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