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Chapter 22 Legal Rules for corporate governance.docx

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Ryerson University
Law and Business
LAW 603
Gil Lan

Chapter 22 Legal Rules for corporate governance CBCA- Canada Business Corporations act Management and control of corporation Power and responsibility in the corporation are allocated amongst different group of people • Shareholders- are the residual claimants to the assets of the corporation and elect the directors • Directors- are responsible for managing or supervising the management of the business of the corporation and its internal affairs • Officers- are appointed by the directors of a corporation and usually exercise management powers delegated to them by directors How Shareholders exercise Power • Shareholders must act collectively • Shareholders actions take place at meetings • Directors are obligated to call annual meetings at least every 15 months • Annual meeting- shareholders elect directors, appoint an auditor and review the annual financial statements • Directors must make sure shareholders have advance notice of meeting and any information beforehand • Public corporations- is a corporation that has distributed its shares to the public • Only a small % of shareholders attend meetings in person for this type of corporations • Shareholders can participate by attending a proxy, but they must vote in accordance of the shareholder • Proxy/Proxy Holder- is a person designated by a shareholder to vote at the shareholder’s meeting • Management proxy circle- is a document sent to the shareholders that contains management proposals and other info related to shareholders meetings • Dissident shareholders- disagree with management proposals , may try to encourage their fellow shareholders to vote against management • Are entitled to info and address of other shareholders to contact them to influence their voting • Dissident Circular- is a document sent to all shareholders by any shareholders who seeks the votes of other shareholders against management • Are relatively rare, as the cost of complying with the disclosure requirements are often to high Shareholders access to information • Corporation must maintain records of articles, by-laws, minutes of meetings of shareholders and shareholders resolutions, and a share register showing the owners of all shares • Director meetings are to be maintained but cannot be inspected by the shareholders • Most important info that shareholders receive is the financial statement of the corporation • For public corporations it is included in the annual reports, annual statements must be audited by an independent accountant who believes the statement was made according to GAAP Shareholders agreements • If the corp has few shareholders they often use a shareholders agreement to govern the corporation • This is different from the arrangement that occurs under the statutes • This includes, changing shareholders voting entitlements, change shareholders approval requirements and create rules for share transfers Voting and management • Shareholders may want to allocate decision making power amongst themselves in a way that is different from the allocation that would result from the number of shares each holds • Unanimous shareholders agreement- is an agreement of all shareholders to transfer some or all of the directors powers to themselves • Shareholders who are party to such an agreement have all the rights and power aswell as all duties and liabilities Share transfer • Share transfer difficult for small corporations as there is no market and they are hard to value • Share transfers don’t want to occur to just anyone, want restrictions • Right of first refusal – is the right for shareholders to be offered shares that a shareholder wants to sell first before they are offerd to non shareholders • Requirement to sell shares at same price allows one not to set an unreasonably high price for them • Shotgun buy-sell- is a share transfer mechanism that forces on shareholder to buy out the other • This mechanism can be used to break a deadlock between shareholders Shareholder Remedies (p.562) Derivative action - is an action by a shareholder on behalf of a corporation to seek relief for a wrong done to the corporation (ex. shareholders bring derivative action against the directors because they breach duty of care or fiduciary duty) It is a way for shareholders to ensure that directors and officers comply with their duties to the corporation. • The value of a shareholders investment will be reduced if the corporation suffers a loss Oppression remedy - allows a shareholder to claim relief from an act or omission by the corporation or its directors that oppresses the interest of the shareholders (ex. CEO being overpaid) • Behaviours the court have deemed to be oppressive • Approval of a transaction lacking valid corporate purpose that is prejudicial to a particular shareholder • Failure by the corp and controlling shareholders to ensure that a transaction between them was on terms that are comparable to the terms that would have been negotiated by parties who were not related to each other • Other actions that benefit the majority shareholders to the exclusion or detriment of minority shareholders • Planning to eliminate minority shareholders Other shareholder remedies • Order directing compliance with statute • Order rectifying erroneous corporate records • Liquidation and dissolution or winding up – the corporations assets are sold, its creditors paid off, the remaining money distributed to the shareholders and corporations existence terminated • Dissent and appraisal - entitles shareholders who dissent from certain fundamental changes to
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