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CORPORATIONS - Officers, Directors and Shareholders
Transcript of CORPORATIONS - Officers, Directors and Shareholders
Shareholders have right to pro-rata share of assets upon liquidation.
Shareholder may petition the court for dissolution of the corporation for following reasons:
Board mishandling corporate assets.
Board deadlocked and irreparable injury will result.
Acts of directors are illegal, oppressive, or fraudulent.
Shareholders are deadlocked for two meetings and can’t elect directors.
Shareholders can sue a third party on behalf of the corporation if the Directors fail or refuse to correct the wrong or injury.
Directors may refuse to take action because they might personally be liable.
Any damages recovered go to corporation’s treasury.
SHAREHOLDER DERIVATIVE SUITS
Shareholders can sue.
Directors do not have to declare if they have a rational basis for withholding a dividend
Often, profits are retained for expansion, research or upgrades.
FAILURE TO DECLARE DIVIDENDS
Shareholders may vote on resolutions - majority vote
Need a “super majority” (e.g., 67%) for important matters: sale of assets, etc..
Liable for negligent acts that breach the duty of care or duty of loyalty
Crimes and torts committed by individually and/or those committed by employees under their supervision.
LIABILITY OF DIRECTORS AND OFFICERS
As fiduciaries of the corporation, they owe to the corporation and shareholders:
Duty of Care :
Act in good faith/best interests of the corporation.
Make informed and reasonable decisions
Rely on competent consultants and experts
Exercise reasonable supervision
DUTIES OF OFFICERS
Inspect corporate books and records
Compensation - nominal sum
Indemnification or liability insurance
RIGHTS OF DIRECTORS
Shareholders can inspect books for a proper purpose.
But corporation can protect trade secrets, other confidential information.
Shareholder must have held a minimum number of shares for a minimum amount of time.
Distribution of corporate profits or income.
Only as ordered by the Board.
Can be stock, cash, property, stock of other corporations.
State laws control the sources of revenues for dividends
Voting requirements and procedures are:
Quorum of shareholders owning more than 50% of shares must be present to conduct business;
Shareholders may appoint a proxy or enter into a voting trust agreement.
Approving all fundamental changes to the corporation:
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.
Ownership of shares = equitable ownership interest in a corporation.
No right to manage
Protected from personal liability - "corporate veil" of limited liability.
No liability for the outcome of business decision that turned sour.
Court will not require directors or officers to manage “in hindsight.”
Applies if decision was reasonable, informed, made in good faith and in the best interests of the corporation.
THE BUSINESS JUDGMENT RULE
Business decisions are made at regularly scheduled or special board meetings.
Register dissent to avoid liability
Duty of Loyalty
: subordination of personal interests to the welfare of the corporation.
No competition with Corporation
No taking of a “corporate opportunity”
No conflict of interests
No transaction that is detrimental to minority shareholders
DUTIES OF OFFICERS
Officers are employees
Hired and fired by Board of Directors
Fiduciary duty to Corp.
Board of Directors governs.
Individual directors are
agents of corporation.
Board can act as a “super-agent” and bind the corporation.
A director can also be a shareholder, especially in closely-held corporations.
Shares are freely transferable
Exception: Closely held corporations
restricted by articles and noted on the stock certificate.
“right of first refusal” or preemptive rights.
TRANSFER OF SHARES
Common shareholder entitled to one vote per share.
Articles and by-laws can exclude or limit voting rights of certain classes of stock.
Number set forth in the articles of incorporation and limited by statute.
Directors are appointed at the first organizational meeting.
In closely held companies, directors are generally the incorporators and/or the shareholders.
One year term of office.
Director can be removed for cause (for failing to perform a required duty).
ELECTION OF DIRECTORS