Corporations: Directors, Officers, and Shareholders

Chapter 39Corporations: Directors, Officers, and ShareholdersCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.39-2Summary of Roles of Directors, Officers, and ShareholdersDirectors--Officers--Shareholders--Vote on important corporate decisionsAppoint and supervise officersDeclare and pay corporate dividendsManage corporationRun “day-to-day” business of firmAgents of corporationElect board of directorsApprove major board decisions39-3Fiduciary DutiesDefinition: Duties to corporation that individualswithin corporation havePrimary fiduciary duties include:Duty of CareDuty of LoyaltyDuty to Disclose Conflict of Interest39-4Exhibit 39-2: Liability of Directors and OfficersCan be held personally liability for their own torts and crimesCan be held personally liable for torts and crimes of other employees they superviseCan be held liable for wrongful transactions involving company stockCannot be held liable for decisions that harm company if they were acting in good faith at time of decision39-5Exhibit 39-3: Liability of ShareholdersShareholders liable (to extent of their investment) for debts of corporationShareholders liable for breach of contract if stock subscription agreement signed and no stock purchasedShareholders liable for watered stockShareholders personally liable for receiving illegal dividends39-6Summary of Rights of Directors, Officers, and ShareholdersDirectors--Officers--Shareholders--Right to CompensationRight to ParticipationRight to InspectionRight to IndemnificationRights determined in employment contractStock certificatesPreemptive rightsRight to DividendsRight to Transfer SharesInspection RightsRight to Corporate DissolutionRight to File Derivative SuitRight to File Direct SuitCorporations: Directors, Officers, and Shareholders—TerminologyQuorum (Definition): Minimum number of directors necessary to validate corporate directors’ meeting39-7Corporations: Directors, Officers, and Shareholders—TerminologyProxy (Definition): Provides authorization for third party to vote in place of shareholder at shareholders’ meeting39-8Corporations: Directors, Officers, and Shareholders—TerminologyVoting Trust (Definition): Agreement between stockholder and trustee in which stockholder transfers his/her legal share titles to trustee; trustee is then responsible for voting for those shares39-9Corporations: Directors, Officers, and Shareholders—TerminologyBusiness Judgment Rule (Definition): Provides that directors and officers are not liable for decisions that harmed corporation if they were acting in good faith at time of decision39-1039-11Corporations: Directors, Officers, and Shareholders--Other Relevant TerminologyStock Subscription Agreement: Contractually obliges individual to buy shares in corporationPar-Value Shares: Fixed face value noted on stock certificateNo-Par Shares: Stock shares without a par valueWatered Stock: Stock issued below its fair market valuePre-emptive Rights: Preferential rights given to existing shareholders to purchase shares of new stock issue; preference given in proportion to percentage of stock shareholder already ownsStock Warrants: Vouchers issued to shareholders, entitling them to given number of shares at specified price39-12Corporations: Directors, Officers, and Shareholders--Other Relevant Terminology (Continued):Dividend: Distribution of corporate profits/income ordered by directors and paid to shareholders in proportion to their respective shares in corporationInspection Rights: Protect shareholder interest by giving them right to inspect corporation’s books and records after asking in advance to inspect and having proper purposeRight of First Refusal: Given to existing shareholders to purchase any shares of stock offered for resale by shareholder within specified period of timeShareholder’s Derivative Suit: Filed by corporate shareholder when corporate directors fail to sue in situation where corporation has been harmed by individual/another corporation