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Unformatted text preview: Finance 341 Chapter 9 Notes • Legal Rights and Privileges of Common Stockholders o A firm’s common stockholders have the right to elect its directors, who in turn, elect the officers who manage the business. o Corporations must hold elections of directors periodically, usually once a year, with the vote taken at the annual meeting. Each share of stock has one vote o Stockholders can appear at the annual meeting and vote in person, but typically they transfer their right to vote to another person by means of a proxy . o Proxy Fight : if earnings are poor and stockholders are dissatisfied, an outside group may solicit the proxies in an effort to overthrow management and take control of the business. o Takeover : an action whereby a person or group succeeds in ousting a firm’s management and taking control of the company o A number of stockholders have gotten their stockholders to agree (1) to elect only one-third of the directors each year, (2) to require 75% of the stockholders to approve a merger, and (3) to vote in a “poison pill” provision that would allow stockholders of a firm that is taken over by another firm to buy shares in the second firm at a reduced price. The poison pill makes the acquisition unattractive and thus helps ward off hostile takeover attempts o Preemptive Right : a provision in the corporate charter or bylaws that gives common stockholders the right to purchase on a pro rate basis new issues of common stock (or convertible securities) Purpose : (1) it prevents the management of a corporation from issuing a large number of additional shares and purchasing those shares itself. (2) to protect stockholders from a dilution value. Selling common stock at a price below the market value would dilute a firm’s price and transfer wealth from its present stockholders to those who were allowed to purchase the new shares. •...
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This note was uploaded on 11/04/2009 for the course FINC 341 taught by Professor Guyton during the Spring '07 term at Texas A&M.
- Spring '07