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
• 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
• 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
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
• 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.
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
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
• 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
• 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
• No rejection: Opportuni