Business Org. Chapter 7 and 8

The Traditional Roles of Shareholders and Directors/Action by Officers

100

True or False? A corporation’s president has authority to bind the company by acts that arise in the usual course of business, but not for contracts that are extraordinary in nature. 

True. Lee v. Jenkins Bros

• Employment contracts for life are usually considered to be extraordinary and beyond the president’s authority.
• Examples of extra ordinary agreements: Such contracts impede shareholders’ and future directors’ power regarding management policies, subject the corporation to substantial liability, and run for long, indefinite periods of time.

Shareholder Voting and Agreements

100

What is a proxy?

An agent for a corporate shareholder that attends the corporation’s annual or special meeting and votes on the shareholder’s behalf

200

What is the difference between a record holder and a beneficial owner?

• Record holder – person in whose name shares are registered. The corp. may treat the record owner as the owner of the shares for purposes such as voting, the payment of dividends or distrubutions, and determining to whom shares have been transferred.
• Beneficial owner – actual owner of the shares

300

What is cumulative voting? What is straight voting? Provide an example of each.

Voting structure that allows voters to cast multiple votes for a candidate; corporate law often mandates cumulative voting to protect the rights of minority shareholders.

400

Requirements to impose a share restriction?

1. The restrictions must be conspicuously noted on the front of the stock certificate (Is it eye-catching enough? Might need to make this stand out so it can draw it attention) and 2. The restrictions on transfer must be reasonable – we are attempting to avoid restraints on alienation.

500

What is  a voting trust? What are the requirements of a voting trust?

• Voting trust – an agreement between owners of shares of stock and a trustee, where the right to vote the stock is transferred to a trustee while other ownership right of the stock stays with the shareholders.
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• Requirements to create a voting trust:1. The voting rights of the stock must be separated from other attributes of stock ownership; 2. The voting rights must be intended to be irrevocable for a definitive period, which must be less than 10 years in Delaware. 3. The principal purpose of the grant of voting rights must be to acquire voting control of the corporation.

Debt and Equity

100

What is the difference between capital and equity capital? What are ways to obtain capital?

• capital:financing that firms use to fund their business activities.Ways to obtain capital: (1) by borrowing funds; (2) by selling shares in the company; or (3) by retaining earnings of the business rather than distributing them to owners.
• capital contributed by the original owners of the firm, capital contributed by subsequent investors usually in exchange for ownership interests in the business, and retained earnings of the enterprise.

200

What are shares? what are the types of shares?

units into which the proprietary interests in a domestic or foreign corporation are divided. MBCA §1.40

- common shares 

- preferred shares

300

What are the characteristics associated with common stock ?

(1) the right to receive dividends contingent upon an apportionment of profits, (2) negotiability, (3) the ability to be pledged or hypothecated; (4) the conferring of voting rights in proportion to the number of shares owned; and (5) the capacity to increase in value.

400

Fundamental rights of holders of common shares?

• 1. They are entitled to vote for the election of directors and on other matters coming before the shareholders; and
• 2. They are entitled to the net assets of the corporation (i.e. the assets remaining after making allowance for debts) upon dissolution

500

What is a dividend? Name the type of dividend and define them

• Payments made to a class of shareholders from corporate profit
• Dividend rights – the dividend preference of shares may be:
• Cumulative - if a preferred dividend is not paid in any year, it accumulates and must be paid (along with the following years unpaid cumulative dividends) before any dividend may be paid on the common shares in a later year.
• Noncumulative - a noncumulative defendant is not carried over from one year to the next; If no dividend is the clear during the year, the preferred shareholder loses their right to receive the dividend for that year. A noncumulative dividend that is not paid during the year simply disappears.
• Partially cumulative - cumulative in any particular year only if there are sufficient earnings that year to cover the dividend . If the earnings are insufficient, the preferred dividend for that year disappears just as if the diffident were noncumulative.

Issuances of Shares

100

What is a share subscription?

• Offer to purchase shares of stocks from a company

200

What is the difference between par value and no par value?

• Par Value – arbitrary dollar value assigned to shares which, after being assigned, represents the minimum amount for which each share may be sold. No min or max value that must be assigned.  established in the articles of incorporation as a fundamental part of the description of the share  Bears no relationship to the market value
• No Par Value – The board of directors will assign a value to the stock below which the shares cannot be issued. (majority)

300

How should damages be measured?

• Damages should be measured by the difference between the sale price and the market value of the shares rather than a difference between par value and market value.

400

What is a preemptive right? May this right be granted or withheld? if yes, by who/what?

The right of a stockholder to a share of new stock that is proportionate to his share of the old stock. – this right may be granted or withheld by the articles of incorp.

500

What is a watered stock liability?

when stock is issued at less than par the shareholders to whom it is issued may incur personal liability to the Corporation or its creditors in an amount measured by the difference between par value and the amount

Public Offerings and Distributions

100

True or false? To be public, an offer need to be open to the world.

False.

• To determine the distinction between public and private and any particular contexts, it is essential to examine the circumstances under which the disc distinction is sought to be established and to consider the purpose is sought to be achieved by such distinction.  the focus of inquiry should be on the need of the offerings for the protection afforded by the registration.

200

What is a public offering and is it regulated by state or federal law?

Raise substantial amounts of capital by making a public offering of their securities through the services of an underwriter.

Federal law