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Operating rules of a corporation and its board; usually describe the officers and their roles and authority, along with meeting procedures and notices
Preferred Stock
Usually nonvoting shares of a corporation entitling its holders to dividend preference above the common shareholders.
A form of merger in which two firms unite and become known by a new name.
A takeover of one firm by another firm when the target firm solicits or agrees to the takeover.
(T or F) If the management of a firm favors acquisition by another firm, it is a friendly takeover
Publicly Held Corporations
A corporation owned by shareholders outside the officers and employees of the firm.
An issuer of securities meets which of the following qualifications for the intrastate offering exemption
The investors must all be residents of the same state, and The issuer has 80% of its assets in the state; 80% of operating income is from the state; and 80% of the proceeds of the sale are used on operations within the state.
The Howey test
defines a security as a “contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of a promoter or third party.” and was established by the United States Supreme Court.
Foreign Corporations
A corporation in any state except the state in which it is incorporated.
Red-Herring Prospectus
A prospectus issued before the effective date of a securities registration statement; permissible to release these before the registration statement is effective so long as a disclaimer that it is not an offer to sell securities is noted in red on the prospectus.
Asset Acquisition
Form of takeover in which another firm buys all the assets of a firm and gains control through control of the firm’s property. If structured property, the acquirer avoid liability for the debts of the acquired business.
The Securities Act of 1933 regulates
sales of securities by businesses to investors.
(T or F) All sellers of securities must complete certain filing requirements before the securities may be sold unless an exemption applies.
Domestic Corporations
A term used to describe a corporation in the state in which it is incorporated
(T or F) Any person who signs a registration can be held personally liable for violations of the 1933 Act
True. Directors and officers are joint and severally liable.
Hostile Takeover
A takeover not favored by the target’s management.
Right (given in written form) to vote another’s shares.
Williams Act
Federal law governing the tender offer process.
The SEC must take action within this time period or the registration will be deemed to be accepted
20 Days
Audit Committees
Committee of the board responsible for oversight of company financial statements.
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.
Due Diligence
Under the Securities Act of 1933, a defense for filing a false registration statement that requires proof that the individuals involved did all they could to uncover the truth and could not have discovered the false statements despite a thorough review of all relevant information.
If a target company does not want to be taken over in a hostile takeover, the target may
Try to persuade shareholders that he takeover is not in their best interest. Or Match the tender offer or beat it
(T or F) The 1934 Securities Exchange Act regulates the secondary trading of securities after the initial sale by the business seeking funds
Tender offers
are publicly advertised offers to shareholders to buy their shares at a certain price
Partnership by Implication
A partnership that exists because the parties agree to share profits in the absence of a formal agreement.
A psychotherapist received insider information from a senior executive at Martin Marietta, that it was about to merge with Lockheed Martin. Notice of the merger was not yet public and the therapist bought call options
The therapist violated section 10(b
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.
Merit Review
Process at the state level of reviewing securities registrations to determine whether they are good investments.
Securities and transactions that do not have to be registered with the SEC under the Securities Act of 1933.
Process of combining firms so that one firm becomes a part of the other and only one firm’s name is retained.
(T or F) Under section 16 of the Securities Exchange Act of 1934, short swing profits include profits earned by the sale and purchase OR the purchase and sale of securities during a six-month period
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)
Transfer Restrictions
Limitations on the resale of shares of a corporation.
Board of Directors
Policy-setting governing group of a corporation
Business entity created by statute that provides limited liability for its owners
Material Misstatement
A statement of fact that would influence an individual’s decision to buy or sell.
Rule 10b-5
SEC rule prohibiting fraud in relation to the sale of securities.
(T or F) The Public Company Accounting Oversight Board was implemented by the Sarbanes-Oxley Act
Uniform Partnership Act (UPA)
Uniform law adopted in 49 states that governs the creation, operation, and termination of general partnerships.
A corporate officer or director or other executive with access to corporate information that is not available to the public.
Merger undertaken with the objective of eliminating minority shareholders.
Proxy Solicitations
The process of seeking voting rights from shareholders.
(T or F) Issuers who do not submit a registration or who make a false statement on their registration statements in violation of the 1933 Act are criminally and civilly liable
Position of trust and confidence
Party who receives inside information about a corporation or its securities and uses the information to trade securities.
Sole Proprietorship
Method of business ownership in which one person owns business, receives all profits, and is personally liable for all debts.
(T or F) The Securities Exchange Act of 1934 of 10 (b) can be violated negligently.
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.
“Fair-Disclosure Rule” (Regulation FD)
Federal securities regulation that requires publicly traded companies to distribute information to the market as a whole and not to selected investment firms, analysts, or investors; a means of distributing to the market in a fair and open fashion the financial reports and pending and evolving issues of publicly traded company.
Blue-Sky Law
State law regulating sale of securities.
Initial Meeting
First meeting of a corporation’s organizers after the state provides certification that the corporation exists.
Insider Trading and Securities Fraud Enforcement Act of 1988
Act increasing the Securities Exchange Act of 1934 penalties for insider trading.
