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This 6 page Class Notes was uploaded by Mina Riazi on Wednesday March 4, 2015. The Class Notes belongs to BLAW703 at Kansas taught by Jamison Shipman in Fall. Since its upload, it has received 97 views. For similar materials see Legal Aspects of Business Orginizations in Business at Kansas.
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Date Created: 03/04/15
Chapter 43 Corporate objectives a Enhance corporate pro ts and shareholder gain b Socially responsible actions c Corporate constituency statutes objective is to act in the best interests of the company and have longterm pro t Corporate Powers a Limitations of power are usually stated in the state statute and the articles of incorporation b Primary source of corporation39s powers is the corporation statute of state in which it is incorporated c Other state corporation statutes limit the powers of corporation Purpose a Usually stated in the articles of incorporation but its optional b Ultra Vires Doctrine a Any act not permitted by the corporation statute or by the corporation39s articles of incorporation is void due to lack of capacity has been abused b May be used by three types of persons 1 A shareholder seeking to enjoin a corporation from doing something in ultra vires 2 A corporation suing its management for damages caused by exceeding the corporations power 3 State39s attorney general who may have the power to enjoin an ultra vires act or dissolve a corporation that goes beyond its powers Nonpro t corporation power a Power to engage in lawful activity and anything an individual can do Board of Directors a BOD has the authority and duty to manage the corporations b Usually elects of cers to manage the business c Power to manage and direct ordinary business and issue stock and set their pnces d Committees cannot make some decisions for the BOD like mergers e Committees of the boardonly directors can serve on committees and help manage the business 1 Executive committeehas authority when the BOD is not in session 2 Audit committeesresponsible for the appointment compensation and oversight of independent accountants 3 Nominating committeeschoose management s slate of directors next in line to by directors and plan generally for management succession 4 Compensation committeesreview and approve of salaries bonuses etc 5 Shareholder litigation committeedetermine if a corporation should sue some who allegedly harmed the corporation Directors a are not agents of a company just because they39re a director b directors manage the company when they act as a board and the board can grant directors agency c not personally liable generally d generally directors have the right to inspect the books that have information essential to their duties unless they in adverse interest denied right to inspect if their actions are adverse and hurtful towards the company Election of Directors a any individual can be a director but corporations usually have quali cations for directors in their articles of incorporation b Must have at least one director state requirements may differ directors gt shareholders c A company may have a minimum number of director requirement in their corporation statute Shareholders usually vote for directors e Proxy Solicitation process 1 Passive investors are usually not interested in voting but pro t 2 Once public ownership lt50 the corporation cannot do business unless some of these passive investors vote 3 Solution is proxies requires a shareholder who isn39t attending to appoint someone else to vote for them f Management solicitation of proxies 1 To maintain control on matters that require shareholder votes the corporation39s managers CEO solicit proxies from shareholders to vote for the directors they want and other big decisions like mergers 2 BOD may not work ef ciently as a representation for shareholders and evaluating the CEO and of cers 3 Process of solicitationa highpower executive of cer nds new directors that will be voted in allows executive to keep control of the board 0 Voting for directors a Straight voteone vote per share shareholders with more shares lt50 will always dominate the election b Cumulative votingshares x number of directorstota of votes allocate votes to try to get members on the boards helps minority shareholders get representation on the BOD c Class votingcertain classes of shareholders are have the right to elect a speci ed number of directors d A majority vote is needed to ll empty director spots on the BOD Removal of Directors a Shareholders can remove a director with or without cause unless stated otherwise in the articles of incorporation b Usually stated in the bylaws what the cause must be for removal of a director c Becomes an issue in closely held corporations d Before removal the director has to be given notice and an opportunity for a hea ng e Class voted A director elected by a class of shareholders must be removed by that same class protects voting rights of that class f Cumulative voted director may not be removed if the votes cast against the removal is enough to get the director reelected protects minority voters Quoram Majority requirements a Approvalmay need majority unanimous approval Only directors that show b up can make decisions Consentshould be unanimous Directors Meetings apem th For directors to act a quorum of the directors must be present Quorum majority number of directors Ensures the decision of the board represents the views of most directors Majority voting provisionswith a quorum present a vote of a majority of directors present is an act of the BOD unless stated otherwise Supermajority voting provisionscommon in closely held corporations Without a meeting directors are permitted to act if there is director consent in writing to the action taken Of cers of the corporation a b c d h president vice president treasurer and secretary Of cers are agents of corporation have express authority given to them by the bylaws or BOD Of cers have apparent and implied authority Presidentholds no power to bind the corporation by virtue of of cetitle has implied authority Vice presidentholds no bower to bind the corporation either unless they39re the vice president of a department If so they can transact on normal business of that department Secretarydocuments meetings maintains corporate records certi es corporate records as authentic Treasurerhas custody over the corporation39s funds does not by virtuetitle have