BLRB36 - Business Law and the Regulation of Business...

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Unformatted text preview: Business Law and the Regulation of Business Regulation Chapter 36: Management Structure of Corporations of By Richard A. Mann & Barry S. Roberts Topics Covered in this Chapter Topics I. Corporate Governance A. Voting Rights of Shareholders B. Enforcement Rights of Shareholders II. Role of Shareholders III. Role of the Directors and Officers A. B. B. C. C. D. E. Function of the Board of Directors Election and Tenure of Directors Exercise of Directors' Functions Officers Duties of Directors and Officers Voting Rights of Shareholders Shareholder Meetings – shareholders may exercise their voting rights at both annual and special shareholder meetings. meetings. s Quorum – minimum number necessary to be present at a meeting in order to transact business. transact s Election of Directors – the shareholders elect the board at the annual meeting of the corporation. annual s Voting Rights of Shareholders Removal of Directors – the shareholders may by majority vote remove directors with or without cause, subject to cumulative voting rights. subject s Approval of Fundamental Changes – shareholder approval is required for charter amendments, most acquisitions, and dissolution. and s Concentrations of Voting Power Concentrations Proxy – authorization to vote another's shares at a shareholder meeting. shares s Voting Trust – transfer of corporate shares' voting rights to a trustee. shares' s Shareholder Voting Agreement – used to provide shareholders with greater control over the election and removal of directors and other matters. removal s Concentrations of Voting Power Concentrations Proxy Definition Voting Trust Shareholder Agreement Agreement among shareholders on voting of shares Signed writing Authorization of an Conferral of voting agent to vote shares rights on trustee Signed writing delivered to corporation Eleven months, unless otherwise agreed Signed writing delivered to corporation Ten years; may be extended Formalities Duration No limit Revocability Prevalence Yes, unless coupled No with an interest Publicly held Only by unanimous agreement Publicly and closely Closely held held Enforcement Rights of Shareholders Enforcement Right to Inspect Books and Records – if the demand is made in good faith and for a proper purpose. and s Shareholder Suits – Direct Suits – brought by a shareholder s or a class of shareholders against the corporation based upon the ownership of shares. shares. – Derivative Suits – brought by a shareholder on behalf of the corporation to enforce a right belonging to the corporation. corporation. Shareholder Suits: Direct Suit Shareholder Direct Suit Shareholder Corporation Recovery Direct Suit 1. Compel payment of properly declared dividends 2. Enforce right into inspect corporate records 3. Protect preemptive rights 4. Compel dissolution 5. Enjoin an ultra vires act Shareholder Suits: Derivative Suit Shareholder Derivative Suit Shareholder Corporation Third Party Recovery Derivative Suit 1. Recover damages from management for breach of duty 2. Recover improper dividend 3. Enjoin wrongful issuance of shares 4. Recover damages from third party 5. Recover damages from management for ultra vires act. Enforcement Rights of Shareholders Enforcement s Shareholder's Right to Dissent – a shareholder has the right to dissent from certain corporate actions that require shareholder approval. require Function of the Board of Directors Function s s have the power to make, amend, or repeal the bylaws, unless this power is exclusively reserved to the shareholders. reserved s Dividends – directors declare the amount and type of dividends. and s s Capital Structure Fundamental Changes – the directors Management Compensation Vacancies in the Board – may be filled by the vote of a majority of the remaining directors. directors. Exercise of Directors' Functions s Meeting – directors have the power to bind the corporation only when acting as a board. board. s permitted if a consent in writing is signed by all of the directors. all s Delegation of Board Powers – committees may be appointed to perform some but not all of the board's functions. some s Directors' Inspection Rights – directors have the right to inspect corporate books and records. books Action Taken without a Meeting – Role of Officers Role s Officers are agents of the corporation. s Authority of Officers – Actual Express Authority – arises from the incorporation statute, the charter, the bylaws, and resolutions of the directors. directors. – Actual Implied Authority – authority to do what is reasonably necessary to perform actual authority. reasonably – Apparent Authority – acts of the principal that lead a third party to believe reasonably and in good faith that an officer has the required authority. has s Ratification – a corporation may ratify the Ratification unauthorized acts of its officers. unauthorized Management Structure of Corporations: The Statutory Model The Officers Run the day-to-day operations of the corporation Board of Directors Declare dividends Delegate authority to officers Manage the business of the corporation Select, remove, and determine compensation of officers Shareholders Elect and remove directors Approve fundamental changes Management Structure of Typical Closely Held Corporation Closely Shareholders = Directors = Officers Management Structure of Typical Publicly Held Corporation Publicly Shareholders Sign and return proxies Sell Shares Board of Directors Delegate authority to officers Ratify actions of officers Officers Control selection of directors Run day-to day business Control proxy votes Duties of Directors and Officers Duties Duty of Obedience – must act within respective authority. respective s Duty of Diligence – must exercise ordinary care and prudence. ordinary s Duty of Loyalty – requires undeviating loyalty to the corporation. loyalty s Liability of Directors and Officers Liability s Business Judgment Rule – precludes imposing liability on directors and officers for honest mistakes in judgment if they act with due care, in good faith, and in a manner reasonably believed to be in the best interests of the corporation. corporation. Liability of Directors and Officers Liability Indemnification – a corporation may indemnify a director or officer for liability incurred if he acted in good faith and was not adjudged negligent or liable for misconduct. liable s Liability Limitation Statutes – many States now authorize corporations— States with shareholder approval—to limit or with eliminate the liability of directors for some breaches of duty. some s ...
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This note was uploaded on 10/25/2009 for the course LAW 100 taught by Professor Liu during the Spring '09 term at Zhejiang University.

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