Chapter 10 - Chapter 10 Corporate Governance Corporate...

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Chapter 10 Corporate Governance Corporate Governance Almost all of the largest businesses in the U.S. are organized as corporations Corporate entities are responsible for their own debts, meaning that shareholders are not personally liable for the debts of the corporation Corporations allow for the separation or ownership and management functions Investors are able to diversify their holdings by owning interests in several different firms at the same time Corporate governance involves constraining and controlling these managerial misincentives so that the corporation is governed in the best interest of its owners, the shareholders. Transfer of shares is facilitated by limited liability, which allows buyers to purchase shares without incurring more risk than the potential loss of the purchase price. Growth of the Corporate Form of Business First general incorporation laws passed by Connecticut legislature in 1837 Two most important factors motivating the growth of the corporate form of organization were the invention of the steam engine and its application to a new technology, the railroad. As the efficient sixe of factories increased, there was need for capital to outfit those factories. By the end of the 19 th century the corporation had become the dominant form of business Corporate Entity Organized under the general incorporation law of a state, which grants the organization a corporate charter once it has complied with simple filing procedures and paid any required fees Firm incorporated in one state may operate in any other state, and the law of the chartering state governs the internal relations regardless of where the physical firm operates. Many major corporations are incorporated in Delaware and thus governed by its laws although most are headquartered elsewhere and do business elsewhere. Rights of Shareholders Two most important rights of shareholders are the right to vote in the election of directors and to file derivative lawsuits against management in the name of the corporation. o Shareholding Voting and Proxy Regulation
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Elections take place at shareholder meetings (typically once per year) A proxy is a written authorization by the shareholder designating an agent to vote on the shareholders behalf at the shareholders meeting. Proxy solicitation is regulated by federal securities law. Proxy Solicitation o Securities exchange act of 1934 regulates the manner in which proxies are solicited. o ’34 act requires the disclosure of specified information in the form of a proxy statement, which contain information about the nominees when an election of the board is scheduled. o
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This note was uploaded on 10/02/2011 for the course MGMT 209 taught by Professor Swim during the Spring '08 term at Texas A&M.

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Chapter 10 - Chapter 10 Corporate Governance Corporate...

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