Chapter 35: Management Structure of Corporations
Role of Officers
Officers are agents of the corporation
Delegation of Board Powers
Committees may be appointed to perform some but not all of the board's functions
Officer Rights
- President, vice presidents, treasurer, secretary, CEO, CFO, etc. - Run the day-to-day operations of the corporation - may effectively control selection of directors and control proxy votes
Function of the Board of Directors
- Selection and Removal of Officers - Capital Structures - Fundamental Changes - Dividends - Management Compensation - Vacancies in the Board
Shareholder Rights
- elect and remove directors, often by proxy - approve fundamental changes to articles and bylaws - buy and sell shares, receive dividends
Board of Director Rights
- select, remove, and set compensation of officers - delegate authority to officers - manage the business of the corporation, often by ratifying actions/recommendations of officers - may initiate fundamental changes - declare dividends
Indemnification
A corporation may indemnify a director or officer for liability incurred if he acted in good faith and was not adjusted negligent or liable for misconduct
Ratification--Authority of Officers
A corporation may ratify the unauthorized acts of its officers
Shareholder's Right to Dissent
A shareholder has the right to dissent from certain corporate actions that require shareholder approval
Apparent Authority--Authority of Officers
Acts of the principal that lead to a third party to believe reasonably and in good faith that an officer has the required authority
Actual Express Authority--Authority of Officers
Arises from the incorporation statute, the charter, the bylaws, and resolutions of the directors
Actual Implied Authority--Authority of Officers
Authority to do what is reasonably necessary to perform actual authority
Proxy
Authorization to vote another's shares at a shareholder meeting
Derivative Suits
Brought by a shareholder on behalf of the corporation to enforce a right belonging to the corporation
Director Suits
Brought by a shareholder or a class of shareholders against the corporation based upon the ownership of shares
Dividends
Directors declare the amount and type of dividends
Meeting-- Exercise of Directors' functions
Directors have the power to bind the corporation only when acting as a board
Directors' Inspection Rights
Directors have the right to inspect corporate books and records
Straight Voting
Each shareholder gets one vote for each share, winner is elected by either plurality or majority. Thus, a group of shareholders who hold a majority of the voting share can always elect the entire board of directors.
Cumulative Voting
Each shareholder multiplies the number of shares he or she owns by the number of directors to be elected, for a total number of votes, then can last these votes however he wants--distributed among or or more candidates. This enables minority shareholders to obtain minority representation.
Rights to Inspect Books and Records-- Shareholders
If the demand is made in good faith and for a proper purpose
Liability Limitation Statues
Many states now authorize corporations--with shareholder approval--to limit or eliminate the liability of directors for some breaches of duty
Vacancies in the Board
May be filled by the vote a majority of the remaining directors
Quorum
Minimum number of necessary to be present at a meeting to transact business
Duty of Obedience--Duties of Officers and Directors
Must act within respective authority
Restriction on Transfer of Shares--Shareholders
Must be reasonable and conspicuously noted on stock certificate
Duty of Diligence--Duties of Officers and Directors
Must exercise ordinary care and prudence
Action Taken Without a Meeting
Permitted if consent in writing is signed by all directors
Business Judgement Rule--Duties of Officers and Directors
Precludes imposing liability on directors and officers for honest mistakes in judgement if they act with - due care (the care that an ordinarily prudent person in a similar position would exercise under a similar circumstances) - in good faith (without conflicts of interest) - in a manner reasonably believed to be in the best interests of the corporation
Duty of Loyalty--Duties of Officers and Directors
Requires undeviating loyalty to the corporation
Approval of Fundamental Changes
Shareholder approval is required for charter amendments, most acquisitions, and dissolution
Shareholders Meetings
Shareholders may exercise their voting rights at both annual and special shareholder meetings
Typically closely held corporation
Shareholders=Directors=Officers. Some states allow closely held corporations to forgo some corporate formalities without sacrificing shareholder's limited liability.
Fundamental Changes
The directors have the power to make, amend, or repeal the bylaws, unless this power is exclusively reserved to the shareholders
Election of Directors
The shareholders elect the board at the annual meeting to transact business
Removal of Directors
The shareholders may by majority vote remove directors with or without cause, subject to cumulative voting rights
Voting Trust
Transfer of corporate shares' voting rights to a trustee
Shareholder Voting Agreement
Used to provide shareholders with great control over the election and removal of directors and other matters