A Legal Guide to United States Business Organizations 2e by Balouziyeh

A Legal Guide to United States Business Organizations 2e by Balouziyeh is the second edition of the A Legal Guide to United States Business Organizations: The Law of Partnerships, Corporations, and Limited Liability Companies book authored by John M. B Balouziyeh, Dentons, Riyadh, Saudi Arabia, and published by Springer-Verlag Berlin Heidelberg in 2013.

• Agency. The fiduciary relationship that results from the manifestation of: (1) consent by one person to another that the other will act on his behalf and subject to his control; and (2) the consent of the other to so act. (RLA § 1)
• Arm's length transaction. A transaction between either: (1) two unrelated and unaffiliated parties; or (2) two related, affiliated parties, where measures are taken to prevent any potential conflicts of interest from arising.
• Articles of incorporation. The corporate charter that is filed with the state when registering a corporation.
• Asset acquisition merger. See Type C (informal or practical) acquisition.
• Balance sheet. A statement of an entity's current financial data, including its assets, liabilities, and owners' equity. It indicates the residual interest in assets of an entity after subtracting its liabilities.
• Business judgment rule. The doctrine that shields managers from liability when they exercise good faith business judgment based on a reasonable investigation when making a decision.
• Business organization. A legal entity through which investors and entrepreneurs provide goods and services and engage in trade and other wealth-generating activities.
• C corporation. A type of corporation recognized as a legal person whose profits are taxed under Subchapter C of the IRC. It is the default form that corporations take when registered. Compare S corporation.
• Close corporation. See Closely held corporation.
• Closely held corporation. A corporation whose voting shares are owned by the directors and officers directly, rather than by shareholders in a publicly traded forum. The corporation is managed by the stockholders, not by a board of directors. In some states, there must be thirty five or fewer officers to qualify as a closely held corporation. Also termed Close corporation.
• Common stock. Stock issued by a corporation that confers upon its holder the right to vote in corporate decisions and to receive dividends (after dividends have been paid out to holders of Preferred stock).
• Compound interest. Interest calculated based on the aggregate sum of the principal plus any accrued interest. See Simple interest.
• Conglomerate. A large corporate entity that manages unrelated companies providing diverse goods and services (e.g., textiles, medicine, media, etc.).
• Corporate opportunity doctrine. The rule that prohibits a corporation's directors, officers, and employees from taking personal advantage of opportunities in which the corporation has a reasonable propietary interest. An employee may not, for example, use his corporate position or information obtained from his official capacity to seize opportunities that by right belong to the corporation.
• Debenture. A long-term, unsecured debt issued by a corporation to generate capital. As an unsecured instrument, it is repaid only after secured debts have been liquidated.
• Derivative suit. A lawsuit brought by shareholders on behalf of a corporation to enforce a right or correct a wrong. Recovery is made to the corporation, which is a party to the action.
• Efficient market hypothesis. The theory that prices in financial markets reflect all available information at any time, since financial markets are "informationally efficient." The prices of traded assets are always therefore fairly based on the aggregate understanding of investors.
• Equal dignity rule. Whatever the means through which a merger is effected, the merger is valid as long as it follows the respective formalities, regardless of whether the shareholders would have gotten a better deal if the transaction had been cast in some other form.
• Fiduciary duty. The duty of care and duty of loyalty; duty to act with utmost honesty, putting the interests of others before one's own interests (example: the duty owed between partners).
• Golden parachute. When a person is removed from a company with a bonus. Example: after a merger, when one of the presidents is required to leave, he will be given a handsome compensation package.
• Income statement. A financial summary of an entity's assets over a period structured as a statement of the entity's revenues (increases in equity) and expenses (decreases in equity).
• Initial public offering ("IPO"). The initial issuance of common or preferred stocks by a company to the public.
• Insider trading. Transactions in securities based on inside or advance information.
• Internal affairs rule. The rule representing the majority approach of most states whereby a corporation, regardless of where it operates or where its shareholders or assets are located, is bound by the law of the state of its incorporation, which will govern how the corporation is run.
• Intra vires (Lat., "within the power"). Within the scope of an individual's or corporation's power. See Ultra vires.
