]_____________________________________ ^Business Environment and Concepts

1
J
(2) Preferred stock usually has less (sometimes no) voting rights but greater
rights to dividends and assets on liquidation. Many companies do not issue preferred
stock.
e. In marketing stock, valid consideration must be received. Buyer must pay for
stock ,,-: in cash, property, or services that have already been rendered. Valid
consideration
does not include a promise to perform services, promise to pay, or a promissory note.
f. If a par value is stated for the stock, the buyer must pay at least that amount to
avoid
any possible future obligation.
5. According to the business judgment rule, officers and directors may be liable to
shareholders for negligence committed in running the corporation, but not if they
were acting in good faith in the exercise of business judgment. Corporation can
indemnify officers and directors for damages suffered in such suits, including
attorney's fees if approved by the court.
6. Extraordinary transactions such as merger, consolidation, or sale of all
assets must have special approval.
a. Directors meet and vote whether to recommend the action to the shareholders.
Directors vote on and pass a resolution.
b. Shareholders then meet to vote whether to adopt the resolution.
c. If the resolution is approved by a majority of shareholders, dissenting shareholders
have certain rights. A minority of shareholders cannot stop an extraordinary transac-
tion but they can insist on being paid fair market value for their stock. This is called
"dissenters' appraisal rights."
7. Shareholders have the right to inspect corporate books.
a. Includes minute books, stock certificate books, and general account books, b.
Must have purpose that is reasonably related to interest as a shareholder.
(1) It is okay to obtain information to try and gain control of corporation.
(2) It is not okay to obtain information to compete with corporation.
(3) Inspection may be refused if shareholder has misused information within the
previous two years. , f ., t ^
8. The validity of contracts between a corporation and its officers is based
upon fairness and disclosure.
The directors of the company declare dividends that are to be paid to
shareholders. Once declared, dividends are considered a debt of the
corporation.
1. Dividends are considered illegal if they do either of the following:
a. They render the corporation insolvent, so that is it is unable to pay debts as
they come
due. b. They reduce the total of the assets so that there is not enough to cover the
liabilities of
the corporation plus any dissolution obligation to preferred shareholders.
2. Directors have strict liability for any illegal dividends without regard to good faith
pr negligence. . ' " •' -' --'.-^H ••. .-'-
A dissolution will terminate a corporation's existence. It is not complete until the
winding up of affairs and distribution of assets have occurred. • •' ' '•
Business Structure - 5