Paralegal 044 - Fundamental of Business Organizations for Paralegals
Chapter 10 – Corporate Management
- Shareholder – An owner of a corporation; also called stockholder
- Shareholders’ Rights and Responsibilities
- Shareholders have the right to be informed of the affairs of the corporation.
- Shareholders exercise their limited role in the conduct and operation of the corporation primarily through voting, either for election or removal of directors or relating to some structural change in the corporation.
Voting Rights
- Straight voting: voting in which each share of record has one vote (also called statutory voting)
- Cumulative voting: method of voting in election for directors in which each share carries as many votes as there are directors being elected
Shareholder Meetings
- Annual meeting: yearly meeting of shareholders
- Special meeting: a meeting held between regular or annual meetings
Quorum
- The minimum number of shareholders or directors required to be present before action can be taken
Proxies
- Proxy: written authorization from one directing another to vote his shares
- Proxy holder: the person who exercises the rights of a shareholder who has granted a proxy
Shareholder Actions
- Direct action: action initiated to address direct harm done to the complainant (sometimes called an individual action)
- Derivative action: action initiated to enforce a right owned by another
Piercing the corporate veil
- Holding individual shareholders liable for corporate obligations
- Three frequent occurrences that lead to piercing of the veil:
- Commingling of assets
- Lack of formalities
- Inadequate capitalization
Functions of Directors
- Authorizing distributions
- Adopting, amending, and repealing bylaws
- Appointing, supervising, and removing officers
- Determining financial matters, such as issuing stock, reacquiring stock, obtaining loans, and issuing bonds
- Determining products and services to be offered and the prices for them
Functions of Directors
- Determining wages and employee benefits and compensation, including their own benefits and compensation
- Initiating extraordinary matters such as mergers or the purchase or sale of corporate assets
- Exercising responsibility for corporate operations
Business Judgment Rule
- Rule immunizing directors and officers for action taken so long as they acted in good faith
Suspected Causes of Corporate Scandals
- Excessive compensation given to corporate managers
- Lack of accounting oversight
- Euphoria and hype
- Lack of regulatory oversight
- Greed
Sarbanes-Oxley Act
- Some of the more important provisions:
- Oversight board
- Auditor independence
- Conflicts of interest
- Audit committees
- Certification and accountability
- Expanded SEC review
- Broader sanctions
Governance guidelines
- Many corporations have adopted governance guidelines to improve corporate operations
- Many of the guidelines call for diversity in boards of directors, require more independent directors, link executive pay to company performance, require periodic audits and reviews of corporate operations, and impose mandatory stock ownership by directors
The Dodd-Frank Act
- Affects corporate compensation and governance for large, publicly traded companies in several significant ways:
- Independent compensation committees
- Say on pay and frequency votes
- Golden parachute disclosures
- Disclosure format for compensation
- Clawbacks
Titles of Officers
- President
- Vice President
- Secretary
- Treasurer
- Other officers
- Chief executive officer (CEO)
- Chairman
- Chief financial officer
Key Features of Corporate Management
- Corporations involve three groups of people: shareholders, directors, and officers.
- Although shareholders own the corporation, they do not manage it, and their participation primarily takes the form of voting to elect (or remove) directors and extraordinary actions.
- There are two types of shareholder meetings: annual meetings and special meetings.
Key Features of Corporate Management
- Shareholders often vote by proxy.
- Shareholders may initiate direct action against the corporation for direct injury to a shareholder or derivative action for injury sustained by the corporation that it refuses to address.
Key Features of Corporate Management
- Although shareholders ordinarily have no liability for corporate obligations, they may be liable if they disregard the corporate entity by commingling assets, failing to observe corporate formalities, or undercapitalizing the corporation.
- Directors manage the corporation and are elected by shareholders; they meet in regular meetings or special meetings.
- Directors and shareholders may act without a formal meeting if they unanimously consent in writing to take action.
Key Features of Corporate Management
- Directors have fiduciary duties to their corporation but will usually be protected from liability under the business judgment rule so long as there is some reasonable business purpose for their actions, and they did not act illegally or with gross negligence.