authority to borrow money issue negotiable instruments or to make other contracts on behalf of the corporation Of cers can be removed at any time with or without cause and with no recourse unless it violates their contract Managing close corporations a b c d Shareholders want to be involved in management and they want to place restrictions on management discretion Close corporations can get rid of a BOD and just have shareholders manage the corporation Supermajority voting is used on big decisions that are not ordinary business decisions Shareholders have unlimited power to restrict the power of discretion of the BOD Managing Nonfor Pro t Electing directors apem th Members typically elect directors at least three gt 49 of directors may have a nancial interest in the corporation Voting can be straight or cumulative and by class Directors of publicbene t or religious corporations should not receive compensation An individual director has no authority to transact for a corporation If there are of cers their authority is granted to them in the bylaws and they have apparent authority g Selfperpetuating Initial incorporator chooses rst directors Then those directors choose new directors Duties for directors and of cers Acting within authorityan of cer or director has the duty to act within the authority given to them in the articles of incorporation the bylaws or the BOD An of cer or director may be liable to the corporation if it damages the corporation in an act that s not in their authority Duty of care a Act in good faith putting the corporation rst b Reasonablyhonestly believe acting in best interests of corporation c Reasonable person that39s prudent would make the same decision Business iudgment ruleif met you satis ed duty of care and protected from liability from their harmful decisions a Informed decision b No con ict of interest c Rational basis for decision and it s in the best interest of company 1 A logical connection to the facts 2 With reasonable investigation or that the decision manifested reasonably Managers39 wrongdoing act must be grossly negligent before they lose the protection of the business judgment rule Board opposition to Acquisition of Control of a Corporation Outsiders try to acquire control by tender offersan offer to the shareholders to buy their shares at a premium Takeover defenses are taken to oppose tender offers but this hurts shareholders Courts protect directors under the business judgment rule Takeover defenses must be reasonable UnocalDirectors must show Tender Offer defense BJR 1 It had reasonable grounds to believe that a danger to corporate policy and effectiveness was posed by the takeover attempt 2 It acted primarily to protect the corporation and its shareholders from that danger 3 The defense tactic was reasonable in relation to the threat posed to the corporation Reasonable grounds is a higher standard of BJR informed decision 0 Act to protect corporation usually con icts of interest are possible for managers Reasonable defense tactic is a high standard than rational basis Unocal test compliance 1 BOD must make a reasonable investigation 2 Must be motivated to protect the company from the raiders not their jobs or power 3 Takeover measures must be reasonable compared to the threat Duty of Loyalty Directors and of cers have a duty of utmost loyalty and delity to the corporation Duties a Not to selfdeal b Not to usurp a corporate opportunity c Not to oppress minority shareholders d Not to trade on inside information Con icts of interest transactions don39t have to be voided if 1 The transaction has been approved by a majority of informed disinterested directors 2 The transaction has been approved by a majority of the shares held by informed disinterested shareholders or 3 The transaction is m to the corporation a Armslength basis transactionis the transaction the same as if it was wo con ict of interest b Only fair for the corporation with the con ict of interest transaction be excused Unanimous approval of an interested person transaction by informed shareholders needs to release the director from liability even if the transaction is unfair Intrinsic fairness standard a Reasonable investigation b Decision fair to the corporation c Reasonable person acting at armslength Unsurpation of Corporate Opportunitv a Directors and of cers can steal opportunities that are good for the company b The opportunity should come to those in hisher corporate capacity easy to accomplish c Opportunity should have a relationconnection to an existingprospective activity 0 Should be related to ordinary business for it to be a corporate opportunity d Corporation should be able to nancially take advantage of the opportunity A director or of cer can actually take an opportunity that the corporation has rejected Oppression of Minoritv Shareholders Minority shareholders sometimes don39t get any returns may not receive dividends or can39t sell shares at a good price Shareholder agreement should help minority shareholders Freezeoutmerging a corporation with a newly formed corporation and the minority shareholders don39t get shares of the new corporation they receive cash instead Going privatefreeze out of publically owned corporations by going private Freezeout methods a Freezeout mergermajority shareholders form a new corporation minority shareholders are not included but may receive cash only b Reverse share splitarticles are amended to reduce the number of outstanding shares Legal standard Goingprivate transactions go through tests 1 total fairness test 2 business purpose test 1 Total fairness a Fair dealingenough information is provided and there39s an opportunity for neganUon b Fair price 2 Business purpose testlegit business purpose Some states have no restrictions of freezeouts if the shareholders have the Right of appraisal permits a shareholder to require the corporation to purchase their shares at a fair price Directors right to decenton record don39t approve of an action Failing to meet at BOD Corporate liability for torts and crimes a Agency v parent rules still apply Insurance and indemni cation Indemni cation a Mandatory when a director is sued and is wholly successful in claim director is reimbursed for legal fees a Usually required for reimbursement 1 Director acting in good faith 2 Director acting in best interests of corporation b Permissible Insurance covers indemni cations that a corporation cannot pay
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