Entity Formation & Corporate Governance Flashcards
7 cards from real ACP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Entity Formation & Corporate Governance flashcards as text
What is the function of a 'no-par-value' stock designation?
Answer: It allows the board of directors to issue shares at any price without a stated minimum value
No-par-value stock has no minimum legal capital requirement per share, giving the board flexibility to set the issuance price.
A limited partnership (LP) differs from a general partnership primarily because:
Answer: An LP has at least one general partner with unlimited liability and at least one limited partner with liability capped at their investment
The defining feature of an LP is the dual-partner structure: general partners manage and bear unlimited liability, while limited partners invest passively with limited liability.
Which of the following is typically required for a valid annual shareholders' meeting notice under the RMBCA?
Answer: Notice must be given not fewer than 10 nor more than 60 days before the meeting
The RMBCA requires written notice of an annual meeting to be given within a window of 10 to 60 days before the meeting date.
In a statutory conversion, a business entity:
Answer: Changes its organizational form (e.g., from LLC to corporation) while maintaining legal continuity
A statutory conversion changes the entity type while preserving the same legal entity, avoiding the need to transfer assets and liabilities to a new entity.
What is the primary difference between cumulative and non-cumulative preferred stock regarding dividends?
Answer: Unpaid dividends on cumulative preferred stock accrue and must be paid before common dividends; non-cumulative dividends are lost if not declared
Cumulative preferred dividends that are not declared accumulate as 'dividends in arrears' and must be paid before any common stock dividends.
What is 'watered stock' in the context of corporate formation?
Answer: Stock issued in exchange for property or services that are overvalued relative to the stock's par or stated value
Watered stock occurs when a corporation issues shares for consideration worth less than the par or stated value, historically creating liability for both the issuer and recipient.
Which governance document would most likely contain restrictions on the transfer of LLC membership interests?
Answer: Operating Agreement
Transfer restrictions on membership interests are customarily included in the LLC's Operating Agreement, not in the public formation documents.