Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
25 Cards in this Set
- Front
- Back
|
Directors
|
• Inside/Outside directors
• Anyone can be a director • Typically serve one year term unless o 9 or more directors (most states) o Staggered in 2 or 3 groups o One group replaced each year o Gives continuity • Overall guidance of corporation • Many states allow elimination if under 50 shareholders • directors are not agents or trustees • director can be removed for cause (failing to perform a required duty) by shareholder or director action • vacancies on board can filled by shareholders or directors but directors CANNOT take any action to try and decrease shareholder voting power in an election of directors |
|
|
Director Rights
|
• Compensation is okay
• Indemnification (or insurance) is okay • Absolute right to inspect books and records • Determine dividend payment; need o cash o assets o continued debt-paying ability o unrestricted retained earnings • right to participate in board of directors’ meetings and be notified of the meetings |
|
|
Directors Management
|
• Dividends (must be proper to declare)
o absolute discretion • major policy decisions • hiring officers • major financing decisions • a majority of directors is usually a quorum (min amount needed for business to be valid) • ordinary matters- majority vote, extraordinary matters- greater than majority vote • BoD Committees o Focus on individual subjects to increase efficiency of board o Can also delegate some of their director functions to corporate officers but in doing so, the board is NOT relieved of its overall responsibility for directing the affairs of the corp |
|
|
Directors- Duty of Loyalty
|
• Many breaches, same as with partnership
o Self-dealing, usurping corp opportunity, etc. o Can a director serve on competing boards? Yes but with consent, but it’s risky • Requires directors and officers to subordinate their personal interests to the welfare of the crop • Cannot use corp funds/info for personal gain |
|
|
Directors- Duty of Care
|
• Duty of Care
o Make informed and reasonable decisions o Attend meetings o properly supervise subordinates o *business judgment rule: not liable for honest errors of business judgment • took reasonable steps to be informed, rational basis for decision, did not have a conflict of interest • Registering dissent (if strongly disagree or is absent from meeting) |
|
|
Can a director?
• Rely on other directors? e.g. a board of committee • rely on officers? • rely on outsiders? (e.g. experts? |
Yes to all but it does not transfer responsibility
|
|
|
Shareholders' Power
|
• Approve fundamental changes affecting the corporation
• Inherent power to remove a director from office for cause by a majority vote |
|
|
Shareholders' Annual Meetings
|
o must be held
o fixed by bylaws |
|
|
Shareholders' Special Meetings
|
o notice required; agenda limited
o notice must be given by 10% (or other amount) of shares o notice reasonable time in advance o actions void if notice is defective o unanimous written consent is okay |
|
|
Proxy
- def |
• proxy: signed appointment form or electronic transmission authorizing an agent to vote the shares
• In writing (can now be done electronically) • sets up proxy holder as agent • can instruct to o vote in one way o vote as proxy holder sees fit • latest proxy counts • good for 11 months • anyone can solicit proxies to concentrate voting power, normally revocable |
|
|
Electronic Proxy Solicitation
|
• Companies can (voluntary) use a “notice and access” model to solicit proxies
• Shareholders can submit proxy electronically • Many detailed timeline reqs • Must allow any shareholder option to obtain hard copies |
|
|
Proxies- Shareholder Proposals
|
• Balance between
o Corporation running its business o Shareholders having a direct voice o E.g. climate change; sustainability • Minimum ownership: $2000 of stock for at least a year • If enough votes, in proxies next year |
|
|
Voting Issues- record date, quorum
|
• Record Date
o determines who votes a share • Quorum o default: majority of eligible shares o once met, holds for meeting • Majority of those present is effective in votes |
|
|
Two types- Shareholder Voting to Elect Directors
|
straight and cumulative
|
|
|
Shareholder Voting to Elect Directors- Straight
|
o Each seat on board is a separate election
o Run and vote for seat #1, etc. o 1 vote for each share for each seat |
|
|
Shareholder Voting to Elect Directors- Cumulative
|
o S/h can put all votes on one person
o helps minority shareholder have voice on board |
|
|
Voting Agreement
|
o Unlimited duration
o Enforceable, but hard to prove damages |
|
|
Voting Trust
|
o Legal ownership transferred to trustee
o trustee votes all the shares • as directed or • as sees fit |
|
|
Shareholders’ Right to Dividends
|
• Board has absolute discretion
• S/h has right only if board declares • how can S/H force a dividend o show that board abused discretion o remove board member (s) |
|
|
Other Shareholder Rights- Preemptive rights
|
o Preserves ownership %
|
|
|
Other Shareholder Rights- •Inspection/Right to Information
|
o Limited, shareholders have limited access
o Unlimited to review shareholder list, articles, minutes, bylaws o Otherwise, must have proper purpose o *Shareholders don’t have a fiduciary duty so no unlimited access. Also, limited liability, limited right to information |
|
|
Other Shareholder rights- watered stock, no par stock
|
o no par only relevant to initial issue
|
|
|
Derivative Lawsuits
|
• Shareholder suing on behalf of the corporation
• Must first demand corporation to take action |
|
|
When can you recover $ in a derivate lawsuit?
|
- If the lawsuit wins
- If the lawsuit does not win, depends on the suit's legitimacy |
|
|
Shareholder duties
|
• Generally none, thus usually no duty of loyalty solely from being a shareholder
o Closely held corporation issues • But, controlling shareholder sometimes held to have fiduciary duty to minority shareholders o Majority shareholders have a fiduciary duty to minority shareholders- liable if breached |
