FIU Business Law Insider Trading Discussion

• Debate This:Insider trading should be legalize
• Chapter 36, p. 865

Dale Emerson served as the chief financial officer for Reliant Electric Company, a distributor of electricity serving portions of Montana and North Dakota. Reliant was in the final stages of planning a takeover of Dakota Gasworks, Inc., a natural gas distributor that operated solely within North Dakota. On a weekend fishing trip with his uncle, Ernest Wallace, Emerson mentioned that he had been putting in a lot of extra hours at the office planning a takeover of Dakota Gasworks. When he returned from the fishing trip, Wallace purchased $20,000 worth of Reliant stock. Three weeks later, Reliant made a tender offer to Dakota Gasworks stockholders and purchased 57 percent of Dakota Gasworks stock. Over the next two weeks, the price of Reliant stock rose 72 percent before leveling out. Wallace sold his Reliant stock for a gross profit of $14,400. Using the information presented in the chapter, answer the following questions.

1. Would registration with the SEC be required for Dakota Gasworks securities? Why or why not?
2. Did Emerson violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? Why or why not?
3. What theory or theories might a court use to hold Wallace liable for insider trading?
4. Under the Sarbanes-Oxley Act, who would be required to certify the accuracy of the financial statements Reliant filed with the SEC

Part B: write an opinion about the following post

It is against the law to engage in insider trading hence should be avoided as shown by many interpretations of the law such as the Securities Exchange Act of 1933. Before issuing or trading stocks, a company is required to first register securities with the Securities and Exchange Commission (SEC), unless those securities are exempt from the registration requirements under the Securities Act of 1933. The vast majority of excluded activities have typically comprised offers and purchases to permitted stakeholders, such as banks, whose income or net worth exceeds a certain level. This provides some individuals with an unjustified advantage in the market at the expense of other shareholders. Therefore, insider trading should be illegalized so that all traders can have a fair ground for conducting their activities.

Another argument against insider trading is that If only a limited number of individuals trade based on information that isn’t publicly available, then the general public might get the impression that markets aren’t operating fairly. It’s possible that this will cause people to lose faith in the monetary system, and individual investors won’t want to put their money into markets that are manipulated. Besides, those on the inside who know something that the vast majority does not are able to benefit from gains and prevent losses. That eliminates the danger that is taken on by traders whenever they put their money into something for which they do not have complete information. As a result, it will become increasingly difficult for companies to obtain capital as an increasing number of individuals lose trust in the markets. At some point in time, it’s also possible that there won’t be very many outsiders remaining.

Furthermore, insider trading is a violation of section 10 of the Criminal Code (b). The employment of any deceptive technique in breach of the security exchange legislation and requirements is prohibited under this clause. Almost all incidents involving the securities trading, whether on established or even over marketplaces and activities, are covered under this section. Only a few people profit from insider trading, while other stakeholders who have no direct touch with the insiders above the business lose money. Insider trading is unlawful since it involves providing knowledge that is not available to the general public.

Bob Daemmrich/Alamy Stock Photo
Corporate Directors,
Officers, and Shareholders
“They [Corporations]
cannot commit
treason, nor be
outlawed nor
excommunicated,
because they have
no soul.”
When Sir Edward Coke observed, in the chapter-opening quotation, that a corporation has no “soul,” he was referring to
the fact that a corporation is not a “natural” person but a legal
fiction. No one individual shareholder or director bears sole
responsibility for the corporation and its actions. Rather, a corporation joins the efforts and resources of a large number of
individuals for the purpose of producing greater returns than
those persons could have obtained individually.
Corporate directors, officers, and shareholders all play different roles within the corporate entity. Sometimes, actions that
Sir Edward Coke
benefit the corporation as a whole do not coincide with the
1552–1634
(English jurist and legal scholar)
separate interests of the individuals making up the corporation. In such situations, it is important to know the rights and
duties of all participants in the corporate enterprise.
This chapter focuses on the rights and duties of directors, officers, and shareholders and
the ways in which conflicts among them are resolved. You will also read about the ongoing
debate over whether shareholders should be able to access corporate proxy materials effortlessly and without cost.
34–1
Directors and Officers
34
Learning Objectives
The four Learning Objectives below are
designed to help improve your understanding. After reading this chapter, you
should be able to answer the following
questions:
1. What three rights do corporate directors possess?
2. What must directors do to
avoid liability for honest mistakes of judgment and poor
business decisions?
3. What is a voting proxy?
4. If a group of shareholders
perceives that the corporation has suffered a wrong and
the directors refuse to take
action, can the shareholders
compel the directors to act?
If so, how?
The board of directors is the ultimate authority in every corporation. Directors have responsibility for all policymaking decisions necessary to the management of corporate affairs.
The board selects and removes the corporate officers, determines the capital structure of the
corporation, and declares dividends.
807
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UNIT FIVE: Business Organizations
Directors are sometimes inappropriately characterized as agents because they act on behalf
of the corporation. No individual director, however, can act as an agent to bind the corporation. As a group, directors collectively control the corporation in a way that no agent is
able to control a principal.
Few qualifications are legally required for directors. Only a handful of states impose
minimum age and residency requirements. A director may be a shareholder, but this is not
necessary (unless the articles of incorporation or bylaws require it).
34–1a Election of Directors
Know This
The articles of incorporation may provide that a
director can be removed
only for cause.
Subject to statutory limitations, the number of directors is set forth in the corporation’s
articles or bylaws. Historically, the minimum number of directors has been three, but today
many states permit fewer. Normally, the incorporators appoint the first board of directors
at the time the corporation is created. The initial board serves until the first annual shareholders’ meeting. Subsequent directors are elected by a majority vote of the shareholders.
Directors usually serve for a term of one year—from annual meeting to annual meeting.
Most state statutes permit longer and staggered terms. A common practice is to elect onethird of the board members each year for a three-year term. In this way, there is greater
management continuity.
A director can be removed for cause—that is, for failing to perform a required duty—either
as specified in the articles or bylaws or by shareholder action. When a vacancy occurs or a
new position is created through amendment of the articles or bylaws, how the vacancy is
filled depends on state law or the provisions of the bylaws. Usually, either the shareholders
or the board itself can fill the vacant position by an election. The board cannot attempt to
manipulate the election in order to reduce the shareholders’ influence, however. If it does,
the shareholders can challenge the election in court.
34–1b Compensation of Directors
Inside Director A person on the
board of directors who is also an
officer of the corporation.
