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Chapter 39 - Corporations: Directors, Officers, and ShareholdersChapter 39 - Corporations: Directors, Officers, and ShareholdersCHAPTER OVERVIEWThis chapter focuses on the roles of directors, officers, and shareholders. This chapter willhelp students, as many of them will participate in corporate America, playing at least one ofthese roles. Students know very little about directors and officers. They tend to know moreabout shareholders. Start this chapter’s conversation by seeing what students already knowand don’t know.LEARNING OBJECTIVESAfter reading this chapter, students will be able to answer the following questions: 1.Why is it important to regulate the interactions among directors, officers, and shareholders withina corporation?2.What is the role of a director, an officer, and a shareholder?3.What are the duties of directors, officers, and shareholders?4.In what ways can a director, officer, and shareholder be held liable?5.What are the rights of directors, officers, and shareholders?LECTURE NOTES WITH DEFINITIONS What is the role of a director, an officer, and a shareholder?Teaching tip: Review what students remember about corporations from prior chapters.Roles of directors, officers, and shareholders:oDirectors must get approval of other directors before the company will begin to move in a particular direction.oShareholders use a majority vote to elect directors.oCorporate articles or bylaws specify the number of directors thecorporation will appoint.oA quorum must be present at a director’s meeting if decisions are to be valid.oDirectors appoint, supervise, and remove corporate officers as they see fit.oDirectors are responsible for financial decisions and authorizing corporate policy decisions.oOfficers are the executive managers the board hires to run the organization.oOfficers act as agents of the corporation.oShareholders must approve major corporate decisions.oShareholders have the power to elect and remove the board of directors.oShareholder meetings occur once a year.What are the duties of directors, officers, and shareholders?Duties of directors, officers, and shareholders:oDirectors and officers have a fiduciary duty of care.oDirectors and officers must make decisions that have rational purposes.39-1
Chapter 39 - Corporations: Directors, Officers, and ShareholdersoDirectors and officers have a duty of loyalty, e.g., they cannot engage in self-dealing.oThey also have a duty to disclose conflicts of interest.oShareholders also have fiduciary duties to the corporation, and the minority shareholders.Frieda H. Rabkin v. Philip A. Hunt Chemical Corp.(briefed below) considers whether the duties of majority shareholders to minority shareholders.In what ways can a director, officer, and shareholder be held liable?