Lecture_Four_-_Corporations_Directors_and_Shareholders

Lecture_Four_-_Corporations_Directors_and_Shareholders -...

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Corporations Directors and Shareholders
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Corporations: Form and Origin • Modern corporations have two historical bases • Incorporated partnerships – Directors run the business and are significant shareholders, often the only shareholders • Public corporations based on trust relationship – Directors run the business for passive shareholders in a fiduciary capacity
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Corporations: Public Corporations • Directors are trustees of the invested funds • May or may not be significant investors themselves • Run the business for shareholders • Also see to the affairs of the corporation
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Corporations: The Modern Form • In a modern corporation, these responsibilities are more distributed • Directors continue to be directly responsible for the affairs of the corporation, and its relationship with shareholders • Professional managers (executives) are retained and become primarily responsible for the day-to- day business of the corporation – Directors do not (and cannot) entirely escape responsibility for management, however, and at the highest level executives will still report to directors
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Corporations: The Modern Form • Managers are not directly responsible to shareholders, further distancing the real equity of the corporation from management – Directors are responsible to shareholders – Managers are responsible to directors • Executive level management answers to CEO, who may be the only manager with a direct relationship with the Board – Responsibility “chain” has lengthened • Of course, since the buck still stops in the same place, ultimately, professional managers ignore the views of shareholders at their peril
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Directors • Directors are responsible in law, at the highest level, for the corporation – Business: The commercial relations of the corporation (its dealings as a legal person) with other corporations or individuals – Affairs: The relations between the corporation and its shareholders • In both senses directors owe a fiduciary duty to the corporation as a whole
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Directors: First Directors • On creation, first directors named in the incorporation documents • First directors sit until first shareholder meeting and cannot resign unless a successor is named • Vacancies are filled by the board until next shareholder meeting • At first meeting, directors elected by majority vote
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Directors: Powers • Manage the business and affairs of the corporation – Whether professional managers are retained or not • Issue shares • Declare dividends • Adopt by-laws • Call shareholder meetings
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Directors: Duties • Must act honestly, in good faith • With a view to the best interests of the corporation • Must act with care and skill as a reasonably prudent person
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Directors: Duties to Shareholders • Deliver financial statements • Call annual meeting • Submit by-laws for approval • Submit other business, as appropriate • No fiduciary duty to individual shareholders
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Directors: Duties to Public • Under the common law, none
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This note was uploaded on 05/10/2011 for the course MGT 31 taught by Professor Rybak during the Spring '11 term at University of Toronto- Toronto.

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Lecture_Four_-_Corporations_Directors_and_Shareholders -...

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