Chapter 40 corporate directors, officers, and shareholders
Inside director
A director who is also an officer of the corporation
What is the duty to exercise reasonable supervision?
Directors must reasonably supervise when they delegate work to corporate officers and employees.
How are directors elected?
Limited number of directors set forth by corporations articles. First Board of Directors created at same time corporation is created. Serve until first annual shareholders meeting. Subsequently directors are elected by majority vote of shareholders. Director serves for one term of year.
What is duty of care?
One) act in good faith, two) exercise the care that an ordinarily prudent person would exercise in similar circumstances, three) do what she or he believes is in the best interest of the corporation. If director fails they may be held liable for negligence
Outside director
Director who does not hold a management position.
What is the business judgment rule?
A corporate director or officer will not be liable to the corporation or two with shareholders for honest mistakes of judgment and bad business decisions
What is a quorum of directors?
A quorum is the minimum number of members of a body of officials or other group that must be present for business to be valid like transacted. Usually less than majority but not less than 1/3 of directors
What are stock warrants
Are rights given by a company to buy stock and stable price by specified date.
When does the business judgment rule apply?
As long as the director or officer: one) took reasonable steps to become informed about the matter, two) had a rational basis for her or his decision, three) did not have a conflict between her or his personal interest in the interest of the corporation
How are directors removed?
Director can be removed for Cozz or for failing to perform required duty directors may have power to remove another director subject to shareholder review.
What is the role of shareholders?
They own corporation. No legal title code to corporate property. No responsibility for daily management. Choose board of directors
What are preemptive rights
A shareholder receives a preference over all other purchasers to subscribe to or purchase a prorated share of new issue stock. Must be exercised within a specific period of time. Can purchase a percentage of the new shares that are being issued that is equal to the percentage of shares she or she already has. Allows this person to keep their proportionate control.
What committees of the Board of Directors exist?
Corporations creek committees of directors and delegate certain tasks to these committees. Committees increase efficiency of bored. Two types of committees: executive and audit committee. Executive committee handles in her management decisions between board meetings. Limited to dealing with ordinary business matters does not have power to declare dividends, amend the bylaws, or authorizations of stock. Audit committee is responsible for the selection, compensation, and oversight of the independent public accountant's that are at the firm's financial records. SOX requires a publicly held corporation to have an audit committee
What are illegal dividends?
Dividends are legal if they are improperly paid from an authorized account or if their payment causes the corporation to become in solvent. Shareholders must return illegal dividends only if they knew the dividends were legal when the payment was received. Board of Directors can be held personally liable for amount of payments in illegal dividend
How are directors compensated?
Unless bylaws specify directors can set their compensation directors get business contacts per Stege and stock options. Receive compensation in their managerial positions.
What to do when there are vacancies on the board?
Vacancies occur if director dies or resigns. Either shareholders or board itself can fill the vacant position often an election is held and shareholders vote.
What are the requirements for a shareholders derivative suit?
Before shareholders can bring derivative suit they must submit a written demand to the corporation asking the Board of Directors to take appropriate action. Directors have 90 days to act court will dismiss derivatives if majority of directors or independent panel determines in good faith that the lawsuit is not in the best interest of the corporation. Any damages awarded go to the corporation
Do you shareholders have the right to demand that a corporation issue certificates
Only in the future restrictions that still require physical stock certificates.
What is the voting list?
Prepared before each shareholders meeting. Only persons whose names appear on the corporation stockholders records as owners are entitled to vote. Voting list contains the name and address of each shareholder as shown on the court records on a given cut off date or record date. Also includes a number of voting shares held by each owner. Made available for shareholder inspection
What does it mean to have a duty of loyalty?
Requires directors and officers to subordinate their personal interest in the world for the corporation. Cases dealing with duty of loyalty involve: one) competing with a corporation, two) usurping a corporate opportunity three) pursuing an interest that conflicts with that as a corporation, four) using information that is not available to the public to make a profit trading securities, five) authorizing a corporate transaction that is detrimental to my minority shareholders, six) selling control over the corporation.
What are the duties and liabilities of directors and officers?
They owe ethical and legal duties to the corporation and the shareholders. These fiduciary duties include duty of care and duty of loyalty
What is watered stock?
When a corporation issue shares for less than the fair market value. Usually the shareholder who receives a watered stock must pay the difference to the corporation
Do shareholders have inspection rights?
Yes, our NBC a provider every shareholders entitled to examine specified corporate records. A shareholder has a right to inspect and copy corporate books and records only for a proper purpose, and the request to inspect must be made in advance. Shareholders tonight the right of inspection can seek a court order to compel the inspection. Sometimes the power of inspection is propped with potential abuse and the corporation is allowed to protect itself from them shareholder can properly be denied access to corporate records to prevent harassment or to protect trade secrets or other confidential corporate information.
Can a shareholder transfer shares?
