Business Structures

• Advances


  In partnerships, loans by the partners to the partnership; makes the partner a creditor of the partnership
• Alter Ego Theory


  Theory used for disregarding the corporate protection of limited liability for shareholders; results when individuals treat the corporation's properties and accounts as their own and fail to follow corporate formalities
• Appraisal Rights


  Rights of dissenting shareholders after a merger or takeover to be paid the value of their shares before the takeover or merger
• Articles of Incorporation


  Organizational papers of a corporation; list the company's structure, capitalization, board structure, and so on
• Articles of Limited Partnership


  Contract governing the rights and relations of limited partners
• Articles of Organization


  Contract governing the rights and relations of limited partners
• Audit Committees


  Committee of the board responsible for oversight of company financial statements
• Board of Directors


  Policy-setting governing group of a corporation
• Business Judgment Rule


  Duty of care imposed upon members of corporate boards that require adequate review of issues and information, devotion of adequate time to deliberations, and hiring of outside consultants as necessary for making decisions; the standard does not require foolproof judgment, only reasonable care in making the judgment
• Bylaws


  Operating rules of a corporation and its board; usually describe the officers and their roles and authority, along with meeting procedures and notices
• Common Stock


  Type of shares in a corporation that usually have voting rights
• Corporate Opportunity Doctrine


  A business proposition or investment opportunity that a corporation would have an interest in pursuing; precludes directors from taking a profit opportunity when the corporation would have an interest
• Corporate Veil


  The personal liability shield; the corporate protection that entitles shareholders, directors, and officers to limited liability; can be pierced for improper conduct of business or fraud
• Corporations


  Business entity created by statute that provides limited liability for its owners
• Cumulative Preferred Stock


  Type of ownership in a corporation that gives the stock owners preference in the distribution of dividends and also guarantees earnings each year; in the event those earnings are not paid, they are carried over or accumulate until they can by paid
• Dissenting Shareholder


  Shareholder who has objected to a merger or consolidation and votes against it; is entitled to receive the value of her shares before the merger or consolidation
• Dissolution


  In partnerships, occurs when one partner ceases to be associated with the business; in corporations, the termination of the corporate existence
• Dodd-Frank Wall Street Reform and Consumer Financial Protection Act


  Federal law over 2000 pages in length that increases and modifies the regulation of financial markets, investment firms, securities analysts, rating agencies, corporate boards, and consumer credit (including mortgage disclosures)
• Domestic Corporations


  A term used to describe a corporation in the state in which it is incorporated
• Fiduciary


  Position of trust and confidence
• Foreign Corporations


  A corporation in any state except the state in which it is incorporated
• Freeze-Out


  Merger undertaken with the objective of eliminating minority shareholders
• General Partner


  Partner in a general or limited partnership whose personal assets are subject to partnership creditors in the event of nonpayment of partnership debts
• Incorporators


  Individuals who sign the incorporation papers for a newly formed corporation
• Initial Meeting


  First meeting of a corporation's organizers after the state provides certification that the corporation exists
• Joint Ventures


  A partnership for one activity or business venture
• Limited Liability Company (LLC)


  A business entity with limited liability but management participation permitted by all; created by statute
• Limited Liability Partnership


  Partnership in which all partners have limited liability; statutory creature with strict formation requirements
• Limited Partner


  Partner in a limited partnership who has no personal liability and can only lose his investment in the partnership; must be formed according to statutory requirements; cannot participate in the firm's management
• Limited Partnership


  Type of partnership in which some partners have unlimited liability (general partner) and other partners only have their investments at risk in the business (limited partners); must follow statutory procedures to properly create a limited partnership
• Limited Partnership Agreement


  Contract governing the rights and relations of limited partners
• Model Business Corporation Act (MBCA)


  Uniform law on corporations
• Novation


  Process of reworking a contract to substitute parties or terms, so that the old contract is abandoned, and the new contract becomes the only valid contract
• Partnership by Estoppel


  The conduct of two or more parties leads others to believe a partnership exists. Arise when others are led to believe there is a partnership
• Partnership by Implication


  A partnership that exists because the parties agree to share profits in the absence of a formal agreement
• Pooling Agreement


  Agreement among shareholders to vote their stock a certain way
• Preferred Stock


  Usually nonvoting shares of a corporation entitling its holders to dividend preference above the common shareholders
• Professional Corporations


  A statutory entity that permits professionals such as lawyers and doctors to incorporate and enjoy limited personal liability on all debts except for those arising from malpractice
• Proxy


  Right (given in written form) to vote another's shares
• Publicly Held Corporations


  A corporation owned by shareholders outside the officers and employees of the firm