• Intrinsic fairness test. A standard used to evaluate the allegation that a director or controlling shareholder engaged in an act of self-dealing. The standard requires the dominant shareholder or director to show that, although he (or it, in case the dominant shareholder is a corporation) engaged in self-dealing, the questioned transaction was fair to the corporation. See Business judgment rule.
• Joint and several liability. Liability in which each member of a group is responsible for the full payment of a judgment, debt, or other obligation of any other member of the group, leaving the members of the group to sort out the respective portions of the debt. Compare Joint liability and Several liability.
• Joint liability. Liability of two or more persons (e.g., spouses) for the full amount of a particular judgment, debt, or other obligation. Compare Several liability and Joint and several liability.
• Leveraging. A use of credit where an investor puts up a certain degree of an investment in equity and the rest on credit. As the return on the investment increases, the return on equity increases exponentially.
• Liability. An obligation or debt arising from a present duty to transfer assets to a specified third party because of past transactions or events.
• Limited liability company. A business entity that in many ways combines the advantages of the corporation with those of the partnership. Like the corporation, the LLC protects investors with limited liability equal to the amount they invest. Like a partnership, double taxation is avoided, since the investors, not the entity, are taxed directly.
• LLC. See Limited liability company
• Loan-out corporation. Typically used by athletes or entertainers, these corporations are formed to take in the individual's income, distribute certain fringe benefits such as health insurance or retirement funds, and then to pay the athlete or entertainer the balance. This is done to avoid taxation on the fringe benefits.
• National Association of Securities Dealers (NASD). A group of brokers and dealers empowered by the SEC to regulate the over-the-counter securities market. (Bryan A. Garner, ed., Black's Law Dictionary, "National Association of Securities Dealers", 8th ed. 2004).
• National Association of Securities Dealers Automated Quotation System (NASDAQ). A computerized system for recording transactions and displaying price quotations for a group of actively traded securities on the over-the-counter market. (Id. "National Association of Securities Dealers Automated Quotation system")
• New York Stock Exchange (NYSE). An association handling the purchase and sale of securities. This is the dominant securities exchange in the United States. Companies traded on the NYSE are large companies having at least one million shares.
• Owners' equity. The owners' aggregate financial interests of an entity's assets, calculated as the amount by which an entity's interest in assets exceeds its liabilities. If an entity's total liabilities exceed its total assets, the owners' equity will be negative.
• Partnership. An association of two or more partners (owners) to manage a business and share in control, profits, and liability.
• Pass-through taxation. Taxation whereby only the owners of a business association, rather than the owners in addition to the business association, are taxed. Partnerships and S corporations enjoy pass-through taxation, as do LLCs that do not elect otherwise.
• Piercing the corporate veil. The act of imposing personal liability for a corporation's obligations on officers, directors, or shareholders who are otherwise protected by limited liability.
• Preferred stock. Stock issued by a corporation that confers upon its holder priority over Common stock holders in the distribution of dividends, but that does not confer voting rights in corporate decision making.
• Premium. The sum above the nominal value of something, as in the premium price of stock where offerors make a tender offer: in exchange for an entire block of stock (thus transferring control of the corporation to the offeror), the offeree receives a premium above and beyond the market value of the stock.
• Primary securities market. The market that deals with securities that are issued by corporations to investors for the first time (as in the case of IPOs). Compare Secondary securities market.
• Promoter. An entrepreneur who identifies an opportunity and takes the initial steps in forming a business to capitalize on the opportunity, forming a corporation as the vehicle for investment. The promoter's fiduciary duty towards a corporation is similar to that owed by an agent to a principal.
• Proxy contest. A battle against a corporation's management mounted by a faction of dissatisfied shareholders that seek from uncommitted shareholders the right to vote their shares in favor of the faction's directors. Also termed Proxy fight.
• Proxy fight. See Proxy contest.
• Redemption. A corporation's repurchase of its securities from stockholders according to the terms of its securities agreement.
• Revised Uniform Partnership Act (RUPA). A model statute that has been adopted by the majority of states and that aims to bring uniformity to state partnership statutes by revising the UPA of 1914. The term "Revised Uniform Partnership Act" generally refers to the 1994 revision, although it is also used to refer to other revisions, such as that of 1997.
• Right of first refusal. Contractual right that grants its holder the right to enter a business transaction with a second party according to specified terms, before that second party may enter into that transaction with a third party.