Yes, unless there are valid restrictions on its transfer ability. When shares are transferred, new entry is made in the corporate stock book to indicate the new owner until the corporation is notified and the entry is complete, all rights remain with the current record owner.
What are dividends?
A distribution of corporate profits or income ordered by the directors and paid to the shareholders in proportion to their shares in the corporation. Can be paid in cash, property, stock of a corporation that is picking the dividends, or stock of other corporations.
What are some other voting techniques?
Before shareholders meeting, a group of shareholders can agree in writing to vote their shares together in a specified manner. A.k.a. shareholder voting agreements are held to be valid and enforceable. Another technique is for shareholders to enter until voting trust which is an agreement under which is an a shareholder assigns the right to vote his or her shares to a trustee usually for a specified period of time trustee is responsible for voting shares on behalf of shareholder. shareholder retain all rights of ownership exceptPower to vote
What is the liability of directors and officers?
Can be held liable for negligence, held liable for the crimes and towards committed by themselves or corporate employees under their supervision. If shareholders believe directors are not acting in best interest of the corporation, let me see the directors on behalf of the corporation. A.k.a. shareholders derivative suit.
What are some rules and shareholder voting?
Corporate business matters are presented in forms of resolutions, which shareholders about to approve or disapprove. Each common shareholder normally is entitled to one vote per share. Corm requirement Dash exists when shareholders holding more than 50% of the outstanding shares her present.
What is the duty to make an informed decisions?
Directors and officers expected to be informed on corporate matters and I conduct a reasonable investigation of the situation before making a decision. Must attend meetings and presentations
Can a director have a conflict of interest?
Fiduciary duty requires directors to make full disclosure of any potential conflicts of interest that might arise in any corporate transaction. Sometimes corporation deals with company the director has conflict of interest with and the director has to make a full disclosure of the nature of the conflict in interest and off expert into the transaction. He or she must also abstain from voting on the proposed transaction. If rules are followed transaction can proceed. Otherwise directors would be prevented from ever having financial dealings with the corporations they serve.
What are the duties of majority shareholders?
Have fiduciary duty to the corporation and minority shareholders., But only if they have to factor control over the corporation. Minority shareholder can sue for damages if majority shareholder breaches
What is the liability of a dissenting director
If an individual director disagrees with the majority vote it should be entered in the minutes because it'll be presumed that they have a sent it if it is not. If directors are held liable for mismanagement as a result of a decision any dissenting director is not held individually liable to the corporation
What is the shareholders powers?
Must approve fundamental changes affecting the corporation before the changes can be implemented. Shareholder approval required to amend articles of incorporation or bylaws, connect the merger or dissolve the corporation, and so all or substantially all of corporations assets. Vote to elect or remove members of Board of Directors.
What are some of the components of a shareholders meeting?
Occur at least annually. Notice of meetings Dash must notify at least 10 days without more than 60 days before meeting date. Notice of a special meeting must include a statement of the purpose of the meeting, and business transacted at the meeting is limited to that purpose. Proxies Dash not practical for owners of only a few shares of stock to attend shareholders meeting. Stockholder can appoint another person as their agent to vote their shares of the meeting. Proxy valid for 11 months unless proxy agreement mandates longer period. Shareholders proposal - when shareholders want to change a company policy, they can put their ideas up for shareholders vote. Rules for proxies and shareholder proposals - all shareholders are on stock worth at least $1000 are eligible to submit proposals for inclusion in corporate proximate Cheerios. Corporation required to include information on whatever proposes will be considered at the shareholders meeting along with proxy materials. Only those proposals that relate to significant policy considerations not ordinary business operations must be included.
What are the rights of the directors?
Right to participation- entitled to participate in all board of director meetings and have a right to be notified of these meetings Right of inspection Dash each director can access corporations books and records, facilities, and premises Right to indemnification Dash when director becomes involved in litigation by virtue of his position they may have right to be reimbursed for the legal costs, fees, and damages incurred.
What are the duties and liabilities of shareholders?
Shareholders are not personally liable for the debts the corporation. Shareholder can only be held personally liable when it comes to illegal dividends, watered star, or attempts to exclude minority shareholders from receiving certain benefits.
What happens when the directors fail to declare a dividend?
Shareholders can ask a court to compel the directors to do so. To succeed, the shareholders Michelle that the directors have acted so unreasonably and withholding the Divet in their conduct as an abuse of their discretion.
What is cumulative voting and when is it used?
Shareholders must elect directors by cumulative voting which is a voting method designed to allow minority shareholders to be represented on the board of directors. The formula is each shareholder is entitled to a total number of votes equal to the number of board members to be elected multiplied by the number of voting shares that the shareholder owns. The shareholder can cast all these votes for one candidate or split them among several nominees for director.
What is the role of directors and officers?
Ultimate authority. Responsible for all policy making decisions needed for management. Carry out routine business. Selects and removes corporate officers, determines capital structure of corporation, and declares dividends. Each director has one vote and majority rules. No individual director can act as an agent to find the corporation they are not trustees.