Corporations and Law

Vocabulary

articles of dissolution

document that formalizes the end of a corporation's existence

articles of incorporation

form that identifies the name, address, agent, and business purposes of the corporation, the classes and face value of stock of the corporation, and the names and addresses of the incorporators

board of directors

group of individuals elected by shareholders to oversee the activities of the corporation

business judgment rule

doctrine of immunity that protects the directors of a corporation from personal liability for bad decisions that were made as part of a good decision-making process

C corporation

entity, formed under state incorporation statutes, that has separate status from its owners both legally and for federal and state tax purposes

capital stock

totality of shares of all kinds that a corporation is authorized to issue based on the articles of incorporation

corporate governance

system of rules, procedures, and practices by which a corporation is controlled and directed

corporate opportunity doctrine

legal principle that corporate officers and directors commit a wrong against the corporation when, without its consent, they take a business opportunity that should belong to the corporation

corporate promoter

firm or person who organizes the formation of a corporation by soliciting investors to take an interest in the company

corporation

business entity formed under state incorporation statutes. Corporations are separate legal persons from their owners (who are called shareholders).

dividend

proportionate share of the profits of the corporation that is paid to its owners, as declared by the board of directors

fiduciary duty

requirement or responsibility to work in the best interest of a person or organization

hybrid stock

stock that usually consists of preferred shares with the option to convert into common stock at some future time; these shares are called convertible preferred shares

nonprofit corporation

business organization created for a purpose other than to make a profit. Examples include hospitals, charities, religious groups, and educational institutions.

novation

agreement between a corporation, promoter, and creditor stating that the corporation is substituted in for the promoter as the person to carry out the contract; takes the place of a previous contract

ownership concentration

a situation in which a few shareholders hold most of a corporation's outstanding shares

person

human being or a nonhuman entity that courts consider to have some of the rights and responsibilities of a human being

plurality voting

traditional corporate voting method that elects the nominee who receives more votes than their opponents even if no candidate receives a majority vote

preferred shares

shares that typically have a set value and dividend attached to them and limited or no voting rights but have priority rights over common stock in liquidation

proxy

person appointed by a shareholder to vote for the shareholder at a meeting; also the name of the document the shareholder signs for this appointment

S corporation

entity incorporated under a state law but treated like a partnership for tax purposes, thus avoiding double taxation

Sarbanes-Oxley Act of 2002 (SOX)

set of rules for corporate accounting, government oversight, and financial regulations; allows investors to receive more accurate and complete financial information

self-dealing

situation in which a fiduciary makes a decision on behalf of the corporation that benefits either that fiduciary or a person with whom they have a relationship

shareholder

person or institution that owns one or more shares of stock in a corporation

stock

all the shares of a corporation that represent the division of ownership

ultra vires

"beyond the powers"; actions that are beyond the scope of powers allowed to a corporation under its articles of incorporation or bylaws

winding-up

step in ending a corporation in which officers of the corporation complete unfinished transactions, pay the corporation's debts, and distribute any remaining property and profits to shareholders