Outside Director A person on
the board of directors who does not
hold a management position at the
corporation.
Quorum The number of members
of a decision-making body that must
be present before business may be
transacted.
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In the past, corporate directors rarely were compensated. Today, they are often paid at least
nominal sums and may receive more substantial compensation in large corporations because
of the time, the work, the effort, and especially the risk involved. Most states permit the
corporate articles or bylaws to authorize compensation for directors. In fact, the RMBCA
states that unless the articles or bylaws provide otherwise, the board of directors itself may
set directors’ compensation [RMBCA 8.11].
In many corporations, directors are also chief corporate officers (president or chief executive officer, for instance) and receive compensation in their managerial positions. A director
who is also an officer of the corporation is referred to as an inside director, whereas a
director who does not hold a management position is an outside director. Typically, a corporation’s board of directors includes both inside and outside directors.
34–1c Board of Directors’ Meetings
The board of directors conducts business by holding formal meetings with recorded minutes. The dates of regular meetings are usually established in the articles or bylaws or by
board resolution, and ordinarily no further notice is required. Special meetings can be
called as well, with notice sent to all directors. Today, most states allow directors to participate in board meetings from remote locations via telephone, Web conferencing, or Skype,
provided that all the directors can simultaneously hear each other during the meeting
[RMBCA 8.20].
Normally, a majority of the board of directors constitutes a quorum [RMBCA 8.24].
(A quorum is the minimum number of members of a body of officials or other group that must
be present in order for business to be validly transacted.) Some state statutes, including those
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CHAPTER 34: Corporate Directors, Officers, and Shareholders
of Delaware and New York, specifically allow corporations to set a quorum at less than a
majority but not less than one-third of the directors.
Once a quorum is present, the directors transact business and vote on issues affecting the
corporation. Each director present at the meeting has one vote.1 Ordinary matters generally
require a simple majority vote, but certain extraordinary issues may require a greater-thanmajority vote.
34–1d Committees of the Board of Directors
hxdbzxy/Shutterstock.com
When a board of directors has a large number of members and must deal
with myriad complex business issues, meetings can become unwieldy.
Therefore, the boards of large publicly held corporations typically create
committees of directors and delegate certain tasks to these committees.
Committees focus on individual subjects and increase the efficiency of
the board.
Two of the most common types of committees are the executive committee and the audit committee. An executive committee handles interim
management decisions between board meetings. It is limited to making
decisions about ordinary business matters and does not have the power
What are the two most common committees that a
board of directors of a large corporation creates?
to declare dividends, amend the bylaws, or authorize the issuance of
stock. The Sarbanes-Oxley Act requires all publicly held corporations to
have an audit committee. The audit committee is responsible for the selection, compensation,
and oversight of the independent public accountants that audit the firm’s financial records.
34–1e Rights of Directors
A corporate director must have certain rights to function properly in that position and make
informed policy decisions for the company.
1. Right to participation. Directors are entitled to participate in all board of directors’ meetings and to
be notified of these meetings. Because the dates of regular board meetings are usually specified in
the bylaws, no notice of these meetings is required. If special meetings are called, however, notice
is required unless waived by the director.
Learning Objective 1
What three rights do corporate directors possess?
2. Right of inspection. Each director can access the corporation’s books and records, facilities, and
premises. Inspection rights are essential for directors to make informed decisions and to exercise
the necessary supervision over corporate officers and employees. This right of inspection is almost
absolute and cannot be restricted (by the articles, bylaws, or any act of the board).
3. Right to indemnification. When a director becomes involved in litigation by virtue of her or his position
or actions, the director may have a right to be indemnified (reimbursed) for legal costs, fees, and
damages incurred. Most states allow corporations to indemnify and purchase liability insurance for
corporate directors [RMBCA 8.51].
Case Example 34.1 NavLink, Inc., a Delaware corporation, provides high-end data management for customers and governments in Saudi Arabia, Qatar, Lebanon, and the United
Arab Emirates. NavLink’s co-founders, George Chammas and Laurent Delifer, serve on its
board of directors.
Chammas and Delifer were concerned about the company’s 2015 annual budget and
three-year operating plan. Despite repeated requests, Chammas was never given the minutes
from several board meetings in 2015. Chammas and Delifer believed that the other directors
were withholding information and holding secret “pre-board meetings” at which plans and
decisions were being made without them. They filed a lawsuit in a Delaware state court
seeking inspection rights.
“Executive ability is
deciding quickly and
getting somebody else
to do the work.”
John G. Pollard
1871–1937
(American lawyer and politician)
1. Except in Louisiana, which allows a director to authorize another person to cast a vote in his or her place under certain circumstances.
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UNIT FIVE: Business Organizations
The court ordered NavLink to provide the plaintiffs with board meeting minutes and with
communications from NavLink’s secretary regarding the minutes. The plaintiffs were also
entitled to inspect corporate documents and communications concerning NavLink’s 2015
budget and three-year plan.2 ■
34–1f Corporate Officers and Executives
Know This
Shareholders own
the corporation, and
directors make policy
decisions, but the officers
who run the corporation’s
daily business often have
significant decisionmaking power.
Corporate officers and other executive employees are hired by the board of directors. At a
minimum, most corporations have a president, one or more vice presidents, a secretary, and
a treasurer. In most states, an individual can hold more than one office, such as president
and secretary, and can be both an officer and a director of the corporation. In addition to carrying out the duties articulated in the bylaws, corporate and managerial officers act as agents
of the corporation, and the ordinary rules of agency normally apply to their employment.
Corporate officers and other high-level managers are employees of the company, so
their rights are defined by employment contracts. The board of directors, though, normally
can remove corporate officers at any time with or without cause. If the directors remove
an officer in violation of an employment contract, however, the corporation may be liable
for breach of contract.
34–2
Duties and Liabilities of Directors and Officers
Directors and officers are considered fiduciaries of the corporation because their relationship
with the corporation and its shareholders is one of trust and confidence. As fiduciaries, directors and officers owe ethical—and legal—duties to the corporation and to the shareholders
as a whole. These fiduciary duties include the duty of care and the duty of loyalty.
34–2a Duty of Care
Directors and officers must exercise due care in performing their duties. The standard of due
care generally requires a director or officer to act in good faith (honestly) and to exercise the
care that an ordinarily prudent person would exercise in similar circumstances. In addition,
a director or officer is expected to act in what he or she considers to be the best interests of
the corporation [RMBCA 8.30]. Directors or officers whose failure to exercise due care results
in harm to the corporation or its shareholders can be held liable for negligence (unless the
business judgment rule applies, as discussed shortly).
