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BLAW FINAL EXAM

Terms in this set (65)

The Board of Directors have the ultimate authority in a corporation and have the responsibility for policy making decisions necessary to manage all corporate affairs
The selection and removal of corporate officers
Determines the capital structure of the corporation
Declares dividends
Each director has one vote (majority rules in most cases)
Individual directors cannot bind the corporation
May or may not be a shareholder
Initial directors are appointed upon incorporation and serve until the first meeting
Serve pursuant to the terms of the bylaws (1, 2 or 3 years, staggered terms)
Can be removed with cause and sometimes without cause
Vacancies are filled by either the shareholders or directors, depending on the bylaws
Directors usually are not compensated (except for snacks at the meetings)
Can be compensated if also a officer(CEO)
Inside directors are also officers of the corporation
Outside directors do not hold management positions
Boards can contain both inside and outside directors
Board of Directors meeting can occur monthly, every six months or once a year (bylaws)
Only need a quorum (majority of directors) to take binding action on behalf of the corporation
Boards usually have committees to handle specific tasks who then report back to the full board
Executive committee
Audit committee
Nominating committee
Compensation committee
Litigation committee
"Entertainment" committee
Directors have rights of notification of all meetings (including special meetings), to participate (unless the board votes to have them bound and gagged), to inspect the books and records so as to be able to make informed decisions
Also have the right to be indemnified (compensate) in the event of litigation (take legal action) for expenses and legal fees
Officers and other executive employees are hired by the board (President, Vice President, Secretary & Treasurer)
Rights: Right to a stock certificate
If lost or destroyed, you still own the stock and rights there to
Preemptive rights
The right to buy additional new stock in the same percentage that you currently own so as not to diminish your power and rights
Really important in close corporations so as not to lose control
Stock warrants
The right to buy stock at a certain price by a given date

Right to receive dividends in the form of cash, property or additional stock in the corporation
Pay dividends from retained earnings, net profits or surplus
Illegal dividends (paid out while the corporation is insolvent(in debt)) must be paid back and the directors can be held personally responsible
If dividends are not paid out, shareholders can sue. If compelling reason on not declaring dividends, the court will not force the issue
Right to inspect the books and most records (but not the secret formula to Coke)
Must be for a proper purpose and made in advance
Cannot abuse or harass the corporation
The right to transfer stock (unless restricted)
The right to share in the remaining assets after dissolution
Can bring a shareholder's derivative lawsuit
Directors fail to take legal action
Shareholders notify the directors that they have 90 days to bring suit, if not the shareholders are free to proceed
Any $$$ (except shareholders legal expenses) goes back to the corporation
No personal liability unless corporate veil is pierced
Lose only investment
Can be liable for watered stock (not worth the value)
Majority shareholders cannot freeze out minority shareholders
Cannot breach fiduciary duty to other shareholders
The Board of Directors have the ultimate authority in a corporation and have the responsibility for policy making decisions necessary to manage all corporate affairs
The selection and removal of corporate officers
Determines the capital structure of the corporation
Declares dividends
Each director has one vote (majority rules in most cases)
Individual directors cannot bind the corporation
May or may not be a shareholder
Initial directors are appointed upon incorporation and serve until the first meeting
Serve pursuant to the terms of the bylaws (1, 2 or 3 years, staggered terms)
Can be removed with cause and sometimes without cause
Vacancies are filled by either the shareholders or directors, depending on the bylaws
Directors usually are not compensated (except for snacks at the meetings)
Can be compensated if also a officer(CEO)
Inside directors are also officers of the corporation
Outside directors do not hold management positions
Boards can contain both inside and outside directors
Board of Directors meeting can occur monthly, every six months or once a year (bylaws)
Only need a quorum (majority of directors) to take binding action on behalf of the corporation
Boards usually have committees to handle specific tasks who then report back to the full board
Executive committee
Audit committee
Nominating committee
Compensation committee
Litigation committee
"Entertainment" committee
Directors have rights of notification of all meetings (including special meetings), to participate (unless the board votes to have them bound and gagged), to inspect the books and records so as to be able to make informed decisions
Also have the right to be indemnified in the event of litigation for expenses and legal fees
Officers and other executive employees are hired by the board (President, Vice President, Secretary & Treasurer)
Duty of care (can be held liable if negligent)
Honesty (acting in good faith)
Exercise due care
Do what is in the best interests of the corporation
Duty to make informed and reasonable decisions (investigate, study, discuss matters and weigh up alternatives before taking action)
If relying on expert advice (lawyers, accountants etc.), won't be held liable if things go bad (unless obvious)
Duty to exercise reasonable supervision
Dissenting directors must put their objection in the minutes, otherwise, if a bad decision, may be held liable and presumed to have agreed to the vote
Business judgment Rule
Must use due care to become informed about corporate matters
Won't be held liable for honest mistakes of judgment (had a rational basis for the decision)
Must not have a conflict of interest
Provides broad protection to corporate decision makers