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Chapter 22

MGSB22H3 Chapter Notes - Chapter 22: Transfer Tax, Accounting, Chief Executive Officer

Management (MGS)
Course Code
Professor Rybak

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MGTC31 CH.22
Chapter 22
Legal Rules for Corporate Governance
corporate governance rules affect incentives for investors to invest in businesses by
seeking to ensure management is accountable to investors without sufficient
accountability SH won’t invest
but accountability obligations must not be so great that they interfere with management’s
ability to do its job or discourage capable people from becoming managers
Management and Control of the Corporation
power and responsibility in corporation allocated amongst different groups of people
Shareholders are the residual claimants to the assets of the corporation and elect the
directors (only powers are to vote for the election of the directors, appoint the auditor,
and to vote on proposals made to them)
odon’t participate in managing the business/corporation
Directors: are responsible managing or supervising the management of the business of
the corporation and its internal affairs
oincludes issuing shares, declaring dividends and calling SH meetings
Officers: are appointed by the directors of the corporation and usually exercise the
management powers delegated to them by the directors
Shareholders elect ->Directors appoint -> Officers refer to figure 22.1 pg 543
How Shareholders Exercise Power
Directors are obligated to call a meeting at least every 5 months
Annual Meetings: shareholders elect directors, appoint an auditor, and review the
annual financial meetings
omeetings important opportunity to questions and criticize management as well as
to discuss and vote on proposals made to SH
ocorporate statutes permit any business that must be done at a meeting to be
recorded in written resolutions and signed by all SH such signed resolutions
commonly used as alternative to meetings in corporations with few SH and are
just as effective as actions taken at a meeting
Public Corporation: is a corporation that has distributed its shares to the public
In these corporations, only a small % of shareholders participate in the meetings; a
proxy is usually appointed to represent them at the meeting
Proxy/Proxy holder: is a person designated by a shareholder to vote at shareholders’
Management must send the shareholders a form of proxy allowing them to appoint a
proxy holder and form sent along with a management proxy circular
Management Proxy Circular: is a document sent to the shareholders that contains
management proposals and other information related to the shareholder meetings
Dissent Shareholders: disagree with management proposals.
omay try to encourage fellow SH to vote against management
oentitled to obtain list of SH and addresses from corporation and to use
information to contract other SH to influence their voting
Dissidents` Circular: is a document sent to all shareholders by any shareholder who
seeks the votes of other shareholders against management

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MGTC31 CH.22
Shareholder`s Access to Information
all SH have access to certain info to enhance their ability to monitor management and to
exercise their rights as SH
A corporation must maintain these records and allow SH access to them:
1. articles
2. by-laws
3. minutes of meetings of shareholders and shareholder resolutions
4. a share register showing the owners of all shares
The most important piece of information is an annual financial statement or annual report
statements must be created by independent accountant who determines whether
statement created by management was prepared in accordance with generally accepted
accounting principles and fairly present the financial results of the corporation for the
Shareholders’ Agreements
A corp. with few shareholders often use a shareholders’ agreement to create an
arrangement for the governing of the corporation
they may
1. changing shareholder voting entitlements
2. change shareholder approval requirements
3. create rules for share transfers
Voting and Management
SH may want to allocate decision making power amongst themselves in way that`s
different from allocation that would result from number of shares each holds
SH of corporation can agree to alter allocation of power between directors and SH
Unanimous Shareholders`Agreement: is an agreement of all shareholders to transfer
some or all of the directors’ powers to themselves
oSH who are party to such an agreement have all rights and powers as well as
duties and liabilities of a director to the extent of the restriction and directors
relieved of their duties and liabilities to same extent allows small corporation to
organize its structure to reflect fact that its the SH who’re running business by
giving them power to manage directly
Share Transfer
share transfer is slight problem in corporations with few shareholders
osometimes hard to operate business if main person sells shares
ohard finding SH who has interest in small corporation
oSH don’t want other SH to able to sell shares to anyone want some
restrictions on share transfer so they can control who becomes involved in
business as SH but also want minimal restriction on their ability to sell their own
Right of first Refusal: is the right for shareholders to be offered shares that a
shareholder wants to sell first before they are offered to non-shareholders
Shotgun buy-sell: is a share transfer mechanism that forces one shareholder to buy out
the other (e.g. If Ellen offers all of her shares to Bill at the same price then Bill must 1)
buy all of Ellen’s shares or 2) sell all of his shares to her at the same price
Shareholder Remedies

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MGTC31 CH.22
corporate statutes provide SH with variety of remedies in situations where their interests
have been injured by acts of the corporation/directors
Derivative Action
value of SH investment will be reduced if corporation suffers loss so SH may seek
court’s permission to pursue relief on the corporation’s behalf for breach of fiduciary duty
or any other wrong done to the corporation if the directors fail to do so
directors may not act if the wrong is a breach of duty by directors themselves
Derivative Action: is an action by a shareholder on behalf of a corporation to seek relief
for a wrong done to the corporation
When the actions by a corp. have unfairly disregarded or prejudiced their interests,
shareholders may claim relief under the oppression remedy
Oppression Remedy: allows a shareholder to claim relief from an act or omission by
the corporation or its directors that oppresses the interests of the shareholder
Relief can include anything the court decides necessary to remedy the problem; these
are examples of oppressive behaviors:
Approval of a transaction lacking a valid corporate purpose that is prejudicial to a
particular shareholder
Failure by the 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
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
Other Shareholder Remedies
SH may seek other remedies such as court order that directs compliance with governing
statute or rectification of corporate records that contain errors
Liquidation and Dissolution/winding up: the corporation’s assets are sold, its
creditors paid off, the remaining money distributed to the shareholders, and the
corporation’s existence terminated
omay be ordered when its just and equitable to end of corporation’s existence
another SH remedy is available for SH who disagree when other SH approve certain
fundamental changes to corporation, such as specific major amendments to articles, and
sale of all or substantially all of the assets of a corporation outside of ordinary course
Dissent and Appraisal: right entitles shareholders who dissent from certain
fundamental changes to have the corporation buy their shares
How Directors and Officers Exercise Power
Under the CBCA, the first directors are those in the article of incorporation; these
directors hold office until first meeting of SH which must be held within 18 months of
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