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business judgment rule

A rule that immunizes corporate management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.


A distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held.

inside director

A person on the board of directors who is also an officer of the corporation.

outside director

A person on the board of directors who does not hold a management position at the corporation.

preemptive rights

Rights held by shareholders that entitle them to purchase newly issued shares of a corporation's stock, equal in percentage to shares presently held, before the stock is offered to any outside buyers. Preemptive rights enable shareholders to maintain their proportionate ownership and voice in the corporation.


In corporation law, a written agreement between a stockholder and another under which the stockholder authorizes the other to vote the stockholder's shares in a certain manner.


The number of members of a decision-making body that must be present before business may be transacted.

shareholder's derivative suit

A suit brought by a shareholder to enforce a corporate cause of action against a third person.

stock certificate

A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation.

stock warrant

A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period.

treasury share

Corporate shares that are authorized by the corporation but that have not been issued.

voting trust

An agreement (trust contract) under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf.

watered stock

Shares of stock issued by a corporation for which the corporation receives, as payment, less than the fair market value of the shares.

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