A1 Business and Technical College Bussiness Law Discussion

Chapter 39 Discussion

PROMPT

Reference the portion of your text book on “DIRECTORS’ RIGHTS” set forth on pages 253-254. In that portion of text we learn that in some corporations, directors can determine their own compensation. We know from the text that Directors owe a fiduciary duty to the corporation. Discuss whether you think Directors can properly decide to pay themselves from corporate funds while still fulfilling their fiduciary duty to the corporation.

INSTRUCTIONS

Make an initial post that is responsive to the above prompt.

Your post must be between 200-500 words.

1. Initial response to discussion question(s) due first

Two replies to other students’ postings due when i give you to replies

chapter video

4/29/2018
Chapter 39
Corporations: Directors, Officers,
and Shareholders
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Overview
• LO39-1: Why is it important to regulate the
interactions among directors, officers, and
shareholders within a corporation?
• LO39-2: What is the role of a director, an
officer, and a shareholder?
• LO39-3: What are the duties of directors,
officers, and shareholders?
• LO39-4: In what ways can a director, officer,
and shareholder be held liable?
• LO39-5: What are the rights of directors,
officers, and shareholders?
39-2
Critical Corporate Actors
• Directors
• Officers
• Shareholders
39-3
1
4/29/2018
Why Is Regulation Important?
• Each has different interests, sometimes
interests conflict
• Directors and officers’ goals: Survival of
institution, keeping their jobs
• Shareholders’ goal: Raising value of stock
• Different roles regulate one another and
maintain checks and balances
39-4
Roles of Directors, Officers, and
Shareholders
• Directors
•
•
•
•
Vote on important corporate decisions
Appoint and supervise officers
Declare and pay corporate dividends
Manage corporation
• Officers
• Run day-to-day business of firm
• Agents of corporation
• Shareholders
• Elect board of directors
• Approve major board decisions
39-5
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
39-6
2
4/29/2018
Liability of Directors and Officers
• Can be held personally liable 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
39-7
Liability of Shareholders
• Liable (to extent of their investment) for
debts of corporation
• Liable for breach of contract if stock
subscription agreement signed and no
stock purchased
• Liable for watered stock
• Personally liable for receiving illegal
dividends
39-8
Rights of Directors, Officers, and
Shareholders
• Directors
•
•
•
•
Right to compensation
Right to participation
Right to inspection
Right to
indemnification
• Officers
• Rights determined in
employment contract
• Shareholders
•
•
•
•
•
•
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
39-9
3
4/29/2018
Terminology Relating to Directors,
Officers, and Shareholders
• Quorum: Minimum number of directors necessary to
validate corporate directors’ meeting
• Proxy: Provides authorization for third party to vote in place
of shareholder at shareholders’ meeting
• Voting trust: 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
• Business judgment rule: Provides that directors and officers
are not liable for decisions that harmed corporation if they
were acting in good faith at time of decision
39-10
Other Terms Relating to Directors,
Officers, and Shareholders
• Stock subscription agreement: Contractually obliges individual
to buy shares in corporation
• Par-value shares: Fixed face value noted on stock certificate
• No-par 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
39-11
Other Terms Relating to Directors,
Officers, and Shareholders (cont’d)
• 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
39-12
4