Business Organizations-ND

Business - Nancy Donovan Business Organizations Prof Wade Fall 2001 Re the business judgment rule The business judgment rule is a judicial creation

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Nancy Donovan Business Organizations Prof. Wade Fall 2001 Re: the business judgment rule The business judgment rule is a judicial creation that presumes propriety, under certain circumstances, in a board’s decision. The rule itself is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the company. The Nature of the Corporation: Role and Purposes of Corporations [Ch. 3, § 4, p. 280] A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. It is a separate legal entity which owes its existence to the state; it is a legal person that can sue and be sued, make Ks, etc. Three components : Officers (CEO, CFO, Pres, VP) - manage the day to day operation Directors - elected by the SH’s to oversee the management of the business and select the officers to run it. o DIRs & OFFs are often called the managers . Shareholders - owners of the corporation. Different attributes depending on ownership : Closely held corporations - there are just a few SH’s. The distinction between SH’s and managers may be insignificant b/c SH’s, DIRs, and OFFs may be the same people. Publicly held corps (PHC) - large number of SH’s and have shares that trade on various stock markets. The SH’s are dispersed, no group holds enough shares to control election of DIRs and the management of the corp. Dispersion allows managers to control the corp even thought they might own a few shares. There are also publicly traded corps in which there are controlling SH’s, placing the public SH’s in the minority. Corporate Social Responsibility : Whether a corporation should be managed solely for the benefit of its SH’s or should corporations be allowed to do good, even at the expense of profit maximization? TWO VIEWS : 1. ( Contractarians ) Advocates of SH-gain as the sole motive for corps believes that corps are formed to run a business for a profit and that other activities should not be within their focus. Allowing managers to pick and choose philanthropic of socially beneficial activities permits use of corporate funds for mgmt’s personal charities and enables mgr’s to act as a sort of unelected civil servant.
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Profit is the yardstick to measure the success of a business and profit maximization is the goal. 2. ( Communitarians ) Advocates of a broader view recognize that large publicly traded corps have considerable power and play a significant role in the economy. Their view of corp governance looks to include stakeholders (eg - EE’s, consumers, creditors or members of the community) other than SH’s and corp mgr’s in corp decision making.
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This note was uploaded on 02/15/2008 for the course LAW 3000 taught by Professor Baynes during the Fall '03 term at St. Johns Duplicate.

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Business - Nancy Donovan Business Organizations Prof Wade Fall 2001 Re the business judgment rule The business judgment rule is a judicial creation

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