Ch. 39 - Corporate, Directors, Officers, and Shareholders
A Corporation must notify SPECIAL SHs meetings at least ___ days, but no more than ___ days, before the meeting date
10, 60
SH approval is required to: 1. amend the _________ or bylaws 2. to conduct a _____ or _____ the corporation 3. to sell all or substantially all of the corporation's ______
Articles of Incorporation, merger, dissolve, assets
The dates of Director's meetings are are established in the ____ or ____ or by ____ ____. ordinarily no further notice is required.
Articles, bylaws, board resolution
(6) Examples if Failure in Duty of Loyalty: 1. _____ with the corp. 2. ______ 3. Pursuing an _____ _____ ____ with that of the corporation 4. _____________ 5. Authorizing a corporate transaction that is detrimental to ______ _____ 6. ______ _____ over the corporation
Competing, usurping, interest that conflicts, insider-trading, minority SHs, Selling control
Right to ________: When a director becomes involved in litigation by virtue of his position, the director may have a right to indemnification (reimbursement) for the legal costs, fees, and damages incurred
Indemnification
Right of ______: Each director can access the corporation's books and records, facilities, and premises
Inspection
Directors are ____ agents - an individual director can't act as an agent to ____ ____ ____.
NOT, bind the corporation
Right to ________: Directors are entitled to participate in all board of directors meetings and have a right to be notified of these meetings
Participation
A suit brought by a shareholder to enforce a corporate cause of action against a third person
SH's derivative suit
When the corporation is harmed by the actions of a third party, the SH's can bring a lawsuit in the name of the corporation against that party
SH's derivative suit
Why are directors not agents? Because ____________.
a single director could not conduct business on behalf of the company
corporate and managerial officers are both _____ and ______.
agents, employees
SH's Powers: SHs must _____ _____ _____ affecting the corporation before the changes can be implemented.
approve fundamental changes
responsible for the selection, compensation, and oversight of the independent public accountants that audit the firm's Financial records
audit committee
Most courts will apply the Business Judgment Rule unless there's evidence of: - ________ - _________ - a clear breach of ______ ______
bad faith, fraud, fiduciary duties
A court will dismiss a derivative suit if a majority of the directors or an independent panel determines in good faith that the lawsuit is not in the ________________.
best interests of the corporation
Corporate Officers and Executives: - hired by the _____ - minimum = a _____, 1 or _____, ____, ____ - ____ ____ ____ stated in the Bylaws - corporate and managerial officers are ______ - corporate and managerial officers are ______
board, president, VP, treasurer, secretary, carry out duties, agents, employees
A Rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgment and bad business decisions that were made in good faith
business judgement rule
Defense to alleged violation by Directors & Officers of Duty of Care
business judgment rule
Under the ______ _____ _____, a corporate director or officer will NOT be held LIABLE to the corporation or to its shareholders for honest mistakes of judgment and bad business decisions
business judgment rule
Directors And officers are expected to exercise due care and to use their best judgment and guiding corporate management, but they are not insurers of ______ _______.
business success
The number of directors is set forth in the corporation's articles or _____.
bylaws
Fiduciary duties of Directors & Officers include the: - duty of _____ - duty of _____
care, loyalty
Preemptive rights are most important in _____ _____because each SH owns a relatively small number of shares but controls a substantial interest in the corp.
close corporations
The Duty of Loyalty requires Directors & Officers to not use _____ _____ or information for ______ ______.
corporate funds, personal gain
A MAJORITY SH is regarded as having a fiduciary duty to the _____ and to the ______ _____.
corporation, minority shareholders
Formula: each SH is entitled to a total number of votes equal (=) to the: (# of board members to be elected * the #of voting shares that the SH owns)
cumulative voting
What is a way to protect the Minority SHs' interests?
cumulative voting
a voting method designed to allow minority shareholders to be represented on the board of directors
cumulative voting
A corporation must notify its shareholders of the ____, ____, and ____ of an annual meetings.
date, time, place
The fiduciary duties of Majority SHs arises when a single SH owns a sufficient number of shares to exercise ____ _____ ____ over the corporation.
