Lecture Dynamic business law - Chapter 39: Corporations, directors, officers, and shareholders

After studying this chapter you will be able to understand: Why is it important to regulate the interactions among directors, officers, and shareholders within a corporation? What is the role of a director, an officer, and a shareholder? What are the duties of directors, officers, and shareholders? In what ways can a director, officer, and shareholder be held liable? What are the rights of directors, officers, and shareholders?

Chapter 39 Corporations: Directors,  Officers, and  Shareholders Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education Summary of Roles of Directors, Officers, and  Shareholders  Directors­­      Officers­­    Shareholders­­   Vote on important corporate  decisions Appoint and supervise officers Declare and pay corporate  dividends Manage corporation Run “day­to­day” business of  firm Agents of corporation Elect board of directors Approve major board decisions 39­2 Fiduciary Duties Definition:  Duties to corporation that individuals within corporation have Primary fiduciary duties include:  Duty of Care  Duty of Loyalty  Duty to Disclose Conflict of Interest 39­3 Exhibit 39­2:  Liability of Directors and  Officers  Can be held personally liability for their own torts and crimes  Can be held personally liable for torts and crimes of other  employees they supervise  Can be held liable for wrongful transactions involving  company stock  Cannot be held liable for decisions that harm company if they  were acting in good faith at time of decision 39­4 Exhibit 39­3:  Liability of Shareholders  Shareholders liable (to extent of their investment) for debts of  corporation  Shareholders liable for breach of contract if stock subscription  agreement signed and no stock purchased  Shareholders liable for watered stock  Shareholders personally liable for receiving illegal dividends 39­5 Summary of Rights of Directors, Officers, and Shareholders  Directors­­      Officers­­  Shareholders­­ Right to Compensation Right to Participation Right to Inspection Right to Indemnification  Rights determined in employment  contract  Stock certificates Preemptive rights Right to Dividends Right to Transfer Shares Inspection Rights Right to Corporate Dissolution Right to File Derivative Suit Right to File Direct Suit        39­6 Corporations:  Directors, Officers,  and Shareholders—Terminology Quorum (Definition): Minimum number of  directors necessary to validate corporate  directors’ meeting 39­7 Corporations:  Directors, Officers,  and Shareholders—Terminology Proxy (Definition): Provides authorization  for third party to vote in place of  shareholder at shareholders’ meeting 39­8 Corporations:  Directors, Officers,  and Shareholders—Terminology Voting 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 shares 39­9 Corporations:  Directors, Officers,  and Shareholders—Terminology Business 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  decision 39­10 Corporations:  Directors, Officers, and  Shareholders­­Other Relevant Terminology  Stock Subscription Agreement:  Contractually obliges individual to buy  shares in corporation  Par­Value Shares:  Fixed face value noted on stock certificate  No­Par Shares:  Stock shares without a par value  Watered Stock:  Stock issued below its fair market value  Pre­emptive Rights:  Preferential rights given to existing shareholders to  purchase shares of new stock issue; preference given in proportion to  percentage of stock shareholder already owns  Stock Warrants:  Vouchers issued to shareholders, entitling them to given  number of shares at specified price 39­11 Corporations:  Directors, Officers, and Shareholders­­Other  Relevant Terminology (Continued):  Dividend:  Distribution of corporate profits/income ordered by directors  and paid to shareholders in proportion to their respective shares in  corporation  Inspection Rights:  Protect shareholder interest by giving them right to  inspect corporation’s books and records after asking in advance to inspect  and having proper purpose  Right of First Refusal:  Given to existing shareholders to purchase any  shares of stock offered for resale by shareholder within specified period of  time  Shareholder’s Derivative Suit:  Filed by corporate shareholder when  corporate directors fail to sue in situation where corporation has been  harmed by individual/another corporation 39­12 ...Summary of Roles of Directors, Officers, and Shareholders  Directors­­      Officers­­    Shareholders ­   Vote on important corporate  decisions Appoint and supervise officers Declare and pay corporate ... agreement signed and no stock purchased  Shareholders liable for watered stock  Shareholders personally liable for receiving illegal dividends 39­5 Summary of Rights of Directors, Officers, and Shareholders  Directors­­... Corporations:  Directors, Officers, and Shareholders Terminology Quorum (Definition): Minimum number of  directors necessary to validate corporate  directors’ meeting 39­7 Corporations:  Directors, Officers,