Textbook Notes (363,132)
Canada (158,212)
Business (2,364)
BU231 (315)


9 Pages
Unlock Document

Wilfrid Laurier University
David Scallen

Corporation Corporate governance: rules governing the organization and management of the business and affairs of a corporation in order to meet its internal objectives and external responsibilities Publicly traded corporation: corporations that issue shares to the public (public corporations) • Publicly traded companies are required to meet the standards in both the provincial securities legislation these rules increase protection available to stakeholders • Public offering: selling shares to the public The role of the directors (section 102 of CBCA): managing or supervising the management of the business and affairs of the corporation. Following are the specific powers: a. To issue shares b. To declare dividends c. To adopt by-laws governing the day-to-day affairs of the corporation d. To call meetings of shareholders e. To delegate responsibilities A distributing public corporation must have at least three directors, at least two independent ones (not officer or employee of the corporation) Officers: responsible for day-to-day (hands on) management of the corporation; derive power from directors. Ex. president, secretary, treasurer… etc. • Only statutory requirement is that they are at “full capacity” • Subject to the same duties as directors Audit committee: group of directors responsible for overseeing, but also more responsibilities in a public corporation • They have to be independent directors • The auditor must be retained by and report to the audit committee rather than the board or corporate management Internal Structure of Basic Corporate Governance • Shareholders elect Board of Directors at annual meeting • Board elects a Chair (Chair cannot be same person as CEO) • Directors hire CEO at Board meeting • Directors adopt bylaws, declare dividends, issues shares and call meetings • CEO hires employees, run the company and reports to the board Concepts in Modern Corporate Governance (directors) • Independence: they must not be an officer or employee of the corporation; or have “material relationship with the corporation” • Transparency (internal): internal controls; committee structure; retaliation against whistle blowing is a criminal offense • Timely disclosing (external): mandatory reporting- shareholders, regulator, public • Accountability - Criminal sanctions - Regulatory liability - Civil liability to stakeholders Shareholders approve only key decisions Pg. 656 – Duties of directors and Officers Section 122 of CBCA describes the statutory duties of directors and officers: 1. Every director and officer of a corporation in exercising their powers and discharging their duties shall a) Act honestly and in good faith with a view in the best interests of the corporation • this is fiduciary duty involving loyalty, integrity, and trust; addresses the motives, considerations, and factors that influence decision making • this fiduciary duty is only owed to the corporation • to avoid conflict between a director’s personal interest and corporation b) Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances • negligence; directors/officers owe a duty of care to the corporation; objective standard which means no greater diligence is required than is required of an average person • Directors are not expected to give continuous attention to the affairs of the corporation unless there is suspicious circumstances • Directors are entitled to rely on information received from the officers of corporation • However, they may not wilfully make mistakes and misconduct, meaning they should challenge the information given • Directors may be liable for any damage that results 2. Every director and officer of a corporation shall comply with this Act, the regulations, articles, by-laws and any unanimous shareholder agreement Duty of care is owed to the corporation as a whole. The interests of “the corporation” are taken to mean the interest of the corporate legal entity, present and future. Practically and technically, a director of a corporation owes a duty to everyone (shareholders, consumers, citizens…etc.) So corporate governance law has evolved to recognize that directors and officers must act in the best interests of the corporation viewed as a good corporate citizen. • This means that there is an obligation to consider the interests of these other stakeholders. • Directors may be personally liable if they don’t manage the affairs of the corporation. • They also owe a duty of care to the shareholders (ex. preferred shareholders are entitled to a certain amount of dividends every month) • In Ontario since August 2007, both fiduciary duty and the duty of skill are owed only to the corporation Defences to Breach of Duty CBCA’s suggested defenses a) Due diligence defence: establishing that the required degree of care was taken b) Good faith reliance; business judgment rule; the directors acted in good faith in reliance on audited financial statements or expert reports; but it will not protect from liability for a failure to comply with specific legal obligations Ways of limiting liability: a) Corporate indemnity: agreement with the corporation to reimburse a director for any costs associated with liability if they have acted reasonably and in good faith b) Directors’ and officers’ liability insurance: insurance that covers damages in good faith Strict liability: no breach of duty need to be established anything that involves liabilities (debts or bills) not being paid off • Improper redemption of shares or payment of dividend that causes corporation not be able to pay off liabilities • If corporation becomes insolvent (unable to pay off liabilities); the directors are personally liable Fiduciary Duties Confidentiality of corporate information Conflict of interest • Contracts with the Corporation: Director’s conflict of interest with the corporation; director must disclose any interest; once found out, a contract may be rescinded. • Corporate information: If there is an opportunity to buy something at a cheap price, the director must disclose information to directors • Interception of corporate opportunity; civil breach of fiduciary duty • Competing with the corporation: a director may not carry on a business competing with that of her corporation, except with the permission of the corporation. If not disclosed, the corporation is entitled to claim all profits earned from competition • Related party transactions Insider trading: a criminal offense where a director (insider) buys or sells shares or other securities based on his knowledge that is confidential inside corporation. • “Tippee”- a person who knowingly receives confidential information from an outsider • A very heavy penalty- fines up to $5million and prison from 5-10 years In a private corporation, an insider is liable: • To compensate the seller or purchaser for any loss suffered as a result • To account to the corporation for any benefit or advantage obtained A shareholders owes no duty to act either the welfare of the corporation itself or the welfare of his fellow shareholders- even if the shareholder is one of the directors, he may vote in his own personal interests Penalty Criminal/ Regulatory Liability- S.122 Securities Act • 5 years of jail • Fine Shareholders In a public corporation, if a shareholder is dissatisfied with the company, sell your shares and get In a private corporation, there is no easy way to sell shares; this might cause a “lock-in” because he probably cannot sell the share at a price even close to what it’s worth • Disagreement between principal shareholders cause a problem (frequently directors and senior employees) • Transfer of shares is restricted without approval of board • Even with the approval to sell, it will be hard to find another person who wants to be a minority in that corporation • They may increase salaries to themselves, decreasing company’s profit • Therefore, a minority shareholder may find himself deprived of his salary-earning position, his directorship, and his prospect of any dividends on his investment Rights of Shareholder (if one class) • Notice of meeting-Required by statue to hold at least one annual general meeting (where shareholders get to vote on matters concerning corporation) • Right to special meetings upon large request • Receive an
More Less

Related notes for BU231

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.