• S corporation. A type of corporation that permits the election for taxation under Subchapter S of the IRC, which exempts the organization from taxation, allowing gains and losses to instead be claimed on the individual tax returns of the corporation's owners. Compare C corporation.
• Secondary securities market. The market where formerly issued securities are exchanged, or traded, among investors via stock exchanges (such as the NASDAQ). Compare Primary securities market.
• Securities. Written certificates showing ownership of shares of stock, bonds, or other interests involving an investment in an enterprise with the return dependent on the efforts of some third party, rather than on the direct participation of the investor in the enterprise.
• Securities Act of 1933. A federal law that regulates the primary securities market, emphasizing public disclosure of all financial information and requiring that corporations, before making IPOs, file a registration statement with the SEC.
• Securities and Exchange Commission ("SEC"). A federal regulatory agency created by the Securities Exchange Act of 1934 for enforcing the Exchange Act by promulgating rules regarding the issuance and public trading of securities and investigating and prosecuting violations of the rules.
• Securities Exchange Act of 1934 ("Exchange Act"). A federal law dealing primarily with regulating the secondary securities market (the public trading of securities). The Exchange Act established the Securities and Exchange Commission, which enforces the Exchange Act by promulgating rules governing the trading of securities.
• Settlement (of securities). Business process whereby securities or interests in securities are delivered, usually in simultaneous exchange for payment of money, to fulfill contractual obligations. A derivative instrument is physically settled if the underlier is physically delivered in exchange for a specified payment or, with cash settlement, if the derivative settles for an amount of money equal to what the derivative's market value would be at maturity if it were a physically settled derivative.
• Several liability. Liability of two or more persons for their own respective portions of a shared debt. Compare Joint liability and Joint and several liability.
• Simple interest. Interest calculated based only on the principal, without taking into account any accrued interest. See Compound interest.
• Sole proprietorship. A business fully owned by one person, the sole proprietor, who holds all of the business's liabilities and assets. Although the owner operates the business in his personal capacity, many other individuals may be involved as managers or employees.
• Staggered board. A board of directors whose members are elected on a staggered schedule, whereby only part of the board can change in any given election. Members cannot be removed absent the showing of cause and the board size cannot be increased.
• Sui generis. Of its own class (Lat.); different from all others.
• Tender offer. A public invitation regulated by state and federal law directed to all shareholders of a corporation to tender their shares to the offeror at a given premium in order for the offeror to obtain control of the corporation. Tender offers may be published in a newspaper or other public advertisement.
• Triangular merger. A merger generally effected when a large corporation seeks to merge with a closely held or other small corporation. In order to avoid a statutorily imposed shareholder vote and appraisal remedy, the large corporation will form a subsidiary that merges with the small corporation. The subsidiary votes through its only shareholder, the large corporation, which is bound by the decision of its board of directors.
• Type A merger (statutory merger). A merger effected by two corporations in accordance with statutorily prescribed procedures. Generally, states impose a mandatory shareholder vote and appraisal remedy for dissatisfied shareholders.
• Type B merger (informal merger or practical merger). A merger effected by a corporation by purchasing shares directly from a target corporation's shareholders. No involvement between the boards of the two corporations is necessary. Once the acquiring corporation obtains a controlling interest of the target corporation, the target corporation will become a subsidiary. The parent corporation may then enter into a short-form statutory merger with the subsidiary.
• Type C acquisition (informal acquisition or practical acquisition). An operation whereby a large corporation acquires a small corporation's assets, avoiding the target corporation's unforeseen liabilities, in exchange for cash, securities, or both, leaving the target corporation with nothing but a shell. Typically, the target corporation then dissolves itself and distributes the cash or securities to its shareholders.
• Ultra vires ([[Lat., "Beyond the granted powers"). Beyond the authority granted by a corporate charter or by law. An ultra vires act may be held to be unenforceable. See Intra vires.
• Underlier. Value from which a derivative derives its value.
• Uniform Partnership Act (UPA). Drafted by the National Conference of Commissioners on Uniform State Laws, this 1914 model statute aims to bring uniformity among state partnership statutes. It is enacted in all states, with the exception of Louisiana.
• Venture capital. Capital coming from wealthy individuals or pension funds managed by people who invest in a promising startup venture.
• Voting by proxy. Voting by authorizing a person to vote on a shareholder's shares.