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LAW 603 (120)
Lecture 6


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Ryerson University
Law and Business
LAW 603
Andre Serero

LAW603 Notes C HAPTER 22: LEGAL RULES FOR C ORPORATE GOVERNANCE Management and Control of Corporation (pg 542-543) • Shareholders: residual claimants to the assets of the corporation and elect the directors o Powers are to vote for election of directors, appoint auditor, vote on proposals made to them o Do not participate in managing business of corporation • Directors: managing/supervising management of business of the corporation and internal affairs o Issuing shares, declaring dividends, calling shareholder meetings o Call meetings; obligated to call annual meetings at least every 15 months • Officers: appointed by the directors of corporation and usually exercise management powers delegated to them by directors • Shareholders elect directors who appoint officers How Shareholders Exercise Power (pg 543-545) • Annual meeting: shareholders elect directors, appoint auditor, review annual financial statements o Shareholders must receive advance notice of meeting w/information regarding meeting o Meetings are important to question and criticize management, discuss and vote o Any business that that must be done at meeting is to be recorded in written resolutions and signed by all shareholders – commonly used as alternative to meetings in corporations with few shareholders • Public Corporations: distributed its shares to the public o Shareholders can participate in meetings without attending by appointing a proxy to represent them and vote their shares  Proxy/Proxy Holder: person designated by shareholder to vote at shareholders’ meeting on their behalf • Management Proxy Circular: document sent to shareholders that contains management proposals and other information related to shareholder’s meetings o Sent with proxy form • Dissident shareholders: disagree with management proposals o Entitled to obtain a list of shareholders and their address from corporation o Dissidents’ circular: document sent to all shareholders by any shareholder who seeks the votes of other shareholders against management  Information on identity of dissident, relationship to corporation and their interest in proposal • Voting is usually by show of hands but may require vote be recorded on a ballot – majority rule Shareholders’Access to Information • Corporation must maintain these records and allow shareholders access to them: o Articles o By-laws o Minutes of meetings of shareholders and shareholder resolutions o Share register showing the owners of all shares • Minutes of director’s meetings and directors’ resolutions must be maintained – records cannot be inspected by shareholders/creditors • Important info to shareholders are annual financial statements of corporation Shareholders’Agreements • If there are few shareholders – can use shareholders’ agreement for governing corporation that is different from the arrangement that occurs under the statute. They can: o Change shareholders voting entitlements o Change shareholder approval requirements o Create rules for share transfers LAW603 Notes Voting and management • Shareholders may want to allocate decision making power amongst themselves in a way that this is different from the allocation that would result from the number of shares each holds • Unanimous shareholders’ agreements: agreement of all shareholders to transfer some or all of the directors’ powers to themselves o shareholders have rights and powers as well as duties and liabilities of directors to extent of restriction Share Transfer (pg 546) • If shareholder leaves, may be taking valuable expertise with them • No market to establish price of share transfer • Shareholders don’t want shareholders to sell to just anyone – some restrictions on transfer so they can control who becomes involved in business o Shareholders want minimal restrictions on ability to sell their own shares • Right of first refusal: right for shareholders to be offered shares that a shareholder wants to sell first before they are offered to non-shareholders o Limited time for shareholders to purchase, price is selling by the one who is selling; if not purchased in time, they can offer shares to someone else at the same price for limited time • Shotgun buy-sell: share transfer mechanism that forces one shareholder to buy out the other o If shareholder offers all shares to shareholders at a price, shareholders must buy all of the shares or sell all of their shares at same price o One of them ends up with all of the shares of corporation – drastic mechanism can be used to break up dead lock between shareholders Shareholder Remedies (pg 546-547) Derivative Action • Action by a shareholder on behalf of a corporation to seek relief for a wrong done to the corporation o Shareholders’ investment will be reduced if corporation suffers a loss o Shareholders’ may seek permission to pursue relief on compensation for breach of fiduciary duty o One way for shareholders to ensure that directors and officers comply with their duties to the corporation Oppression (pg 547) • Allows a shareholder to claim relief from an act/omission by the corporation or its directors that oppresses the interests of the shareholder o Relief is available when the reasonable expectations of shareholders about management behaviour have not been met Other Shareholder Remedies • Liquidation and dissolution/winding up: corporation’s assets are sold, its creditors paid off, the remaining money distributed to the shareholders and the corporation’s existence terminated o For partners who can’t agree on how corporation should carry on business • Dissent and appraisal: right entitles shareholders who dissent from certain fundamental changes to have the corporation buy shares o Shareholders who vote against changes are entitled to have their shares bought by the corporation for their fair value How Directors and Officers Exercise Power (pg 548) Directors • Exercise power collectively, primarily at meetings • Written resolution signed by all directors is as effective as resolution passed at meeting • By-law’s contain rules for calling and conducting meetings LAW603 Notes Officers • Directors designate offices and specify the duties of those offices o Done in a bylaw passed by directors and approved by shareholders just after incorporation • After setting up the offices, directors appoint people to fill them – they can delegate any of their power
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