Duty to Make Informed and Reasonable Decisions Directors and officers are expected
“I often feel like the
director of a cemetery.
I have a lot of people
under me, but nobody
listens!”
General John Gavin
1929–2015
(U.S. Army general)
to be informed on corporate matters and to conduct a reasonable investigation of the relevant situation before making a decision. They must do what is necessary to keep adequately
informed: attend meetings and presentations, ask for information from those who have it,
read reports, and review other written materials. They cannot make decisions on the spur
of the moment without adequate research.
Although directors and officers are expected to act in accordance with their own
knowledge and training, they are also normally entitled to rely on information given to them
by certain other persons. Most states and Section 8.30(b) of the RMBCA allow a director to
make decisions in reliance on information furnished by competent officers or employees.
The director may also rely on information provided by professionals (such as attorneys
and accountants) and by committees of the board of directors (on which the director
does not serve).
2. Chammas v. NavLink, Inc., 2016 WL 767714 (Del.Ch.Ct. 2016).
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Duty to Exercise Reasonable Supervision Directors are also expected to exercise a reasonable amount of supervision when they delegate work to corporate officers and employees.
Example 34.2 Dale, a corporate bank director, has not attended a board of directors’ meeting for five years. In addition, Dale never inspects any of the corporate books or records
and generally fails to supervise the efforts of the bank president and the loan committee.
Meanwhile, Brennan, the bank president, makes various improper loans and permits large
overdrafts. In this situation, Dale can be held liable to the corporation for losses resulting
from the unsupervised actions of the bank president and the loan committee. ■
34–2b The Business Judgment Rule
Directors and officers are expected to exercise due care and to use their best judgment in
guiding corporate management, but they are not insurers of business success. Under the
business judgment rule, a corporate director or officer will not be liable to the corporation or to
its shareholders for honest mistakes of judgment or bad business decisions made in good faith.
Courts give significant deference to the decisions of corporate directors and officers, and
consider the reasonableness of a decision at the time it was made, without the benefit of hindsight. Thus, corporate decision makers are not subjected to second-guessing by shareholders
or others in the corporation.
When the Rule Applies The business judgment rule will apply as long as the director
or officer did the following:
1. Took reasonable steps to become informed about the matter.
2. Had a rational basis for his or her decision.
3. Did not have a conflict of interest between his or her personal interest and that of the corporation.
Whether these conditions were met formed the basis for the court’s decision in the following case.
Business Judgment Rule A rule
under which courts will not hold corporate officers and directors liable for
honest mistakes of judgment and bad
business decisions that were made in
good faith.
Learning Objective 2
What must directors do to
avoid liability for honest
mistakes of judgment and
poor business decisions?
Case 34.1
Oliveira v. Sugarman
Court of Special Appeals of Maryland, 226 Md.App. 524, 130 A.3d 1085 (2016).
Maryland corporation, promised to award
shares of company stock to employees for
their performance if the stock averaged
a certain target price per share over a
specific period. The stock price rose 300
percent, but the target was missed. The
board changed the basis for an award from
performance to service—an employee who
had been with iStar for a certain period
was entitled to an award. It then issued
additional shares to pay the awards.
Hero Images Inc./Alamy Stock Photo
Background and Facts iStar, Inc., a
How did the business judgment rule help
iStar employees receive a stock award for
their tenure with the company?
Albert and Lena Oliveira, iStar shareholders, demanded that the board rescind the
awards. The Oliveiras alleged misconduct
and demanded that the board file a suit
on the company’s behalf to seek damages
or other relief. The board appointed Barry
Ridings, an outside director, to investigate
the allegation. Ridings recommended that
the board refuse the demand. The board
acted on his recommendation.
The Oliveiras filed a suit in a Maryland
state court against Jay Sugarman, the board
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UNIT FIVE: Business Organizations
chairman, and the other directors, including Ridings, alleging
a breach of fiduciary duty. The court dismissed the claim. The
Oliveiras appealed.
In the Words of the Court
BURGER, J. [Judge]
****
Judicial review of a demand refusal is subject to the business
judgment rule, and the court * * * limits its review to whether the
board acted independently, in good faith, and within the realm of
sound business judgment. [Emphasis added.]
****
* * * The Shareholders [the Oliveiras] assert that [Ridings’s]
investigation of the Shareholders’ demand was rife with improper
procedure. The Shareholders argue that * * * Ridings lacked sufficient corporate experience to make a proper recommendation
to the Board and that Ridings was not sufficiently disinterested.
Both contentions are baseless. Ridings has forty years of business experience, including service on the boards of several public
companies, including the American Stock Exchange. Furthermore,
Ridings hired highly respected and experienced legal counsel to
assist him and conducted multiple interviews.
We further reject the Shareholders’ contention that Ridings
was interested or lacked independence. Ridings joined the Board
after the challenged conduct and had no business, personal,
social, or other relationships with any other member of the Board.
Although Ridings’s employer [Lazard Freres & Company, where
Ridings was vice chairman of investment banking] performed
banking services for iStar [for two years], Lazard has no ongoing business relationship with iStar. Furthermore, allegations of
mere personal friendship or a mere outside business relationship,
standing alone, are insufficient to raise a reasonable doubt about
a director’s independence. [Emphasis added.]
The Shareholders’ contention that Ridings lacks independence
because he is compensated for his service as a Director is similarly
unfounded. The Shareholders further contend that Ridings lacks
independence because he is a named defendant in this lawsuit.
This assertion is contrary to established law. Accordingly, we
reject the Shareholders’ contentions that Ridings was interested
or lacked independence.
****
In conclusion, the Shareholders have failed to surmount the
presumption of the business judgment rule. In failing to do so,
they have failed to state a claim upon which relief may be granted.
Decision and Remedy A state intermediate appellate court
affirmed the lower court’s dismissal of the Oliveiras’ claim. “The
Shareholders’ bald allegations of impropriety are plainly insufficient to overcome the presumption of the business judgment rule.”
Critical Thinking
t
Legal Environment In a letter to the Oliveiras, the board
explained that it saw “no upside—and much downside—to the
action and lawsuit proposed in the Demand.” What would
the “downside” consist of ?
t
What If the Facts Were Different? Only one member of
the iStar board—Sugarman—received an award as an employee.
