Chapter 35- Directors, officers and shareholders
Cumulative Voting:
Cumulative Voting allows minority shareholders to get a board member elected.
Liab of directors and officers
Directors and officers may be liable for crimes and torts committed individually and/or those committed by employees under their supervision.
Duty to Exercise Reasonable Supervision. (directors)
Directors are expected to supervise officers when delegated work.
Duty of Care.
Duty to Make Informed Decisions. Directors are expected to be fully informed on corporate matters
Election of Directors
Generally, the number of directors is set forth in the articles of incorporation: appointed at first org meeting for a term of 1 year
Business Judgment Rule
Immunizes a director or officer from liability from bad decisions as long as decision was reasonable, informed, made in good faith and in the best interests of the corporation, BJR will apply
duties of shareholders
Majority shareholders owe a fiduciary duty to corporation, minority shareholders and creditors when selling their shares
Corporate Officers and Executives
Officers serve at the pleasure of the Board of Directors but have fiduciary duties to company as well. Their employment relationships are generally governed by contract law and employment law. Officers may be terminated for cause. Directors and officers are fiduciaries and owe the company ethical and legal duties
Rights of directors
Participate in corporate decisions and inspect corporate books and records corporation should buy liability insurance to protect directors
Board of Directors' Meetings.
Quorum must be present to conduct official business. min number of memebers must be present
Shareholders rights
Shareholders generally have no right to manage the daily affairs of the corporation, but do so indirectly by electing directors owe a fiduciary duty to minority shareholders. Shareholders may have various rights, depending on the articles and bylaws: Stock Certificates. Preemptive Rights: allows each shareholder to maintain his proportional control. Stock Warrants: buy at a stated price. dividends and insecpection rights w proper purpose Transfer of Shares. Rights on Dissolution.- when company goes under after everything is payed they get the last Shareholder's Derivative Suit
Shareholder's Derivative Suit
Shareholders sue a third party on behalf of the corporation, if the Directors fail or refuse to correct the wrong or injury. Shareholders must first 'make demand' on the board which then has 90 days to decide in the name of the company not individual
Shareholders' Powers
approving all fundamental changes to the corp Amending articles of incorporation or bylaws. Approval of mergers or acquisition. Sale of all corporate assets or dissolution. Shareholders also elect and remove the board of directors.
A corporation is governed by..
board of directors which are elected by shareholders director can also be a shareholder Individual directors are not agents of the corporation. Only the board itself can act as a "super-agent" and bind the corporation.
Removal of Directors
directors can be removed for cause. (failing to preform a required duty)
Conflicts of interest
full disclosure of any potential conflicts of interest and abstain from voting on any transaction that may benefit the director/officer personally
shareholders liab
generally not liable for the contracts or torts of the corporation. If the corporation fails, shareholders generally cannot lose more than their investment
Shareholders' Meetings
must occur at least annually notice shareholders at least 10 days prior but no more that 60 proxies- a form in which stockholder authorizes another party to vote the stockholders shares shareholder proposal- to board of directors
Shareholder derivative suits where
shareholder(s) sue directors on behalf of corporation
shareholder voting requirements
shareholders representing more than 50% of shares must be present to conduct business.
Duty to loyalty
subordination of personal interests to the welfare of the corporation. No competition with Corporation. No "corporate opportunity." No conflict of interests. No insider trading. No transaction that is detrimental to minority shareholders