de facto control
If the corporate directors fail to bring a lawsuit, the SHs can do so "_______" in what is known as a shareholder's derivative suit.
derivatively
Directors must refrain from entering into businesses that operate in _____ _____ with corporations on whose boards they serve.
direct competition
Directors' votes at board of directors' meetings should be entered into the minutes; When an individual director disagrees with the majority vote, the dissent must be entered into the meetings minutes otherwise the director is presumed to have assented
dissenting directors
______ are paid out proportionally to the % of shares owned by the SH.
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
dividends
"Duty of faithfulness to one's obligations and duties"
duty of loyalty
The Business Judgment Rule is based around the idea that Directors & Officers do NOT ____ ____ ____.
ensure business success
Two Common Types of Committees: _____ committee & ____ committee
executive, audit
Duty to ______ ______ _____: Directors are expected to exercise a reasonable amount of supervision when they delegate work to corporate officers and employees
exercise reasonable supervision
Outside directors bring _____ and _____ ____ ____.
expertise, diversity of thought
Directors & officers are considered to be _______ of the corporation because their relationship with the corporation and its shareholders is one of _____ and ______.
fiduciaries, trust, confidence
A Common Ex of Majority SHs breaching their fiduciary duties: When majority shareholders "____ ____" the minority shareholders and exclude them from certain benefits of participating in the firm
freeze out
Directors & officers' fiduciary duty requires them to make ____ _____ of any potential _____ ___ _____ that might arise in any corporate transaction.
full disclosure, conflicts of interest
When a corp. engages in a transaction that an officer or director has a personal interest: The director or officer must: (2) - make _____ ____ - abstain from ______
full disclosure, voting
Duty of Care - Requires a director or officer to: (3) 1. Act in _____ _____ (honestly) 2. Exercise the care that an ordinary, _____ _____ would exercise in similar situations 3. Act in the _____ _____ of the corporation
good faith, prudent person, best interest
A SH can properly be denied access to corporate records to prevent ______ or to protect trade secrets or other confidential corp. info
harassment
Extraordinary corporate matters, such as a merger, consolidation, or dissolution of the corporation, require approval by a _____ _____ of all corporate shares entitled to vote.
higher percentage
A trustee _____ _____. A director _____ ___ ____, does not ____ _____.
holds property, runs the company, hold property
Along with the duties of care and loyalty, corporate directors & officers must also make _____ _____.
informed decisions
Management positions within a company
inside directors
using information that is not available to the public to make a profit trading Securities
insider-trading
unable to pay its debts as they come due
insolvent
_______ Rights: Each SH has the right to inspect: - records - accounting - books
inspection
Stock is an _____ _____ ____. The ownership right exists independently of the certificate itself
intangible property right
Duty of _____: Think of the company before personal interests
loyalty
In the corporate context, the duty of _______ requires directors & officers to subordinate their personal interests to the welfare of the corporation.
loyalty
A ______ vote of the shares represented at the meeting is usually required to pass resolutions.
majority
Preemptive Rights allow a ______ SH to maintain her proportional _____, _____ _____, and _____ _____
majority, control, voting power, financial interest
A _____ SH owes a fiduciary duty to _______ SHs.
majority, minority
Ordinary matters require a _____ vote Extraordinary issues require a _____ vote
majority, unanimous
Directors & officers must attend meetings to stay informed so they ____ ____ ____.
make informed decisions
A quorum exists when shareholders holding _______ of the outstanding shares are present.
more than 50%
Liability of Directors & Officers: Directors & Officers can be liable for ______.
negligence
Are SHs personally liable for debts if a corporation fails?
no
Are directors agents?
no
Are directors trustees?
no
Do SHs have DAILY MANAGEMENT responsibilities?
no
Do SHs own title to corporate property?
no
Each common shareholder is entitled to ____ vote per share.
one
Each director present at the meeting has ____ vote.
one
An executive committee is limited to dealing with ____ _____ _____ and does not have the power to declare dividends, and then the bylaws, or authorized the issuance of stock.
ordinary business matters
Come from outside industries.
