Ch. 5: Corporate Directors, Officers, and Shareholders – No. 1
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
A corporation’s shareholders elect (with voting rights
who
(1) serve for a term, unless removed early for cause or they
voluntarily resign;
(2) are typically neither the corporation’s agents nor
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 2
Clarkson et al.’s Business Law (13th ed.)
DIRECTORS’ RIGHTS AND
RESPONSIBILITIES
Directors are entitled to
(1) reasonable notice of, and to participate in, all board
meetings;
(2) exercise their voting rights on corporate matters;
(3) inspect all corporate books and records; and
(1) declaring and paying corporate dividends;
(2) authorizing major corporate decisions;
(3) hiring, promoting, supervising, and removing corporate
officers and managerial employees, and
(4) deciding whether to issue stock or bonds.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 3
Clarkson et al.’s Business Law (13th ed.)
OFFICERS
Officers: Persons the board of directors hires or promotes to
supervise the corporation’s day–to-day operations.
Compensation: Officers are entitled to be paid for their
services, but do not share in the profits of the
corporation – although the authority of a particular
officer may be limited to certain types of transactions.
Personal Liability: Officers are generally not
personally liable for the obligations of the corporation.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 4
Clarkson et al.’s Business Law (13th ed.)
DUTY OF CARE
Duty of Care: Directors and officers are expected to
(1) act in good faith in performing their duties,
(2) exercise the care that an ordinarily prudent person
would exercise in similar circumstances, and
(3) act in the best interest of the corporation.
and employees, and
(3) attend and participate in board meetings and clearly
indicate their disagreement with any decision of the
board.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 5
Clarkson et al.’s Business Law (13th ed.)
BUSINESS JUDGMENT RULE
Directors and officers are immune from personal liability for
actions that result in harm to the corporation as long as
(1) the directors and officers
(2) the actions the directors and officers took were within
(a) the corporation’s power to act and
(b) the directors’ and officers’ authority.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 6
Clarkson et al.’s Business Law (13th ed.)
DUTY OF LOYALTY
Duty of Loyalty: Directors and officers must place the
corporation’s best interest ahead of their personal interests.
As a general rule, directors and officers may not
(1) compete with the corporation, or otherwise usurp (take
personal advantage of) a corporate opportunity,
(2) have an interest that conflicts with the corporation’s,
(3) engage in insider trading,
(7) sell control of the corporation without shareholder
approval.
Conflicts of Interest: Directors and officers must fully
disclose any potential conflict of interest regarding a
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 7
Clarkson et al.’s Business Law (13th ed.)
SHAREHOLDERS
Shareholders: Owners of the corporation in proportion to the
percentage of outstanding corporate stock they own.
Separating Ownership and Management: A
Compensation: Shareholders are entitled to a share of
the corporation’s profits and net assets upon its
dissolution. In addition, shareholders may be entitled
(depending on the share agreement) to receive dividends
personally liable for the obligations of the corporation.
Therefore, their liability is limited to the amount they
paid for the corporation’s shares.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 2
Clarkson et al.’s Business Law (13th ed.)
DIRECTORS’ RIGHTS AND
RESPONSIBILITIES
Directors are entitled to
(1) reasonable notice of, and to participate in, all board
meetings;
(2) exercise their voting rights on corporate matters;
(3) inspect all corporate books and records; and
(1) declaring and paying corporate dividends;
(2) authorizing major corporate decisions;
(3) hiring, promoting, supervising, and removing corporate
officers and managerial employees, and
(4) deciding whether to issue stock or bonds.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 3
Clarkson et al.’s Business Law (13th ed.)
OFFICERS
Officers: Persons the board of directors hires or promotes to
supervise the corporation’s day–to-day operations.
Compensation: Officers are entitled to be paid for their
services, but do not share in the profits of the
corporation – although the authority of a particular
officer may be limited to certain types of transactions.
Personal Liability: Officers are generally not
personally liable for the obligations of the corporation.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 4
Clarkson et al.’s Business Law (13th ed.)
DUTY OF CARE
Duty of Care: Directors and officers are expected to
(1) act in good faith in performing their duties,
(2) exercise the care that an ordinarily prudent person
would exercise in similar circumstances, and
(3) act in the best interest of the corporation.
and employees, and
(3) attend and participate in board meetings and clearly
indicate their disagreement with any decision of the
board.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 5
Clarkson et al.’s Business Law (13th ed.)
BUSINESS JUDGMENT RULE
Directors and officers are immune from personal liability for
actions that result in harm to the corporation as long as
(1) the directors and officers
(2) the actions the directors and officers took were within
(a) the corporation’s power to act and
(b) the directors’ and officers’ authority.
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 6
Clarkson et al.’s Business Law (13th ed.)
DUTY OF LOYALTY
Duty of Loyalty: Directors and officers must place the
corporation’s best interest ahead of their personal interests.
As a general rule, directors and officers may not
(1) compete with the corporation, or otherwise usurp (take
personal advantage of) a corporate opportunity,
(2) have an interest that conflicts with the corporation’s,
(3) engage in insider trading,
(7) sell control of the corporation without shareholder
approval.
Conflicts of Interest: Directors and officers must fully
disclose any potential conflict of interest regarding a
Ch. 40: Corporate Directors, Officers, and Shareholders – No. 7
Clarkson et al.’s Business Law (13th ed.)
SHAREHOLDERS
Shareholders: Owners of the corporation in proportion to the
percentage of outstanding corporate stock they own.
Separating Ownership and Management: A
Compensation: Shareholders are entitled to a share of
the corporation’s profits and net assets upon its
dissolution. In addition, shareholders may be entitled
(depending on the share agreement) to receive dividends
personally liable for the obligations of the corporation.
Therefore, their liability is limited to the amount they
paid for the corporation’s shares.