The others who made the decision to change the award were, like
Ridings, outside directors. Suppose that the opposite had been
true. Would the result have been the same?
The Rule Provides Broad Protections The business judgment rule provides broad
protections to corporate decision makers. In fact, most courts will apply the rule unless
there is evidence of bad faith, fraud, or a clear breach of fiduciary duties. Consequently,
if there is a reasonable basis for the business decision, a court is unlikely to interfere with
that decision, even if the corporation suffers as a result. The business judgment rule does
not apply, however, when a director engages in fraud, dishonesty, or other intentional or
reckless misconduct. For instance, if a director acts without board approval, ignores board
rules, and personally mistreats other directors, shareholders, and employees, the business
judgment rule may not protect that director.
34–2c Duty of Loyalty
Loyalty can be defined as faithfulness to one’s obligations and duties. In the corporate context,
the duty of loyalty requires directors and officers to subordinate their personal interests to the
welfare of the corporation. Directors cannot use corporate funds or confidential corporate
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813
information for personal advantage and must refrain from self-dealing. For instance, a director should not personally take advantage of a business opportunity that is offered to the
corporation and is in the corporation’s best interest.
Cases dealing with the duty of loyalty typically involve one or more of the following:
1. Competing with the corporation.
2. Usurping (taking advantage of) a corporate opportunity.
3. Having an interest that conflicts with the interest of the corporation.
4. Engaging in insider trading (using information that is not public to make a profit trading securities).
5. Authorizing a corporate transaction that is detrimental to minority shareholders.
6. Selling control over the corporation.
The following Classic Case illustrates the conflict that can arise between a corporate
official’s personal interests and his or her duty of loyalty.
Classic Case 34.2
Guth v. Loft, Inc.
Supreme Court of Delaware, 23 Del.Ch. 255, 5 A.2d 503 (1939).
BrooklynScribe/Shutterstock.com
Background and Facts In 1930, Charles
In the Words of the Court
Guth became the president of Loft, Inc., a candy
LAYTON, Chief Justice, delivering the opinand restaurant chain. At the time, Guth and his
ion of the court:
family owned Grace Company, which made
****
syrups for soft drinks in a plant in Baltimore,
Corporate officers and directors are not
Maryland. Coca-Cola Company supplied Loft
permitted to use their position of trust and
with cola syrup. Unhappy with what he felt
confidence to further their private interests.
Pepsi-Cola got its start when the head
was Coca-Cola’s high price, Guth entered into
* * * They stand in a fiduciary relation to the
of Loft Candy Company usurped a
an agreement with Roy Megargel to acquire the
corporation and its stockholders. A public polcorporate opportunity.
trademark and formula for Pepsi-Cola and form
icy, existing through the years, and derived
Pepsi-Cola Corporation.
from a profound knowledge of human charNeither Guth nor Megargel could finance the new venture, and acteristics and motives, has established a rule that demands of a
Grace Company was insolvent. Without the knowledge of Loft’s corporate officer or director, peremptorily [absolutely] and inexoraboard of directors, Guth used Loft’s capital, credit, facilities, and bly [unavoidably], the most scrupulous observance of his duty, not
employees to further the Pepsi enterprise. At Guth’s direction, a Loft only affirmatively to protect the interests of the corporation comemployee made the concentrate for the syrup, which was sent to mitted to his charge, but also to refrain from doing anything that
Grace Company to add sugar and water. Loft charged Grace Company would work injury to the corporation * * *. The rule that requires
for the concentrate but allowed forty months’ credit. Grace charged an undivided and unselfish loyalty to the corporation demands
Pepsi for the syrup but also granted substantial credit. Grace sold that there shall be no conflict between duty and self-interest.
the syrup to Pepsi’s customers, including Loft, which paid on delivery [Emphasis added.]
or within thirty days. Loft also paid for Pepsi’s advertising.
****
Finally, losing profits at its stores as a result of switching from
* * * If there is presented to a corporate officer or director a
Coca-Cola, Loft filed a suit in a Delaware state court against Guth, business opportunity which the corporation is financially able to
Grace, and Pepsi, seeking their Pepsi stock and an accounting. The undertake [that] is * * * in the line of the corporation’s business and
court entered a judgment in the plaintiff’s favor. The defendants is of practical advantage to it * * * and, by embracing the opportuappealed to the Delaware Supreme Court.
nity, the self-interest of the officer or director will be brought into
(Continues )
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UNIT FIVE: Business Organizations
conflict with that of his corporation, the law will not permit him to
seize the opportunity for himself. * * * In such circumstances, * * *
the corporation may elect to claim all of the benefits of the transaction for itself, and the law will impress a trust in favor of the
corporation upon the property, interests and profits so acquired.
[Emphasis added.]
****
* * * The appellants contend that no conflict of interest between
Guth and Loft resulted from his acquirement and exploitation of
the Pepsi-Cola opportunity [and] that the acquisition did not place
Guth in competition with Loft * * * . [In this case, however,] Guth
was Loft, and Guth was Pepsi. He absolutely controlled Loft. His
authority over Pepsi was supreme. As Pepsi, he created and controlled the supply of Pepsi-Cola syrup, and he determined the price
and the terms. What he offered, as Pepsi, he had the power, as
Loft, to accept. Upon any consideration of human characteristics
and motives, he created a conflict between self-interest and duty.
He made himself the judge in his own cause. * * * Moreover, a
reasonable probability of injury to Loft resulted from the situation
forced upon it. Guth was in the same position to impose his terms
upon Loft as had been the Coca-Cola Company.
* * * The facts and circumstances demonstrate that Guth’s
appropriation of the Pepsi-Cola opportunity to himself placed him
in a competitive position with Loft with respect to a commodity
essential to it, thereby rendering his personal interests incompatible with the superior interests of his corporation; and this situation
was accomplished, not openly and with his own resources, but
secretly and with the money and facilities of the corporation which
was committed to his protection.
Decision and Remedy The Delaware Supreme Court upheld
the judgment of the lower court. The state supreme court was
“convinced that the opportunity to acquire the Pepsi-Cola trademark and formula, goodwill and business belonged to [Loft], and
that Guth, as its President, had no right to appropriate the opportunity to himself.”
Critical Thinking
t
What If the Facts Were Different? Suppose that Loft’s
board of directors had approved Pepsi-Cola’s use of its personnel
and equipment. Would the court’s decision have been different?
