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Business (Corporate) Law
50 flashcards
Corporate governance refers to the system by which companies are directed and controlled. It encompasses the rules, policies, and processes that dictate how authority is exercised within a corporation.
The key principles include transparency, accountability, fairness, responsibility, and effective risk management.
The board of directors is responsible for governing the corporation and providing oversight of management on behalf of shareholders. Their duties include setting corporate strategy, hiring and monitoring executives, and ensuring legal compliance.
The main types are sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).
A partnership is a pass-through entity owned by partners, while a corporation is a separate legal entity from its owners (shareholders) with limited liability protection.
Corporate bylaws are the internal rules that govern the operations and management of a corporation, including procedures for meetings, elections of directors, and other matters.
The SEC is the federal agency responsible for regulating the securities industry, including stocks and options exchanges, and overseeing compliance with securities laws.
Securities regulation aims to promote transparency, protect investors, maintain fair and efficient markets, and facilitate capital formation.
Insider trading refers to the illegal practice of trading securities based on material, non-public information obtained through an insider position.
A proxy statement is a document containing information about matters to be voted on at a shareholders' meeting, which is distributed to shareholders to solicit their proxy votes.
A tender offer is a public solicitation by a company or investor group to purchase a substantial number of shares from a company's shareholders at a premium price.
The Business Judgment Rule is a legal principle that protects directors from personal liability for decisions made in good faith and with due care, provided there was no conflict of interest or failure of oversight.
A going private transaction is a process by which a public company is taken private, often through a leveraged buyout by company management or outside investors.
The Sarbanes-Oxley Act was enacted in 2002 to improve corporate governance, financial reporting, and auditor independence in response to major accounting scandals.
A derivative is a financial instrument whose value is derived from an underlying asset, such as a stock, bond, commodity, or currency.
Directors and officers owe fiduciary duties of care, loyalty, and good faith to the corporation and its shareholders, requiring them to act in the best interests of the company.
An LBO is a transaction where a company is acquired using a significant amount of borrowed money (leverage) to meet the purchase cost.
The Securities Act of 1933 requires public companies to disclose material financial and other information when issuing new securities in order to protect investors.
The Corporate Secretary is responsible for maintaining corporate records, managing board and shareholder meetings, and ensuring compliance with legal and regulatory requirements.
A poison pill is a defensive tactic used by a company to discourage hostile takeover attempts, typically by making the target company less attractive or too expensive to acquire.
A white knight is a friendly investor or company that acquires a stake in a target company to help it fend off a hostile takeover attempt.
A dual-class stock structure involves having two classes of shares with different voting rights, often used to allow founders or insiders to maintain control despite selling equity.
A golden parachute is a lucrative severance package for executives in the event of termination, often triggered by a change in corporate control.
A clawback provision allows a company to recoup or cancel performance-based compensation paid to executives if it was based on misstated financial results or other wrongdoing.
A Say on Pay vote allows shareholders to vote on the compensation of a company's top executives, although the vote is typically non-binding.
A staggered board is one where directors are elected for multi-year terms on a rotating basis, making it more difficult for an acquirer to replace the entire board at once.
A controlling shareholder is an individual or entity that owns a majority (over 50%) of a company's voting shares, allowing them to control the company's operations and direction.
The Paperwork Reduction Act aims to minimize the paperwork burden on companies and individuals resulting from collecting information by federal agencies.
A statutory merger is a merger governed by state corporate law statutes that specifies the procedures and requirements companies must follow to legally combine.
A Hart-Scott-Rodino filing is a mandatory notification to antitrust regulators for certain mergers and acquisitions above specified dollar thresholds to allow review for antitrust concerns.
A shareholder rights plan, also known as a poison pill, gives existing shareholders the right to purchase additional shares at a discount to dilute a hostile acquirer's ownership interest.
Rule 10b-5 is an SEC regulation that prohibits fraud, material misstatements, or omissions in connection with the purchase or sale of securities.
A dissident shareholder is one who actively expresses dissent or opposition to a company's board of directors or management, often by soliciting proxy votes.
A Schedule 13D is an SEC disclosure form that must be filed by any investor who acquires beneficial ownership of more than 5% of a public company's shares.
Debt financing involves borrowing money that must be repaid, while equity financing involves selling an ownership stake in the company.
FCPA stands for the Foreign Corrupt Practices Act, which prohibits U.S. companies from bribing foreign officials to obtain or retain business.
A proxy contest occurs when a shareholder group solicits proxies from other shareholders in an attempt to gain representation on the board or advance proposals over management's opposition.
A standstill agreement is a contract where an investor or shareholder agrees not to acquire additional shares or launch a hostile takeover attempt for a specified period.
A special litigation committee is an independent committee formed by a company's board of directors to investigate and determine how to proceed with shareholder derivative litigation.
Stock options give an employee the right to purchase a certain number of shares at a pre-set price within a defined period, often used as compensation.
A tax inversion is a transaction where a U.S. company reorganizes by merging with a foreign company to relocate its tax residency to a lower-tax jurisdiction.
Commercial bribery refers to providing kickbacks, gifts, or other benefits to induce someone to influence commercial transactions in violation of their duty.
A no-shop clause in a merger agreement prohibits the target company from soliciting or entertaining other acquisition proposals.
A going-dark transaction is when a public company voluntarily deregisters its stock and becomes a private company not subject to public reporting requirements.
The revlon duty requires a company's board to obtain the highest possible value for shareholders when selling control of the company in certain circumstances.
A books and records inspection allows shareholders to inspect certain corporate records and documents, subject to proper purpose requirements.
A Fairness Opinion is provided by an investment bank or valuation firm evaluating whether the financial terms of a proposed transaction are fair to shareholders.
Greenmail refers to a practice where a company repurchases shares at a premium from a hostile bidder to prevent a hostile takeover.
A private placement is a securities offering that is exempt from registration and only sold to accredited or institutional investors, not through a public offering.
Force majeure refers to unforeseeable circumstances beyond a party's reasonable control that prevent fulfillment of a contract and may excuse non-performance.