Chapter 6: Who Owns the Corporation?
AGM
Annual General Meeting
ESG Investing
Environmental, social and corporate governance refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business
Primary Market
Initial public offering. Securities are created first. Prices are fixed and are set by issuing company/ Sale proceeds are received directly by the company. Potential buyers are limited.
Delaware General Corporation Law
Most advanced corporation law in the country. Directors shall manage the affairs of the corporation and may do whatever is necessary and proper to perfect the organization of the corporation. Delaware corporate law makes no mention of the shareholder as owner of the firm.
Shareholders Own Stock, Not The Corporation
Once shareholders subscribe to shares in the corporation, payment made in consideration for the shares is considered property of the corporation, and the shareholders are not free to withdraw the sum invested except for payments through dividends, selling their shares, and other permitted means. Shareholders own the shares, not the corporation itself, which is an autonomous legal entity. The firm is an independent legal entity.
Capital Markets
Primary Market and Secondary Market
What Legal "Rights"Do Shareholders Have?
Right to the company's assets?-All assets are owned by the corporation as an independent legal entity. Right to the company's future profits?-No "right" to dividends unless the company issues them. Right to vote at company's AGM?-Many votes are nonbonding.It's extremely difficult to nominate candidates for the board. Right to sell their shares at the time of their choosing?-Yes, that is about the only meaningful shareholder legal "right."
Secondary Market
Stock Market. Existing securities are traded, and prices fluctuate according to supply and demand. Sale proceeds are received by the investor selling the shares (no money received by the firm). Potential buyers are not limited because sales are public.
"Ownership"- The Law
The law as it is written by the legislature and how it is interpreted by the courts.
Directors Have No Special Fiduciary Duty to Shareholders
The law provides a surprisingly clear answer: when directors go against shareholder wishes, even when a loss in value is documented, courts side with directors the vast majority of the time.
Shareholders Have No Ownership Rights
They have no more right than other customers to the services of the business they 'own.' The company's actions are not their responsibility, and corporate assets cannot be used to satisfy their debts. Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical. They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets, except in the event of the liquidation of the entire company.
The Business Judgement Rule
a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.