Applied Corporate Law flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

De facto corporation

An entity that substantially complies in good faith with incorporation statutes and actually exercises corporate powers, gaining limited liability despite a technical defect in formation.

Business judgment rule

A presumption that directors acted on an informed basis, in good faith, and in the honest belief their action served the corporation's best interests, shielding decisions from liability.

Duty of loyalty

A fiduciary obligation requiring directors and officers to place corporate interests above personal interests, disclose conflicts, and avoid self-dealing and usurpation of corporate opportunities.

Corporate opportunity doctrine

A rule barring fiduciaries from taking a business opportunity that the corporation has an interest or expectancy in, unless the corporation first declines it.

Piercing the corporate veil

A remedy allowing creditors to reach shareholders' personal assets where the corporate form is used to perpetrate fraud or injustice and unity of interest exists.

Derivative action

A lawsuit brought by a shareholder on the corporation's behalf alleging harm to the corporation, requiring demand on the board or a showing that demand is futile.

Ultra vires

An act beyond the scope of authority conferred on a corporation by its charter or applicable law, historically voidable but now largely limited by broad purpose clauses.

Promoter liability

Personal responsibility of a person who acts on behalf of a corporation not yet formed; the corporation is not bound unless it adopts the contract after incorporation.

Cumulative voting

A voting method multiplying shares by open director seats, permitting a minority shareholder to concentrate votes and elect at least one director.

Fiduciary duty of care

The obligation of directors to act with the care an ordinarily prudent person in a like position would use under similar circumstances, including reasonable inquiry.

Shareholder inspection rights

A statutory right of shareholders to inspect corporate books and records for a proper purpose reasonably related to their interest as shareholders.

Alter ego theory

A veil-piercing variant treating the corporation and its controlling owner as indistinguishable because of commingled funds, inadequate capitalization, or disregard of formalities.

Par value

The minimum stated price per share set in the charter; shares issued below par create contingent liability for the difference in many jurisdictions.

Preemptive rights

A shareholder's right to purchase a pro rata share of newly issued stock before it is offered to outsiders, protecting against dilution unless waived in the charter.

Conflict of interest waiver

Approval of a self-dealing transaction by disinterested directors or shareholders after full disclosure, shifting the burden of proving unfairness away from the fiduciary.

Dissolution and winding up

The process of ending a corporation: collecting assets, paying creditors, distributing the remainder to shareholders, and filing articles of dissolution.

Conflicts check

A pre-engagement screening of parties and affiliates against the firm's client database to identify disqualifying or waivable conflicts before accepting a matter.

Engagement letter

A written agreement defining scope, fees, staffing, client responsibilities, and the limits of representation, reducing later disputes about the work performed.

Indemnification cap

A contractual ceiling on the seller's liability for breaches, often expressed as a percentage of purchase price, with carve-outs for fraud and fundamental representations.

Basket and deductible

Basket: seller liability begins once aggregate losses exceed a threshold. Deductible: seller pays only losses above the threshold, not the full amount.

Representations and warranties

Statements of fact about the target or party as of signing and closing; their inaccuracy triggers indemnification or closing conditions.

Covenants versus conditions

Covenants are promises to act or refrain from acting; conditions are events that must occur before a party's obligation to close becomes enforceable.

Survival period

The contractual window after closing during which a party may bring a claim for breach; it may expire before or after statutory limitation periods.

Due diligence

Pre-closing investigation of the target's legal, financial, tax, IP, and regulatory position, informing price, representations, and closing conditions.

Hart-Scott-Rodino filing

A premerger notification to federal antitrust agencies required when a transaction exceeds statutory size thresholds, followed by a waiting period before closing.

Legal opinion letter

Counsel's formal statement of legal conclusions, qualified by assumptions and exceptions such as bankruptcy and equitable remedies, delivered to a transaction counterparty.

Attorney-client privilege

Protection for confidential communications between lawyer and client made to obtain or provide legal advice; waived by disclosure to third parties.

Board minutes

The official record of a directors' meeting, documenting date, quorum, attendees, resolutions, disclosures, and votes, serving as evidence of valid corporate action.

Choice-of-law clause

A contractual provision selecting the governing law for interpreting and enforcing the agreement, subject to limits where chosen law conflicts with fundamental public policy.

Force majeure clause

A provision excusing performance when specified extraordinary events beyond a party's control prevent performance, typically requiring notice and mitigation efforts.

Escrow holdback

A portion of the purchase price held by a third party to satisfy post-closing indemnity claims, released to the seller after the survival period.

Statute of limitations

A statutory deadline for filing a claim after the cause of action accrues; it is independent of contractual survival periods and cannot be extended by agreement.

Closing conditions

Contractual prerequisites that must be satisfied or waived before a party is obligated to complete the transaction, such as regulatory approvals and accuracy of representations.