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Canada (161,798)
MGSC30H3 (57)
Jeff Rybak (14)
Chapter

Legal Environment - Lecture 004

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Department
Management (MGS)
Course
MGSC30H3
Professor
Jeff Rybak
Semester
Winter

Description
CORPORATIONS II CORPORATE GOVERNANCE 28 January 2014 (Chapter 22, p.556-579) MANAGEMENT AND CONTROL OF THE CORPORATION Power and responsibility in the corporation that remain after all the creditors are paid on its dissolution: • Shareholders are entitled to the assets of the corporation that remain after all the creditors are paid on its dissolution. Their power it so vote for election of directors, appoint the auditor, and vote on proposals made to them • Directors are responsible for managing or supervising the management of the business of the corporation and its internal affairs (IE: Shares, declaring dividends, calling shareholder meetings) • Officers are appointed by directors and usually exercise substantial management powers delegated to them by the directors PRIVATE CORPORATIONS have few shareholders and the same people may be the shareholders, directors, and officerUBLIC C ORPORATIONS are corporations that have distributed their shares to the public with only a few shareholders involved in the corporation as directors and officers. Shareholders must act collectively. Shareholder actions take place at meetings. Directors are obligated to call annual meetings at least every 15 NNUALsM EETINGis where directors are elected, auditor is appointed, and financial statements for the past are discussed. PROXY /PROXY H OLDER is a person designated by a shareholder to vote at a shareholders’ meeting, must vote in accordance with any direction given by the shareholder. M ANAGEMENT P ROXY CIRCULAR is a document sent to the shareholders that contain management proposals and information regarding the proxy, the business to be dealt with at the meeting, and certain other information. DISSIDENT SHAREHOLDERS disagree with management proposals. May try to encourage shareholders to vote against management.ISSIDENT’ CIRCULAR is a document sent to all shareholders by shareholders who seek the votes of other shareholders against management. SHAREHOLDERS ’ CCESS TO NFORMATION Corporation needs information to monitor management and exercise their rights as shareholders effectively: • Articles • By-laws • Minutes of meetings of shareholders and shareholders’ resolutions (cannot be inspected by shareholders or creditors) • Share register showing owners of all shares Annual financial statements of the corporation prepared by management are the most important information shareholders receive. Annual statements must be audited by an independent accountant who determines whether the statements were prepared in accordance with GAAP. SHAREHOLDER ’SA GREEMENT Few shareholders, shareholder’s agreement: • Change shareholder voting entitlements and role of shareholders in management • Change shareholder approval requirements • Create rules for share transfers UNANIMOUS S HAREHOLDER ’S AGREEMENT is an agreement of all shareholders to transfer some or all of the directors’ powers to themselves. SHARE TRANSFER In corporations with few shareholders, share transfer is a problem. It is also difficult for non- financial reasons. Shareholders do not want other shareholders to be able to sell their shares to just anyone. They want restrictions to who can become involved in busineIGHT OF FIRST REFUSAL is the right for shareholders to be offered shares that one shareholder wants to sell first before they are offered to non-shareholders.HOTGUN BUY -SELL is a share transfer mechanism that forces one share-holder to buy out the other (can be used to break a deadlock between shareholders). SHAREHOLDER REMEDIES Corporate statutes provide shareholders with remedies when their interests have been injured by acts of the corporation or its directors. The value of shareholders’ investment will be reduced if the corporation suffers a loss. DERIVATIVE ACTION is an action by a shareholder on behalf of a corporation to seek relief for a wrong done to the corporation. It is one way for shareholders to ensure that directors and officers comply with their duties to the corporation. O PPRESSION R EMEDY allows a shareholder to claim relief from an act or omission by the corporation or its directors that oppresses or unfairly disregards or prejudices the interests of the shareholder. Relief from oppression is obtained by shareholders directly. Relief is available when reasonable expectations of shareholders about management behavior have not been met. Examples of behavior courts have found oppressive: • Approval of transaction lacking valid corporate purpose that is prejudicial to a particular shareholder • Failure by corporation and its controlling shareholder to ensure that a transaction between them was on terms that were comparable to the terms that would have been negotiated by parties who were not related to each other • Actions that benefit the majority shareholder to the exclusion or the detriment of minority shareholders • Lack of adequate and appropriate disclosure of information to minority shareholders • Planning to eliminate minority shareholders LIQUIDATION AND DISSOLUTION /WINDING U P is when the corporation’s assets are sold, its creditors paid off, ad any remaining money is distributed to the shareholders, and the corporation’s existence terminated. DISSENT AND APPRAISAL RIGHT entitles shareholders who dissent from certain fundamental changes to have the corporation buy their shares. M ANAGEMENT ’S DUTIES TO THE CORPORATION FIDUCIARY DUTY is the duty of officers and directors to act honestly and in good faith with a view to the best interests of the corporation. A conflict of interest arises when a director or officer contracts with the corporation (IE: Your duty binds you to do whatever is in your power to get the lowest price for the corporation; at same time, personal interests is in selling for highest price selling goods). Solution is that the director or officer must give adequate notice of their interest to the board and may not vote on the approval of the contract by the board of directors. The contract must be fair and reasonable to the corporation. Notice regarding the interest should be recorded in the minutes of the board meeting at which the contract is approved. If this scheme is not complied with, the corporation may refuse to complete the transaction. A conflict between personal interest and fiduciary duty arises when a fiduciary considers taking advantages of some project or opportunity in which the corporation has an interest. Whether a breach of fiduciary duty will be found in any case depends upon several factors, these indicate an opportunity belongs to the corporation: • Significance of opportunity: Opportunity would have represented a major component of the corporation’s business if acquired or was a unique opportunity rather than merely one of many considered by the corporation • Private opportunity: Opportunity was not publicly advertised or otherwise widely known, but was one to which the fiduciary had access only by virtue of the fiduciary’s position in the corporation • No rejection: Opportuni
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