Discuss.
t
Impact of This Case on Today’s Law This early
Delaware decision was one of the first to set forth a test for
determining when a corporate officer or director has breached
the duty of loyalty. The test has two basic parts—whether the
opportunity was reasonably related to the corporation’s line of
business, and whether the corporation was financially able to
undertake the opportunity. The court also considered whether
the corporation had an interest or expectancy in the opportunity
and recognized that when the corporation had “no interest or
expectancy, the officer or director is entitled to treat the opportunity as his own.”
34–2d Disclosure of Conflicts of Interest
Corporate directors often have many business affiliations, and a director may sit on the
board of more than one corporation. Of course, directors are precluded from entering into or
supporting businesses that operate in direct competition with corporations on whose boards
they serve. Their fiduciary duty requires them to make a full disclosure of any potential conflicts of interest that might arise in any corporate transaction [RMBCA 8.60].
Sometimes, a corporation enters into a contract or engages in a transaction in which an
officer or director has a personal interest. The director or officer must make a full disclosure
of that interest and must abstain from voting on the proposed transaction.
Example 34.3 Southwood Corporation needs office space. Lambert Alden, one of its five
directors, owns the building adjoining the corporation’s main office building. He negotiates
a lease with Southwood for the space, making a full disclosure to Southwood and the other
four directors. The lease arrangement is fair and reasonable, and it is unanimously approved
by the other four directors. In this situation, Alden has not breached his duty of loyalty to
the corporation, and thus the lease contract is valid. If it were otherwise, directors would be
prevented from ever transacting business with the corporations they serve. ■
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Directors and officers are exposed to liability on many fronts. They are,
of course, liable for their own crimes and torts. They also may be held
liable for the crimes and torts committed by corporate employees under
their supervision.
Additionally, if shareholders perceive that the corporate directors are
not acting in the best interests of the corporation, they may sue the directors on behalf of the corporation. (This is known as a shareholder’s derivative suit, which will be discussed later in this chapter.) Directors and
officers can also be held personally liable under a number of statutes, such
as those enacted to protect consumers or the environment.
34–3
Shareholders
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34–2e Liability of Directors and Officers
If a director owns this unrented office space, can she
offer it for rent to the corporation for which she is a
director?
The acquisition of a share of stock makes a person an owner and shareholder in a corporation. Shareholders thus own the corporation, but they
generally are not responsible for its daily management. Although they have no legal title to
corporate property, such as buildings and equipment, they do have an equitable (ownership)
interest in the firm.
34–3a Shareholders’ Powers
Shareholders must approve fundamental changes affecting the corporation before the
changes can be implemented. Hence, shareholders are empowered to amend the articles
of incorporation and bylaws, approve a merger or the dissolution of the corporation, and
approve the sale of all or substantially all of the corporation’s assets. Some of these powers
are subject to prior board approval. Shareholder approval may also be requested (though it
is not required) for certain other actions, such as to approve an independent auditor.
Shareholders also have the power to elect or remove members of the board of directors.
As mentioned earlier, the incorporators normally choose the first directors, who serve until
the first shareholders’ meeting. From that time on, the selection and retention of directors
are exclusively shareholder functions.
Directors usually serve their full terms. If the shareholders judge them unsatisfactory,
they are simply not reelected. Shareholders have the inherent power, however, to remove a
director from office for cause (such as for breach of duty or misconduct) by a majority vote.
Some state statutes (and some corporate articles) permit removal of directors without cause
by the vote of a majority of the shareholders entitled to vote.
Know This
Shareholders normally
are not agents of the
corporation.
“If it is not in the
interest of the public,
it is not in the interest
of the business.”
Joseph H. Defrees
1812–1885
(Member of U.S. Congress, 1865–1867)
34–3b Shareholders’ Meetings
Shareholders’ meetings must occur at least annually. In addition, special meetings can be
called to deal with urgent matters. A corporation must notify its shareholders of the date,
time, and place of an annual or special shareholders’ meeting at least ten days, but not more
than sixty days, before the meeting date [RMBCA 7.05].3 Notice of a special meeting must
include a statement of the purpose of the meeting, and business transacted at the meeting is
limited to that purpose.
Learning Objective 3
What is a voting proxy?
3. A shareholder can waive the requirement of written notice by signing a waiver form or, in some states, by attending a meeting without protesting the lack of notice.
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Proxies It is usually not practical for owners of only a few shares of stock of publicly
Proxy In corporate law, formal
authorization to serve as a corporate
shareholder’s agent and vote his or
her shares in a certain manner.
traded corporations to attend shareholders’ meetings. Therefore, the law allows stockholders to either vote in person or appoint another person as their agent to vote their shares at
the meeting. The agent’s formal authorization to vote the shares is called a proxy (from the
Latin procurare, meaning “to manage, take care of”). Proxy materials are sent to all shareholders before shareholders’ meetings.
Management often solicits proxies, but any person can solicit proxies to concentrate
voting power. Proxies have been used by groups of shareholders as a device for taking over
a corporation. Proxies normally are revocable (that is, they can be withdrawn), unless they
are specifically designated as irrevocable. Under RMBCA 7.22(c), proxies last for eleven
months, unless the proxy agreement provides for a longer period.
Shareholder Proposals When shareholders want to change a company policy, they can
put their idea up for a shareholder vote. They can do this by submitting a shareholder proposal to the board of directors and asking the board to include the proposal in the proxy
materials that are sent to all shareholders before meetings.
Rules for Proxies and Shareholder Proposals The Securities and Exchange
Commission (SEC), which regulates the purchase and sale of securities, has special provisions relating to proxies and shareholder proposals. SEC Rule 14a-8 provides that all shareholders who own stock worth at least $1,000 are eligible to submit proposals for inclusion
in corporate proxy materials. The corporation is required to include information on whatever proposals will be considered at the shareholders’ meeting along with proxy materials.
Under the SEC’s e-proxy rules,4 all public companies must post their proxy materials on
the Internet and notify shareholders how to find that information. Although the law requires
proxy materials to be posted online, public companies may still choose among several
options—including paper documents and DVDs sent by mail—for delivering the materials
to shareholders.
34–3c Shareholder Voting
kenneth-cheung/iStock/Getty Images
Shareholders exercise ownership control through the power of their votes. Corporate business matters are presented in the form of resolutions, which shareholders vote to approve
or disapprove. Each common shareholder is entitled to one vote per share. The articles of
incorporation can exclude or limit voting rights, particularly for certain classes of shares.
