Bài giảng Business Law (13th edition) - Chapter 44: Shareholders’ Rights and Liabilities

Learning Objectives Shareholders’ meetings Shareholders’ and dissenters’ rights Distributions to shareholders Shareholders’ lawsuits Shareholder liability Dissolution and termination of corporations

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CorporationsHistory & Nature of CorporationsOrganizational and Financial Structure of CorporationsManagement of Corporations10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.CorporationsShareholders’ Rights & LiabilitiesSecurities RegulationLegal & Professional Responsibilities of Auditors, Consultants, and Securities Professionals10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.Shareholders’ Rights and LiabilitiesPAETRHC44“Management have been allowed to act like owners. But it is the stockholders who own companies and the stockholders are just beginning to realize it.”T.Boone Pickens, Sunday Times (London, Dec. 1, 1985)Learning ObjectivesShareholders’ meetingsShareholders’ and dissenters’ rightsDistributions to shareholdersShareholders’ lawsuitsShareholder liabilityDissolution and termination of corporations44 - *Shareholders are the owners, but not the managers of a corporationShareholder rights in a publicly-owned corporation are limited to electing and removing directors at the annual meeting, approving vital matters at special meetings, and ensuring that management actions are consistent with state corporation statutes, bylaws, and articles of incorporationOverview44 - *Notice of meetings must be given to shareholders of record (entitled to vote) as of date fixed by the boardA quorum of outstanding shares requiredIssues decided by majority of votesShareholders have right of full participation, including right to offer resolutions, speak for or against proposed resolutions, and ask questions of corporate officersConduct of Meetings44 - *Directors generally elected by a single class of shareholders in straight voting: each share has one vote for each director-nomineeMajority shareholder could elect entire boardCumulative voting: shareholders accumulate votes by multiplying number of directors to elect by the number of shares heldClass voting: each class may be entitled to elect one or more directors to balance powerVoting44 - *Voting Trusts: shareholders transfer their shares to one or more voting trustees to achieve control of corporationShareholder Voting Agreements: shareholders may agree how they will vote their shares Proxies: shareholder may appoint a proxy to vote his/her shares; allows minority owners to collectively own a majority of sharesOther Shareholder Devices44 - *Amendment of the articles of incorporationMerger: First corporation dissolves into second corporationConsolidation: Two corporations join to create a new corporationShare exchange: One corporation becomes owner of all outstanding shares of second corporation through compulsory exchangeChanges Requiring Shareholder Action44 - *Sale of all or substantially all of the assets of the business other than in regular course of business Drastically changes shareholders’ investmentDissolution: First step in the termination of the corporation’s businessChanges Requiring Shareholder Action44 - *MBCA grants shareholders an absolute right of inspection of the shareholder list and the articles, bylaws, and minutes of shareholder meetings within the past three yearsShareholders have right to receive important information about the corporation, such as financial statements, including a balance sheet, an income statement, and a statement of changes in shareholders’ equityShareholder Rights of Inspection44 - *Shareholders may receive asset distributions as cash or property dividendsStatutes limit extent to which dividends paidCorporation may distribute “new” shares to shareholders instead of cash or propertyCorporation may also distribute assets by repurchasing shares from its shareholdersRight of redemption or open-market repurchaseDistributions to Shareholders44 - *A shareholder has right to file suit to prevent or redress a breach of shareholder’s contractIf several shareholders similarly affected by a wrongful act, a shareholder may bring a class action on behalf of affected shareholdersOne or more shareholders may bring a derivative action for the corporation if board fails to pursue a cause of action against a firm that harmed the corporationShareholder Lawsuits44 - *Person bringing suit (1) must be a current shareholder who held shares at time alleged wrong occurred, and (2) first demand that board of directors bring the suitIf board refuses, shareholder cannot bring derivative action since business judgment rule insulates board’s decisionShareholder may still sue directors!Derivative Action Rules44 - *Shareholder may be liable to corporation if: Dividends or distributions received with knowledge of illegalityShareholder responsible for defective incorporation or piercing corporate veilShares sold wrongfully for premium over fair market value of minority shares Controlling shareholder controls corporation unfairly and thus breaches the fiduciary dutyShareholder Liability44 - *With a few exceptions, rules for nonprofit corporation meetings, voting, and inspection are similar to rules of corporations for profitA nonprofit corporation (e.g., country club) generally is prohibited from making asset distributions to membersNonprofit Corporations44 - *Voluntary dissolution: corporation must file articles of dissolution with secretary of stateInvoluntary dissolution: without corporation’s consent by judicial action or administrative action of the secretary of stateDissolved corporation continues for sole purpose of winding up: orderly collection and disposal (liquidation) of assets and distribution of proceeds from sale of assetsDissolution & Winding Up44 - *Distribution of proceeds: creditor claims are paid first, then preferred shareholders, then common shareholders After completing winding up process, corporation’s existence terminatesTermination44 - *Test Your KnowledgeTrue=A, False = BShareholders are the owners and managers of a corporation.In a shareholder’s meeting, issues are decided by majority vote and a quorum is required.In class voting, each shareholder class may be entitled to elect one or more directors to balance powerThe board of directors has the sole power to dissolve a corporation.44 - *Test Your KnowledgeTrue=A, False = BIn a shareholder voting agreement, each shareholder appoints someone to vote his/her shares.Corporations may only distribute cash or property dividends to shareholders.Shareholders have no duty to the corporation.In a merger, the first corporation dissolves into the second corporation.44 - *Test Your KnowledgeMultiple ChoiceWhich of the following actions does not require shareholder approval? (a) Consolidating two companies(b) Amending the articles of incorporation (c) Dissolving the corporation (d) Merger of the corporation into another(e) Acquiring another corporation’s assets44 - *Test Your KnowledgeMultiple ChoiceCandy Corp. lost $1 million in sales when SweetsLLC made serious, defamatory statements about Candy Corp. to the press. Bob Cratchit, a shareholder, brought a lawsuit on behalf of Candy Corp. against SweetsLLC. Which of the following is true?(a) Bob Cratchit brought a class action(b) Bob Cratchit brought a derivative action(c) Bob Cratchit brought an illegal action44 - *Thought QuestionIs it ethical for a Shareholders Litigation Committee or directors to recommend dismissing an action against officers who, like some in the Adelphia, Tyco, and Enron scandals, either looted the corporation or caused it to overstate earnings or understate liabilities?44 - *