanges.

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Closely held corporation

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A corporation owned by one or a few shareholders.

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Revised Model Business Corporation Act (RMBCA)

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A 1984 revision of the MBCA that arranges the provisions of the act more logically, revises the language to be more consistent, and makes substantial changes in the provisions.

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Domestic corporation

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A corporation in the state in which it was formed.

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Articles of incorporation (corporate charter)

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The basic governing documents of a corporation, must be filed with the secretary of state of the state of incorporation.

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Registered agent

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A person or corporation that is empowered to accept service of process on behalf of a corporation.

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Bylaws

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A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation.

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S corporation

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A corporation that has met certain requirements and has elected to be taxed as an S corporation for federal income tax purposes. An S corporation pays no federal income tax at the corporate level. The S corporation's income or loss flows to the shareholders and must be reported on the shareholders' individual income tax returns.

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Organizational meeting

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A meeting that must be held by the initial directors of a corporation after the articles of incorporation are filed.

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Equity securities (stocks)

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Representation of ownership rights in a corporation.

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C corporation

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A corporation that does not qualify for or has not elected to be taxed as an S corporation. Where there is a C corporation, there is double taxation- that is, a C corporation pays taxes at the corporate level, and shareholders pay taxes on dividends paid by the corporation.

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Common stockholder

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A person who owns common stock.

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Common stock

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A type of equity security that represents the residual value of a corporation.

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Preferred stock

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A type of equity security that is given certain preferences and rights over common stock.

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Preferred stockholder

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A person who owns preferred stock.

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Dividends preference

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The right to receive a fixed dividend at stipulated periods during the year (e.g., quarterly).

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Liquidation preference

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The right to be paid a started dollar amount if a corporation is dissolved and liquidated.

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Cumulative preferred stock

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Stock for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends.

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Participating preferred stock

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Stock that allows the preferred stockholder to participate in the profits of the corporation along with the common stockholders.

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Convertible preferred stock

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Stock that permits the preferred stockholder to convert their shares into common stock.

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Redeemable preferred stock (callable preferred stock)

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Stock that permits a corporation to buy back preferred stock at some future date.

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Authorized shares

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The number of shares provided for in a corporation's articles of incorporation.

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Issued shares

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Authorized shares that have been sold by a corporation.

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Debt securities (fixed income securities)

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Securities that establish a debtor-creditor relationship in which the corporation borrows money from the investor to whom a debt security is issued.

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Debenture

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A long-term unsecured debt instrument that is based on a corporation's general credit standing.

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Bond

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A long-term debt security that is secured by some form of collateral.

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Note

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A debt security with a maturity of five years or less.

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Indenture agreement (indenture)

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A contract between a corporation and a holder that contains the terms of debt security.

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Shareholders

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Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation.

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Annual shareholders' meeting

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A meeting of the shareholders of a corporation that must be held by the corporation to elect directors and to vote on other matters.

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Special shareholders' meetings

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Meetings of shareholders that may be called to consider and vote on important or emergency issues, such as the proposed merger or amending the articles of incorporation.

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Proxy (proxy card)

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A shareholder's authorization of another person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence.

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Quorum

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The number of directors necessary to hold a board meeting or transact business of the board.

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Supramajority voting requirement (supermajority voting requirement)

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A requirement that a greater than majority of shares constitutes a quorum of the vote of the shareholders.

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Straight voting (noncumulative voting)

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A system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open.

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Cumulative voting

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A system in which a shareholder can accumulate all of his or her votes and vote them all for one candidate or split them among several candidates.

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Dividend

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A distribution of profits of the corporation to shareholders.

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Piercing the corporate veil (alter ego doctrine)

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A doctrine that says of a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations.

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Shareholder resolution

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A resolution that a shareholder who meets certain ownership requirements may submit to other shareholders for a vote. Many of these concern social issues.

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Board of directors

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A panel of persons who are elected by shareholders to make policy decisions concerning the operation of a corporation.

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Inside director

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A member of a board of directors who is also an officer of the corporation.

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Outside director

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A member of a board of directors who is not an officer of the corporation.

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Corporate officers

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Employees of a corporation appointed by the board of directors to manage the day-to-day operations of the corporation.

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Fiduciary duties

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The duties of care and loyalty owed by the directors and officers to their corporation and its shareholders.

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Duty of loyalty

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A duty that directors and officers have not to act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders.

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Duty of care

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A duty of corporate directors and officers to use care and diligence when acting on behalf of the corporation.

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Negligence

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Failure of a corporate director or officer to exercise the duty of care while conducting the corporation's business.

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Business judgement rule

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A rule that says directors and officers are not liable to the corporation or its shareholders for honest mistakes of judgement.

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Sarbanes-Oxley Act

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A federal statute enacted by Congress to improve corporate governance.

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Merger

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A situation in which one corporation is absorbed into another corporation and ceases to exist.

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Surviving corporation

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The corporation that continues to exist after a merger.

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Merged corporation

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The corporation that is absorbed in a merger and ceases to exist after the merger.

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Voluntary dissolution

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Dissolution of a corporation that has begun business or issued shares upon recommendation of the board of directors and a majority vote of the shares entitled to vote.

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Administrative dissolution

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Involuntary dissolution of a corporation that is ordered by the secretary of state of a corporation has failed to comply with certain procedures required by law.

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Winding up and liquidation

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The process by which a dissolved corporation's assets are collected, liquidated, and distributed to creditors, preferred shareholders, and common shareholders.

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Termination

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The end of a corporation that occurs after winding up the corporation's affairs, liquidating its assets, and distributing the proceeds and property to the claimants.

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Multinational corporation (transnational corporation)

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A corporation that operates in more than one country.