For instance, owners of preferred stock usually are denied the right to vote.
Why is shareholder voting important in the management of a corporation?
Quorum Requirements For shareholders to act during a meeting,
a quorum must be present. Generally, a quorum exists when shareholders
holding more than 50 percent of the outstanding shares are present, but
state laws often permit the articles of incorporation to set higher or lower
quorum requirements.
Case Example 34.4 Sink & Rise, Inc., had eighty-four shares of voting
common stock outstanding. James Case owned twenty shares. In addition,
he and his estranged wife, Shirley, jointly owned another sixteen shares.
Three different individuals owned sixteen shares each. During a shareholders’ meeting, James was the only shareholder present. He elected
himself and another shareholder to be directors, replacing Shirley as Sink
& Rise’s secretary. Shirley sued to set aside the election, claiming the
sixteen shares that she owned jointly with James should not have been
counted for quorum purposes.
4. 17 C.F.R. Parts 240, 249, and 274.
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A court, however, held that the shares Shirley owned jointly with James counted for purposes of quorum. The Wyoming Supreme Court affirmed the lower court’s judgment.
Corporate bylaws required that, in determining a quorum, the shares had to be entitled to
vote and represented in person or by proxy. Because the sixteen shares that were jointly held
were represented in person by James at the shareholders’ meeting, they could be counted for
quorum purposes. Consequently, the actions taken at the meeting were accomplished with
authority, and Shirley was no longer the company’s secretary.5 ■
Voting Requirements Once a quorum is present, voting can proceed. If a state statute
requires specific voting procedures, the corporation’s articles or bylaws must be consistent
with the statute.
Normally, a majority vote of the shares represented at the meeting is required to pass
resolutions. At times, more than a simple majority vote is required, either by a state statute
or by the corporate articles. Extraordinary corporate matters, such as a merger, consolidation,
or dissolution of the corporation, require approval by a higher percentage of all corporate
shares entitled to vote [RMBCA 7.27].
Know This
Once a quorum is present, a vote can be taken
even if some shareholders leave without casting
their votes.
Cumulative Voting Most states permit, and some require, shareholders to elect directors
by cumulative voting. This voting method is designed to allow minority shareholders to be
represented on the board of directors.6
With cumulative voting, each shareholder is entitled to a total number of votes equal to
the number of board members to be elected multiplied by the number of voting shares the
shareholder owns. The shareholder can cast all of these votes for one candidate or split them
among several candidates. All candidates stand for election at the same time.
Example 34.5 Nak Corporation has 10,000 shares issued and outstanding. The minority
shareholders hold 3,000 shares, and the majority shareholders hold the other 7,000 shares.
Three members of the board are to be elected. The majority shareholders’ nominees are
Acevedo, Barkley, and Craycik. The minority shareholders’ nominee is Drake. Can Drake be
elected by the minority shareholders?
If cumulative voting is allowed, the answer is yes. Together, the minority shareholders
have 9,000 votes (3 directors to be elected times 3,000 shares held by minority shareholders equals 9,000 votes). All of these votes can be cast to elect Drake. The majority
shareholders have 21,000 votes (3 times 7,000 equals 21,000), but these votes have to be
distributed among their three nominees. No matter how the majority shareholders cast their
21,000 votes, they will not be able to elect all three directors if the minority shareholders
cast all of their 9,000 votes for Drake, as illustrated in Exhibit 34–1. ■
In contrast, in “regular” voting, each candidate is elected by a simple majority. A shareholder cannot give more than one vote per share to any single nominee.
5. Case v. Sink & Rise, Inc., 2013 WY 19, 297 P.3d 762 (2013).
6. See, for instance, California Corporations Code Section 708. Under RMBCA 7.28, however, no cumulative voting rights exist unless the articles
of incorporation provide for them.
Exhibit 34–1 Results of Cumulative Voting
BALLOT
MAJORITY SHAREHOLDERS’ VOTES
MINORITY SHAREHOLDERS’ VOTES
DIRECTORS ELECTED
Acevedo
Barkley
Craycik
Drake
1
10,000
10,000
1,000
9,000
Acevedo/Barkley/Drake
2
9,001
9,000
2,999
9,000
Acevedo/Barkley/Drake
3
6,000
7,000
8,000
9,000
Barkley/Craycik/Drake
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UNIT FIVE: Business Organizations
Other Voting Techniques Before a shareholders’ meeting, a group of shareholders can
agree in writing to vote their shares together in a specified manner. Such agreements, called
shareholder voting agreements, usually are held to be valid and enforceable. As noted earlier,
a shareholder can also appoint a voting agent and vote by proxy.
34–4
Rights and Duties of Shareholders
Shareholders possess numerous rights in addition to the right to vote their shares, and we
examine several here.
34–4a Stock Certificates
Stock Certificate A certificate
issued by a corporation evidencing
the ownership of a specified number
of shares in the corporation.
In the past, shareholders had a right to stock certificates that evidenced ownership of
a specified number of shares in the corporation. Only a few jurisdictions still require
physical stock certificates. Shareholders there have the right to demand that the corporation
issue certificates (or replace those that were lost or destroyed). Stock is intangible personal
property, however, and the ownership right exists independently of the certificate itself.
In most states today and under RMBCA 6.26, boards of directors may provide that shares
of stock will be uncertificated, or “paperless”—that is, no physical stock certificates will be
issued. Notice of shareholders’ meetings, dividends, and operational and financial reports are
distributed according to the ownership lists recorded in the corporation’s books.
34–4b Preemptive Rights
Preemptive Right The right of a
Tupungato/iStock/Getty Images
shareholder in a corporation to have
the first opportunity to purchase a
new issue of that corporation’s stock
in proportion to the amount of stock
already owned by the shareholder.
Sometimes, the articles of incorporation grant preemptive rights to shareholders [RMBCA
6.30]. With preemptive rights, a shareholder receives a preference over all other purchasers to
subscribe to or purchase a prorated share of a new issue of stock. Generally, preemptive rights
apply only to additional, newly issued stock and must be exercised within a specified time
period (usually thirty days).
A shareholder who is given preemptive rights can purchase a percentage of the new shares
being issued that is equal to the percentage of shares she or he already holds in the company.
This allows each shareholder to maintain her or his proportionate control, voting power, and
financial interest in the corporation.
