Understanding Limited Liability Companies and Corporations

A collection of flashcards designed to help students understand key concepts related to Limited Liability Companies and Corporations as discussed in the lecture.

Limited Liability Company (LLC)

A business structure that combines aspects of a corporation and a partnership, offering limited liability to its members.

Pass-through taxation

A taxation mechanism where income is taxed at the individual owner's level instead of at the corporate level.

Articles of Organization

A public document that identifies the name of the LLC, its address, and details of its registered agent.

Member-managed LLC

An LLC structure where all members participate in the management of the company.

Manager-managed LLC

An LLC structure where one or more members are appointed to manage the company, separating management from ownership.

Shell company

A business entity with no or minimal operational activity, often utilized for fraudulent activities.

Derivative action

A lawsuit brought by a shareholder on behalf of the corporation against a third party, often involving a director or officer.

Preemptive rights

Rights that give existing shareholders the opportunity to purchase additional shares before new ones are issued to maintain their percentage of ownership.

S Corporation

A special type of corporation that meets specific Internal Revenue Code requirements for taxation purposes, allowing for pass-through taxation.

Double taxation

The taxation process where a corporation pays taxes on its profits, and shareholders pay taxes again on dividends received.

Hostile takeover

An acquisition of a company against the wishes of its management, often involving a tender offer or proxy contest.

Voluntary dissolution

The process of closing a corporation wherein both the board of directors and shareholders agree to terminate the company.

Involuntary dissolution

The termination of a corporation by court order or state action without the consent of the shareholders.

Public document

Official records filed with the state that outline the existence and structure of a corporation or LLC.

Bylaws

Internal rules that govern the management of a corporation, detailing operations, meetings, and the roles of directors and officers.

Liquidation

The process by which a corporation converts its assets into cash to pay off its debts before closure.

Operating agreement

A contract outlining how management will operate within a corporation or LLC, including profit and loss distributions.

Articles of Incorporation

A document filed with the state to legally establish a corporation, containing critical information such as its name and purpose.

Corporate governance

The system of rules, practices, and processes by which a corporation is directed and controlled.

Debt financing

The act of borrowing money to be paid back with interest, often through loans or bonds.

Corporate liability

The responsibility of a corporation for the conduct of its directors and officers, particularly concerning torts and statutory violations.

How are LLCS regulated?

Securities and exchange commission and state laws

Corporations make up how much money from business entities?

85%

How do corporations raise money?

Promoters enter subscription agreements (a presale of shares)

What is the liability for promoters?

Liable for the contracts they make until the corporation ratifies or is formed

How to form a corporation?

Made up of one person or thousands, issue stock, sell shares, obtain debt

Who do shareholders elect?

directors

Who do directors elect?

officers

Who runs the big picture?

directors

Who runs day to day?

officers

Who is first and last to be paid from a corporation?

Creditors are first and shareholders are last

Issues common to stock

dividends, liquidation rights, voting rights, conversion rights, redemption rights, preemptive rights

De facto corporation

improperly formed, can still be treated as a corporation at times

De jure corporation

properly formed and in good standing with the law

Shareholders:

own corporation, elect or replace board, amend articles of incorporation, no power for management

Board of directors:

declare dividends, authorize shares, oversee management, sell, lease, mortgage assets

Idemnification and corporation

takes care of defending lawsuits and paying liabilities of directors and officers

Purchase of assets

may need shareholder approval, negotiations, letter of intent, agreement

Purchase of stock

buyer takes over all rights and responsibilities of stock when purchased

Tender offer

aggressor buys 5% quietly and then makes offer for the majority interest

Proxy contest

goes through management door and offers better return on investment to wrestle control away from board

Poison pill

shareholders get more rights if there is a hostile takeover

To court a white knight

seek out another company to compete

golden parachute

executives are paid high salaries for takeover

pacman

target corporation makes a tender offer on aggressor

suicide pact

all executives resign if one is fired

crown jewels

sell profitable portion to avoid takeover