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GMGT 3030 (6)
Lecture 3

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Department
General Management
Course
GMGT 3030
Professor
David Balkin
Semester
Fall

Description
It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as shareholders' agreements, whereby they agree to exercise their membership rights in a certain way. Conceptually a shareholders' agreement fulfills many of the same functions as the corporate constitution, but because it is a contract, it will not normally bind new members of the company unless they accede to it somehow. One benefit of shareholders' agreement is that they will usually be confidential, as most jurisdictions do not require shareholders' agreements to be publicly filed. Another common method of supplementing the corporate constitution is by means of voting trusts, although these are relatively uncommon outside of the United States and certain offshore jurisdictions. Some jurisdictions consider the company seal to be a part of the "constitution" (in the loose sense of the word) of the company, but the requirement for a seal has been abrogated by legislation in most countries. The most important rules for corporate governance are those concerning the balance of power between the board of directors and the members of the company. Authority is given or "delegated" to the board to manage the company for the success of the investors. Certain specific decision rights are often reserved for shareholders, where their interests could be fundamentally affected. There are necessarily rules on when directors can be removed from office and replaced. To do that, meetings need to be called to vote on the issues. How easily the constitution can be amended and by who necessarily affects the relations of power. It is a principle of corporate law that the directors of a company have the right to manage. This is expressed in statute in the DGCL, where §141(a) states, (a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation. In Germany, §76 AktG says the same for the management board, while under §111 AktG the supervisory board's role is stated to be to "oversee" (überwachen). In the United Kingdom, the right to manage is not laid down in law, but is found in Part.2 of the Model Articles. This means it is a default rule, which companies can opt out of (s.20 CA 2006) by reserving powers to members, although companies rarely do. UK law specifically reserves shareholders right and duty to approve "substantial non cash asset transactions" (s.190 CA 2006), which means those over 10% of company value, with a minimum of £5,000 and a maximum of £100,000. Similar rules, though much less stringent, exist in §271 DGCL and through case law in Germany under the so called Holzmüller-Doktrin. Probably the must fundamental guarantee that directors will act in the members' interests
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