Example 34.6 Alisha is a shareholder who owns 10 percent of a company. Because she has
preemptive rights, she can buy 10 percent of any new issue (to maintain her 10 percent
position). Thus, if the corporation issues one thousand more shares, Alisha
can buy one hundred of them. ■
Preemptive rights are most important in close corporations because each
shareholder owns a relatively small number of shares but controls a substantial interest in the corporation. Without preemptive rights, it would be possible for a shareholder to lose his or her proportionate control over the firm.
Does the number of shares you hold determine
your rights as a shareholder?
34–4c Dividends
As mentioned, a dividend is a distribution of corporate profits or income
ordered by the directors and paid to the shareholders in proportion to their
shares in the corporation. Dividends can be paid in cash, property, stock of the
corporation that is paying the dividends, or stock of other corporations.7 On
one occasion, a distillery declared and paid a “dividend” in bonded whiskey.
7. Technically, dividends paid in stock are not dividends. They maintain each shareholder’s proportionate interest in the corporation.
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State laws vary, but each state determines the general circumstances and legal requirements
under which dividends are paid. State laws also control the sources of revenue to be used. All
states allow dividends to be paid from the undistributed net profits earned by the corporation,
for instance, and a number of states allow dividends to be paid out of any surplus.
Illegal Dividends Dividends are illegal if they are improperly paid from an unauthorized
account, or if their payment causes the corporation to become insolvent (unable to pay its
debts as they come due). Whenever dividends are illegal or improper, the board of directors
can be held personally liable for the amount of the payment.
Directors’ Failure to Declare a Dividend When directors fail to declare a dividend, shareholders can ask a court to compel the directors to do so. To succeed, the shareholders must show
that the directors have acted so unreasonably in withholding the dividend that their conduct is
an abuse of their discretion. The mere fact that the firm has sufficient earnings or surplus available to pay a dividend is not enough to compel directors to distribute funds that, in the board’s
opinion, should not be distributed. There must be a clear abuse of discretion.
34–4d Inspection Rights
WAYHOME studio/Shutterstock.com
Shareholders in a corporation enjoy both common law and statutory inspection rights. The
RMBCA provides that every shareholder is entitled to examine specified corporate records
for a proper purpose, provided the request is made in advance. The shareholder can inspect
in person or have an attorney, accountant, or other authorized agent do so. In some states,
a shareholder must have held shares for a minimum period of time immediately preceding
the demand to inspect or must hold a minimum number of outstanding shares.
The power of inspection is fraught with potential abuses, and the corporation is allowed
to protect itself from them. For instance, a corporation can properly deny a shareholder
access to corporate records to prevent harassment or to protect trade secrets or other confidential corporate information.
Case Example 34.7 Trading Block Holdings, Inc., offers online brokerage services. On
April 1, some Trading Block shareholders, including Sunlitz Holding Company, sent a letter
(through an attorney) asking to inspect specific items in the corporation’s books and records.
This letter indicated that the purpose was to determine the company’s financial condition, how it was being managed, and whether its
financial practices were appropriate. The letter also stated that the
shareholders wanted to know whether Trading Block’s management
had engaged in any self-dealing that had negatively impacted the company as a whole.
On April 30, Trading Block responded with a letter stating that the
plaintiffs were on a “fishing expedition” and did not have a proper
purpose for inspecting the corporate records. Eventually, the shareholders filed a motion to compel inspection in an Illinois state court.
The trial court denied the plaintiffs’ motion. On appeal, the reviewing
court reversed. The court held that the plaintiffs’ allegations of selfdealing constituted a proper purpose for their inspection request.8 ■
In the following case, the court considered whether a corporation
How does a shareholder’s right to inspect corporate books
can deny a shareholder access to its records based on the circumstances
help or hurt a corporation?
under which the shareholder acquired the shares.
8. Sunlitz Holding Co., v. Trading Block Holdings, Inc., 2014 IL App(1st) 133938, 17 N.E.3d 715 (4 Dist. 2014).
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UNIT FIVE: Business Organizations
Case 34.3
Hammoud v. Advent Home Medical, Inc.
Michigan Court of Appeals, 2018 WL 1072988 (2018).
Background and Facts Advent Home Medical, Inc., is a affirm” her “ownership/shareholder share” and to ensure that
family-owned close corporation. Carlia Cichon is Advent’s
president. Her daughter Amanda Hammoud owns 400 shares of
Advent stock, representing 40 percent of the total shares.
Hammoud submitted a written request to Cichon to review
Advent’s financial records. Advent did not respond. Hammoud
filed a complaint in a Michigan state court against the corporation, seeking an order to compel the firm to permit an inspection
of the materials. Advent asserted that Hammoud had procured
her shares through fraud, threats, and duress. Hammoud filed a
motion to compel Advent to permit the inspection. She attached
a notarized transfer of stock certificate verifying her status as a
shareholder. The court granted the motion, ordering the production
of the information that Hammoud sought. Advent appealed.
In the Words of the Court
PER CURIAM. [By the Whole Court]
The Michigan Business Corporation Act (MBCA) grants shareholders certain rights to examine corporate books and records.
A simple written request suffices to compel the production of some
records. To review others, a shareholder must advance a proper
purpose. [Emphasis added.]
* * * *
* * * Hammoud sent a letter to Cichon seeking Advent’s balance sheet from the end of the preceding fiscal year, “its statement
of income for the fiscal year,” “and, if prepared by the corporation,
its statement of source and application for funds for the fiscal
year.” Hammoud also sought to inspect Advent’s “stock ledger
and list of shareholders” as well as “the corporation’s accounting
records, including its general ledgers, bank statements, profit and
loss statements, balance sheets, tax returns and payroll records.”
Hammoud described that her interest was “to monitor the financial
health of the corporation, especially given recent communications
about the corporation’s financial position and financial decisions
reducing benefits and payments to shareholders and employees.”
Hammoud additionally asserted that she needed the records “to
Advent was “in compliance with its Articles of Incorporation,
Bylaws, and Policies and Procedures.”
* * * *
Advent’s fraud-related defenses to Hammoud’s records request
are simply irrelevant. The [MBCA] is unambiguous: a “shareholder”
has a right to inspect corporate books if certain prerequisites are
met. Hammoud easily satisfied the definition of a shareholder; she
presented documents verifying that status. Advent produced no
evidence to the contrary. How or why Hammoud became a shareholder is not probative [indicative] of whether she is, in fact, a
shareholder. Nor does such evidence create a material issue in an
action brought to enforce shareholder rights. [Emphasis added.]