outsider directors
(3) Rights of Directors: Right of - ____ - ____ - ____
participation, inspection, indemnification
Duty of Loyalty: Directors cannot use corporate funds or confidential corporate information for ____ ____ and must refrain from self-dealing.
personal advantage
If the directors are later sued for mismanagement as a result of a decision, dissenting directors are rarely held ______ _____ for the corporation.
personally liable
Directors & officers are ____ ____ for their own ___________ (when not protected under the business judgment rule)
personally liable, torts and crimes
(3) Times SHs are Personally Liable: 1. Court has decided to _________ 2. ______ ______ are issued 3. ______ _____ is issued
pierce the corporate veil, illegal dividends, watered stock
Directors: - All _____ _____ decisions - Carry out ____ ____ - _____ and _____ officers - determine ____ ____ of the corporation - declare _____ - each director has ____ vote and _____ ____ controls
policymaking, routine business, select, remove, capital structure, dividends, one, majority vote
(in-class notes) Rights of a SH to preference over other SHs in buying a prorated share of a new issue of stock
preemptive rights
The right of a SH in a corp. to have the first opportunity to purchase a new issue of that corp's stock in proportion to the amount of stock already owned by the SH
preemptive rights
With ______ ______, a SH receives a preference over all other purchasers to subscribe to or purchase a prorated share of a new issue of stock
preemptive rights
A SH has a right to inspect and copy corp. books & records only for a ______ _____, and the request to inspect must be made in _______.
proper purpose, advance
Authorization to represent a corporate shareholder to serve as his agent and vote his shares in a certain manner
proxy
A majority of the board of directors constitutes a _____.
quorum
For shareholders to act during a meeting, a _____ must be present.
quorum
The number of members of a decision-making body that must be present before business may be transacted
quorum
The Business Judgment Rule applies when: (3) 1. Took _____ _____ to become _____ about the matter 2. Had a ____ ____ for the decision 3. No conflict between his ____ ____ in the __________.
reasonable steps, informed, rational basis, personal interest, interest of the corporation
In a SH's Derivative Suit, SH's may be _____ for reasonable expense, such as Attorney's fees, etc.
reimbursed
Corporate business matters are presented in the form of ______, which shareholders vote to approve or disapprove.
resolutions
The Duty of Loyalty requires Directors & Officers to refrain from ________.
self-dealing
Owners of the corporation
shareholders
Who appoints the Board of Directors?
shareholders
Who approves the FUNDAMENTAL CHANGES of a company?
shareholders
Who has the power to vote to elect or remove members of the board of directors? The ________.
shareholders
A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation
stock certificates
Preemptive rights must be exercised within a specific _____ _____ (usually 30 days)
time period
Once a quorum is present, the directors ____ ____ and vote on issues affecting the corporation
transact business.
Someone who holds property for the use & benefit of another
trustee
Dividends = ILLEGAL if: 1. They are improperly paid from an _____ _____ 2. Their pmts cause the corp. to become ______
unauthorized account, insolvent
taking personal advantage of a corporate opportunity
usurping
- The corporation prepares a voting list before each SH's meeting - Only persons whose names appear on the corporation stockholder records as owners are entitled to vote
voting lists
Shares of stock issued by a corporation for which the corporation receives, as payment, LESS than the FMV of the shares
watered stock
When a corporation issues shares for less than their fair market value, the shares are referred to as ______ ______.
watered stock
SH's Derivative Suit: 1. _____ ____ to the board is req. 2. the board has _____ days to file the lawsuit 3. any damages awarded go to the _______
written demand, 90, corporation
Are Corporate Officers agents?
yes
Are Directors & Officers required to make full disclose of any potential conflicts of interest?
yes
Can Directors & Officers be held personally liable for the torts and crimes committed by corporate Personnel under their DIRECT SUPERVISION?
yes
Can Directors & Officers be sued in a Derivative Suit?
yes
Can a MINORITY SH sue for damages when a MAJORITY SH breaches her fiduciary duty?
yes
Can the Board remove an officer with or without cause?
yes
When the Director or officer 1) makes full disclose of potential conflict of interest and 2) abstains from voting on it, can the transaction proceed?
yes
