ACCT324 Ch. 39
Par-Value Shares
Fixed face value noted on stock certificate; shareholder must pay the corporation at least this
Business Self-Dealing
When a director or officer makes decisions that benefit other companies with which they have a relationship
Personal Self-Dealing
When a director or officer makes decisions that benefit themselves personally
Self-Dealing
When directors or officers violate their duty of loyalty
Cumulative voting
a process that ensures minority shareholders have a voice in which each group (majority and minority shareholders) get a certain number of votes to cast by multiplying the number of shares the group owns by the number of open director positions
Duty of Care
directors and officers must exercise due care when making decisions for the corporation
Duty of Loyalty
directors and officers must put the corporation's interests above their own when making decisions
Inside Directors
directors who are also officers or employees of the corporation
Outside Directors
directors who are not officers or employees of the corporation; split into affiliated and unaffiliated directors
3 major groups of individuals within a corporation
directors, officers, shareholders
Preemptive Rights
gives preference to shareholders to purchase shares of a new issue of stock; each shareholder receives preference in proportion to the percentage of stock they already own
Affiliated Direcors
have business contacts with the corporation
A director or officer convicted of breaching the duty of loyalty is required to cede the corporation all ________ earned as a result of the breach
profits
Stock Warrants
redeemable for a certain number of shares at a specified price within a given time period if preemptive rights exist; usually traded publicly on securities exchange
A _________ voting agreement is an agreement by multiple shareholders to vote together at a meeting
shareholder
How do shareholders elect directors?
majority vote (exception: during incorporation)
When a corporation faces an important decision, who will meet to decide what course of action the corporation will take?
board of directors
Duties of Directors and Officers
1. Duty of Care 2. Duty of Loyalty 3. Duty to Disclose Conflict of Interest
If a corporation engages in any of these behaviors, shareholders have a legal right to initiate dissolution
1. directors are deadlocked in managerial decisions and harming the corporation 2. directors are acting in illegal, oppressive, or fraudulent ways 3. assets are being wasted or used improperly 4. shareholders are deadlocked and cannot elect directors
Rights of Directors
1. right to compensation 2. right of participation 3. right of inspection 4. right to indemnification
In what year did the ABA draft the first version of the MBCA?
1946
T/F: Cumulative voting is guaranteed under the RMBCA
False
Corporations can deny shareholders the right to inspect
confidential corporate information
Business-Judgement Rule
Directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time (not a statute but common law recognized almost everywhere nationally)
What document dictates the number of members of a board of directors in a corporation?
corporate bylaws
RMBCA
Revised Model Business Corporation Act; 1984; adopted by more than half the states
Watered Stock
Stock issued below its fair market value, is also individually liable for the difference between the price she paid for the shares and their stated corporate value
Uncertified Shares
Stock issued without actual stock certificates
No-Par Shares
Stock shares without a par value; shareholder must pay market value
Oppressive Conduct
a breach of fiduciary duty by majority shareholders in a closely held corporation
Responsible Person Doctrine
a court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity
shareholder's direct suit
a lawsuit filed by a shareholder against the corporation
shareholder's derivative suit
a suit brought by shareholders on behalf of the corporation if corporate directors fail to sue when the corporation has been harmed by an individual, another corporation, or a director
shareholders can inspect records and books only if they
ask in advance and have a proper purpose
Stock Certificates
certificates that provide evidence of stock ownership; includes corporation's name and the number of shares it represents
The business judgement rule is based on what legal authority?
common law
If directors fail to declare and distribute __________, shareholders have the right to take legal action to force them to do so
dividends
Officers
executive managers whom the board of directors hires to run the day-to-day business of the corporation
Decisions made by directors and officers must be both __________ and ___________
informed, reasonable
Officers are in a contractual relationship with a corporation, and if they are removed in violation of the contract terms, the corporation
may be liable for breach of contract
How often do shareholders meet?
once a year (but can meet more often in emergencies)
unaffiliated directors
outside directors who have no business contacts with the corporation
Right of First Refusal
the corporation or its shareholders have the right to purchase any shares of stock offered for resale by a shareholder within a specific period of time
With a voting trust, who is responsible for voting the shares of the trust?
the trustee
Proxy
when a shareholder authorizes a third party to attend a shareholder's meeting and vote in their place