* * * *
* * * A shareholder who has a genuine, good faith interest in
the corporation’s welfare or her own as a shareholder is entitled to inspect those corporate books that bear on her concerns.
Hammoud’s letter satisfied that standard.
Decision and Remedy A state intermediate appellate court
affirmed the lower court’s order compelling Advent to produce
the records that Hammoud sought to inspect. “Hammoud was a
shareholder when she sent her written request [and she] supplied
a proper purpose for all the records she requested.”
Critical Thinking
t
Legal Environment Cichon insisted that she had transferred shares in Advent to Hammoud only because her daughter
had threatened to prevent Cichon from visiting her grandchildren.
Should the court have been persuaded by this argument to deny
Hammoud’s motion? Explain.
t
What If the Facts Were Different? Suppose that
Hammoud had stated her purpose for an inspection of Advent’s
records as “speculation of mismanagement.” Would the result
have been different? Discuss.
34–4e Transfer of Shares
Corporate stock represents an ownership right in intangible personal property. The law
generally recognizes the right to transfer stock to another person unless there are valid
restrictions on its transferability, such as frequently occur with close corporation stock.
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Restrictions must be reasonable and can be set out in the bylaws or in a shareholder
agreement.
When shares are transferred, a new entry is made in the corporate stock book to indicate the
new owner. Until the corporation is notified and the entry is complete, all rights—including
voting rights and the right to dividend distributions—remain with the currently recorded owner.
34–4f The Shareholder’s Derivative Suit
When the corporation is harmed by the actions of a third party, the directors can bring a lawsuit
in the name of the corporation against that party. If the corporate directors fail to bring a lawsuit, shareholders can do so “derivatively” in what is known as a shareholder’s derivative suit.
The right of shareholders to bring a derivative action is especially important when the
wrong suffered by the corporation results from the actions of corporate directors or officers.
For obvious reasons, the directors and officers would probably be unwilling to take any
action against themselves.
Written Demand Required Before shareholders can bring a derivative suit, they must
submit a written demand to the corporation, asking the board of directors to take appropriate action [RMBCA 7.40]. The directors then have ninety days in which to act. Only if
they refuse to do so can the derivative suit go forward. In addition, a court will dismiss a
derivative suit if the majority of directors or an independent panel determines in good faith
that the lawsuit is not in the best interests of the corporation [RMBCA 7.44].
Damages Recovered Go into Corporate Funds When shareholders bring a derivative
suit, they are not pursuing rights or benefits for themselves personally but are acting as
guardians of the corporate entity. Therefore, if the suit is successful, any damages recovered
normally go into the corporation’s treasury, not to the shareholders personally.
Example 34.8 Zeon Corporation is owned by two shareholders, each holding 50 percent of
the corporate shares. One of the shareholders wants to sue the other for misusing corporate
assets. In this situation, the plaintiff-shareholder will have to bring a shareholder’s derivative
suit (not a suit in his or her own name) because the alleged harm was suffered by Zeon,
not by the plaintiff personally. Any damages awarded will go to the corporation, not to the
plaintiff-shareholder. ■
Shareholder’s Derivative Suit
A suit brought by a shareholder to
enforce a corporate cause of action
against a third person.
Learning Objective 4
If a group of shareholders
perceives that the corporation has suffered a wrong
and the directors refuse to
take action, can the shareholders compel the directors
to act? If so, how?
34–4g Duties of Majority Shareholders
In some instances, a majority shareholder is regarded as having a fiduciary duty to the
corporation and to the minority shareholders. This occurs when a single shareholder (or a
few shareholders acting in concert) owns a sufficient number of shares to exercise de facto
(actual) control over the corporation. In these situations, which commonly involve close
corporations, majority shareholders owe a fiduciary duty to the minority shareholders.
When a majority shareholder breaches her or his fiduciary duty to a minority shareholder,
the minority shareholder can sue for damages. A breach of fiduciary duties by those who control a close corporation normally constitutes what is known as oppressive conduct. A common
example of a breach of fiduciary duty occurs when the majority shareholders “freeze out” the
minority shareholders and exclude them from certain benefits of participating in the firm.
Example 34.9 Brodie, Jordan, and Barbara form a close corporation to operate a machine
shop. Brodie and Jordan own 75 percent of the shares in the company, but all three are
directors. After disagreements arise, Brodie asks the company to purchase his shares, but
his requests are refused. A few years later, Brodie dies, and his wife, Ella, inherits his shares.
Jordan and Barbara refuse to perform a valuation of the company, deny Ella access to the
corporate information she requests, do not declare any dividends, and refuse to elect Ella
as a director. In this situation, the majority shareholders have violated their fiduciary duty
to Ella. ■
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Practice and Review
David Brock was on the board of directors of Firm Body Fitness, Inc., which owned a string of fitness
clubs in New Mexico. Brock owned 15 percent of the Firm Body stock and was also employed as
a tanning technician at one of the fitness clubs. After the January financial report showed that
Firm Body’s tanning division was operating at a substantial net loss, the board of directors, led
by Marty Levinson, discussed terminating the tanning operations. Brock successfully convinced a
majority of the board that the tanning division was necessary to market the clubs’ overall fitness
package. By April, the tanning division’s financial losses had risen. The board hired a business
analyst, who conducted surveys and determined that the tanning operations did not significantly
increase membership.
A shareholder, Diego Peñada, discovered that Brock owned stock in Sunglow, Inc., the company
from which Firm Body purchased its tanning equipment. Peñada notified Levinson, who privately
reprimanded Brock. Shortly thereafter, Brock and Mandy Vail, who owned 37 percent of the Firm
Body stock and also held shares of Sunglow, voted to replace Levinson on the board of directors.
Using the information presented in the chapter, answer the following questions.
1. What duties did Brock, as a director, owe to Firm Body?
2. Does the fact that Brock owned shares in Sunglow establish a conflict of interest? Why or why not?
3. Suppose that Firm Body brought an action against Brock claiming that he had breached the duty
of loyalty by not disclosing his interest in Sunglow to the other directors. What theory might Brock
use in his defense?
4. Now suppose that Firm Body did not bring an action against Brock. What type of lawsuit might
Peñada be able to bring based on these facts?
Debate This
Because most shareholders never bother to vote for directors, shareholders have no real control
over corporations.
Key Terms
business judgment rule 811
inside director 808
outside director 808
preemptive rights 818
proxy 816
quorum 808
shareholder’s derivative suit 821
stock certificate 818