Lecture Dynamic business law - Chapter 39: Corporations, directors, officers, and shareholders

After studying this chapter you will be able to understand: Why is it important to regulate the interactions among directors, officers, and shareholders within a corporation? What is the role of a director, an officer, and a shareholder? What are the duties of directors, officers, and shareholders? In what ways can a director, officer, and shareholder be held liable? What are the rights of directors, officers, and shareholders?

Corporations: Directors, 

Officers, and  Shareholders

Shareholders

 Directors­­

 Officers­­

 Shareholders­­

decisions

dividends

firm

Definition:  Duties to corporation that individuals

within corporation have

Primary fiduciary duties include:

 Duty of Care

 Duty of Loyalty

 Duty to Disclose Conflict of Interest

Officers

 Can be held personally liability for their own torts and crimes

 Can be held personally liable for torts and crimes of other 

employees they supervise

 Can be held liable for wrongful transactions involving 

company stock

 Cannot be held liable for decisions that harm company if they 

were acting in good faith at time of decision

 Shareholders liable (to extent of their investment) for debts of 

corporation

 Shareholders liable for breach of contract if stock subscription  agreement signed and no stock purchased

 Shareholders liable for watered stock

 Shareholders personally liable for receiving illegal dividends

contract

and Shareholders—Terminology

Quorum (Definition): Minimum number of 

directors necessary to validate corporate 

directors’ meeting

and Shareholders—Terminology

Proxy (Definition): Provides authorization 

for third party to vote in place of  shareholder at shareholders’ meeting

and Shareholders—Terminology

Voting Trust (Definition): Agreement between 

stockholder and trustee in which stockholder 

transfers his/her legal share titles to trustee; trustee 

is then responsible for voting for those shares

and Shareholders—Terminology

Business Judgment Rule (Definition): 

Provides that directors and officers are not 

liable for decisions that harmed corporation 

if they were acting in good faith at time of 

decision

Corporations:  Directors, Officers, and  Shareholders­­Other Relevant Terminology

shares in corporation

purchase shares of new stock issue; preference given in proportion to 

percentage of stock shareholder already owns

number of shares at specified price

Relevant Terminology (Continued):

and paid to shareholders in proportion to their respective shares in 

corporation

inspect corporation’s books and records after asking in advance to inspect 

and having proper purpose

shares of stock offered for resale by shareholder within specified period of  time

corporate directors fail to sue in situation where corporation has been 

harmed by individual/another corporation