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.
A principal’s recognition of a contract entered into by an unauthorized agent.
In partnerships, occurs when one partner ceases to be associated with the business; in corporations, the termination of the corporate existence
Model Business Corporation Act (MBCA)
Uniform law on corporations.
Revised Uniform Partnership Act
Newest uniform revision of law on limited partnerships.
Tender Offer
Offer to more than 10 percent of the shareholders of a firm for the purchase of their shares; generally part of a takeover effort.
Joint Ventures
A partnership for one activity or business venture.
(T or F) All securities traded on national exchanges are regulated under the Securities Act of 1933
False – it is the 1934 Securities Exchange Act that regulates securities on the secondary market. All securities traded on national stock exchanges must be registered.
Securities Act of 1933
The federal law governing the initial issuance and sale of securities to the public.
Registration Statement (S-1)
A filing with the SEC disclosing all the necessary information about a securities offering under the 1933 Securities Act.
Limited Partnership Agreement
Contract governing the rights and relations of limited partners.
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
10-Q Form
Quarterly report filed with the SEC; required of all 1934 Act firms.
Securities and Exchange Commission (SEC)
Federal agency responsible for enforcement of federal securities law.
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.
Watered Shares
Shares for which par value was not paid; shareholder is liable for the difference between what was paid and the par value per share.
8-K Form
A filing required by the SEC under the 1934 Securities Act; an 8-K is filed by a registered company within ten days of a significant or material event affecting the company (e.g., a dividend being suspended).
S Corporation
A form of corporation for tax purposes that permits the direct flow-through of income and losses to the shareholders; no income tax on the entity and no personal liability for the owners for business debts
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
Foreign Corrupt Practices Act (FCPA
Federal law prohibiting bribes in foreign countries and requiring the maintenance of internal controls on accounting for firms registered under the Securities Exchange Act of 1934.
Under section 16 of the Securities Exchange Act of 1934
officers, directors and 10% shareholders are strictly liable for short-swing profits
Section 10(b)
Antifraud provision of the Securities Exchange Act of 1934.
Individuals who sign the incorporation papers for a newly formed corporation.
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.
Voting Trust
Arrangement among shareholders to gain uniform voting and some power by signing over voting rights on shares to a trustee; shareholders still get dividends, but trustee votes the shares; must be in writing and recorded with the corporation.
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
Appraisal Rights
Rights of dissenting shareholders after a merger or takeover to be paid the value of their shares before the takeover or merger
Section 16
Section of the Securities Exchange Act of 1934 that regulates sales and purchases of shares by directors, officers, and 10 percent of shareholders.
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
Under section 10b of the Securities Exchange Act of 1934, material information that must be disclosed to the public includes
Possible lawsuits, Mergers or takeovers, Pending declaration of a large dividend, Drops in quarterly earning
Articles of Organization
Contract governing the rights and relations of limited partners.
Howey Test
Created by the U.S. Supreme Court; it defines a security as an investment in a common enterprise that earns profits from the efforts of others.
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
Pooling Agreement
Agreement among shareholders to vote their stock a certain way.
Investment of money in a common enterprise with profits earned largely from the efforts of others.
(T or F) When someone has insider information, he or she may not trade on it until the public has knowledge
10-K Form
Annual report filed with the SEC; required of all 1934 Act firms.
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
A document describing the nature of securities and the company offering them.
Securities include
Notes, Stocks, Bonds, Every investment contract that gives notice of an indebtedness or participation in a business for profit.
Tombstone Ad
Ad run in newspapers announcing an upcoming securities offering; permissible after the registration statement is filed but not yet effective; must indicate it is not an offer for sale.
Regulation FD
The rule that requires companies to release publicly any information that they disclose to analysts or institutional investors
Articles of Limited Partnership
Contract governing the rights and relations of limited partners.
Limited Liability Company (LLC)
A business entity with limited liability but management participation permitted by all; created by statute.
Securities Exchange Act of 1934
The federal law governing the secondary sales of securities, the markets, and the firms dealing with securities.
(T or F) Tipees are people who get their information from corporate insiders
Short-Swing Profits
Profits made by corporate insiders during a period of less than six months between purchase and sale.
Limited Liability Partnership
Partnership in which all partners have limited liability; statutory creature with strict formation requirements.
(T or F) Withholding material information is not a violation of 10(b) of the Securities Exchange Act of 1934
False. See the “fair disclosure rule
Articles of Incorporation
Organizational papers of a corporation; list the company’s structure, capitalization, board structure, and so on
Comment/Deficiency Letter
SEC response to registration filing; requires additional information or clarification on proposed offering.
Common Stock
Type of shares in a corporation that usually have voting rights
Accredited investors include
A director, executive officer or general partner of the issuer., A person who purchases at least $150,000 of the securities being offered, Natural persons with a net worth over $1 million, A natural person with an individual income over $200,000 within the last 2 years or $300,000 per couple.
(T or F) The SEC reviews filings and if the security is a good investment, it may be issued.
False. The SEC only looks at whether the proper information has been disclosed, not whether the security will be a good investment.
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