Business Organizations Final Exam Review

Flashcards for review

Limited Liability Company (LLC)

A hybrid business form that combines the limited liability aspects of a corporation and the tax advantages of a partnership.

Principal

A person or entity that authorizes an agent to act on their behalf in dealings with third parties and is legally bound by the agent’s actions when the agent operates within their given authority.

Agent

A person or entity authorized to act on behalf of another party, known as the principal, to create legal relations with a third party, legally binds the principal.

Implied Authority

The power an agent has to act on behalf of a principal, even though it is not explicitly stated in a contract or agreement.

Apparent authority

The authority of the agent to act is only apparent, not real. Arises when the principal causes a third party to believe that the agent has authority, even though she or he does not.

Doctrine of Respondeat Superior

The theory of vicarious liability has practical implications in all situations in which a principal-agent relationship exists.

Joint Liability

Each partner in a partnership is jointly liable for the partnership’s obligations. A third party must sue all of the partners as a group, but each partner can be held liable for the full amount.

Joint and Several Liability

Athird party has the option of suing all of the partners together (jointly) or one or more of the partners separately (severally).

Pass-through entity

A business entity that has no tax liability—the entity’s income is passed through to the owners of the entity, who pay income taxes on it.

Partnership By Estoppel

When a third person has reasonably and detrimentally relied on a representation that a nonpartner was part of a partnership, a court may conclude that this exists.

Duty of Care

A partner’s duty of care involves refraining from “grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law”.

Limited Liability Partnership (LLP)

The LLP allows a partnership to continue as a pass-through entity for tax purposes; it limits the personal liability of the partners

Limited Partnership

Consists of at least one General Partner and one or more Limited Partners.

Liability in LP's

General Partners have unlimited liability for partnership obligations. Limited Partners are liable only to the extent of their contributions.

Member-managed LLC

All of the members participate in management, and decisions are made by majority vote.

Manager-managed LLC

The members designate a person or group of persons to manage the firm

Corporate Officers

Corporate officers are appointed by the Board of Directors and are executives who manage different aspects of the company.

Board of Directors

The responsibility for the overall management of the firm is entrusted to this group, whose members are elected by the shareholders

Shareholder

An individual purchases a share of stock (an equity interest) in a corporation, that person becomes this and thus an owner of the corporation.

Domestic corporation

Referred to as this by its home state (the state in which it incorporates).

Foreign corporation

A corporation formed in one state but doing business in another

Alien corporation

A corporation formed in another country but doing business in the United States

Private Corporations

Shares are privately held by a small group of investors or founders.

Public Corporation

Shares are traded on public stock exchanges.

Incorporator

The individual who signs the Articles of Incorporation.

Articles of Incorporation

The primary document needed to incorporate a business, includes basic information about the corporation and serve as a primary source of authority for its future organization and business functions.

Registered agent

The person who can receive legal documents (such as orders to appear in court) on behalf of the corporation.

Express Powers

These powers of a corporation are found in its articles of incorporation, in the law of the state of incorporation, and in the state and federal constitutions

Implied Powers

The corporation has this power to perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

Piercing the Corporate Veil

The court will ignore the corporate structure by doing this and exposing the shareholders to personal liability if the owners use a corporate entity to perpetrate a fraud, circumvent the law, or in some other way accomplish an illegitimate objective.

Bond

A debenture or debt security, represents the borrowing of funds issued by business firms and by governments at all levels as evidence of the funds they are borrowing from investors.

U.S. Treasury bond

Is a long-term loan made to the U.S. government.

Stocks

Represent the purchase of ownership in the business firm.

Preferred stock

Stock with preferences. Holders of usually have priority over holders of common stock as to dividends and payment on dissolution of the corporation, but may not have the right to vote.

Election of the Board of Directors

The number of directors is set forth in the corporation’s articles or bylaws.

Inside Director

A director who is also an officer of the corporation.

Outside Director

A director who does not hold a management position in the company.

Right of Inspection

Each director can access the corporation’s books and records, facilities, and premises.

Right to Indemnification

When directors become involved in litigation by virtue of their positions or actions, they may have a right to be this for legal costs, fees, and damages incurred

Right to Participation

Directos are entitled to participate in all board of directors’ meetings and to be notified of these meetings.

Business Judgment Rule

Under this rule, a corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgment or bad business decisions made in good faith.

Duty of Loyalty

Requires directors and officers to subordinate their personal interests to the welfare of the corporation

Shareholder Powers

Shareholders must approve fundamental changes affecting the corporation before the changes can be implemented.

Proxy

The agent’s formal authorization to vote the shares.

Dividend

Is a distribution of corporate profits or income ordered by the directors and paid to the shareholders in proportion to their shares in the corporation.

Shareholder Rights - Transfer of Shares

The law generally recognizes the right to transfer stock to another person unless there are valid restrictions on its transferability, such as frequently occur with close corporation stock.

Shareholder’s Derivative Suit

If the corporate directors fail to bring a lawsuit, shareholders can do so “derivatively” in what is known as this

Written Demand Required

Is a suit that requires shareholders to submit a written demand to the corporation, asking the board of directors to take appropriate action before shareholders can bring a derivative suit

Merger

Involves the legal combination of two or more corporations in such a way that only one of the corporations continues to exist.

Consolidation

Two or more corporations combine in such a way that each corporation ceases to exist and a new one emerges

Appraisal Rights

Dissenting shareholders therefore are given a statutory right to be paid the fair value of the shares they held on the date of the merger or consolidation. This right is referred to as this.

Corporate Governance

Defines specifies the rights and responsibilities among different participants in the corporation, such as the board of directors, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

Audit committee

A crucial committee of the board of directors that oversees the corporation’s accounting and financial reporting processes, including both internal and outside auditors.

Compensation committee

This committee monitors and determines the compensation of the company’s officers.

Modern Corporate Accountability

Philosophical shift away from a focus on short term performance.

Corporate Activism

Public position taken by a company to impact social change or legislation relevant to social change.