Bài giảng Business Law - Chapter 44: Shareholders’ Rights and Liabilities

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin10History and Nature of CorporationsOrganization and Financial Structure of CorporationsManagement of CorporationsShareholders’ Rights and LiabilitiesSecurities RegulationLegal and Professional Responsibilities of Auditors, Consultants, and Securities ProfessionalsCorporationsPARTShareholders’ Rights and LiabilitiesPAETRHC44Management 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 ObjectivesDescribe the rights and powers of shareholders, how they exercise their powers, and special liabilitiesIdentify classes of sharesExplain how shareholders may enforce corporate rights of actions, especially against managersShareholders are the owners, but not the managers of a corporationShareholder rights in a publicly-owned corporation are limited to electing and removing directors, approving vital matters, and ensuring that management actions are consistent with state corporation statutes, the articles of incorporation, and the bylawsOverviewState statutes and the Model Business Corporation Act (MBCA) require an annual meeting of shareholders to be heldPrimary purpose: elect directorsSpecial meetings of shareholders may be held whenever a corporate matter arises that requires immediate shareholders’ actionNotice must be given to shareholders of record (entitled to vote)Shareholder MeetingsA quorum of outstanding shares must be represented at meeting by shareholdersA majority of votes cast at shareholders’ meeting will decide issues put to a voteShareholders have right of full participation, including the right to offer resolutions, speak for or against proposed resolutions, and ask questions of corporate officersConduct of MeetingsDirectors generally are elected by a single class of shareholders in straight voting: each share has one vote for each director-nomineeOther methods:With cumulative voting, shareholders may accumulate votes by multiplying the number of directors to elect by the number of shares heldWith class voting, corporations have classes of shareholders: preferred and commonStraight VotingVoting Trusts: shareholders transfer their shares to one or more voting trustees and receive voting trust certificates in exchange to achieve control of the corporation (concentrates voting power)Shareholder Voting Agreements: used to agree on how they will vote their shares Proxies: shareholder may appoint a proxy to vote his or her shares allowing minority shareholders to collectively own a majority of sharesShareholder Control DevicesAmendment of articles of incorporationMerger: First corporation dissolves and second corporation takes business, assets, and liabilities of both corporationsConsolidation: Two corporations join to create a new corporation, but both original corporations cease to existChanges Requiring Shareholder ActionShare exchange: One corporation becomes owner of all outstanding shares of second corporation through compulsory exchangeSale of all or substantially all of assets of the business other than in regular course of business Dissolution: First step in the termination of the corporation’s businessChanges Requiring Shareholder ActionTo effect fundamental changes, the board of directors must approve, notice must be given to all shareholders whether or not they are entitled to vote, and there must be majority approval of the votes held by shareholders entitled to vote under the statute, articles, or bylawsDissenters’ rights or a right of appraisal have been created to protect dissentersProcedure to Effect ChangesCorporate managers resist shareholders’ inspecting corporate books and records, but most state corporation statutes specifically grant shareholders inspection rightsMBCA grants shareholders an absolute right of inspection of the shareholder list and the articles, bylaws, and minutes of shareholder meetings within the past three yearsShareholder Rights of InspectionShareholders may receive distributions of the corporation’s assets, generally in the form of cash or property dividends Declared by the board of directors and paid on the date set by the directors Once declared, dividends are debts of the corporation and shareholders may sue to force payment of the dividendsPreferred shares generally have a set dividend rate stated in the articles of incorporationDodge v. Ford Motor Co.: court ordered payment of a dividend to common shareholdersDistributions to ShareholdersA corporation may distribute additional shares of the corporation to shareholders instead of a cash or property dividendShare dividend: each shareholder receives specified percentage of sharesDeclared by the board, but revocableShare split: shareholders receive specified number of shares in exchange for each share they currently ownShare Dividends & Share SplitsA corporation may also distribute assets by repurchasing shares from its shareholders:Right of redemption (or a call) is a right of the corporation to force an involuntary sale by a shareholder at a fixed priceMust be allowed by articles of incorporationOpen-market repurchase is when a corporation purchases shares from any shareholder willing to sellShare RepurchasesA shareholder has the right to sue in his own name to prevent or redress a breach of the shareholder’s contractOne or more shareholders may bring a derivative action for the benefit of the corporation if the directors failed to pursue a corporate cause of actionShareholder LawsuitsBoards may create a shareholder litigation committee (SLC) whose purpose is to decide whether to sue if a shareholder makes a demand to file suitMBCA has adopted the Zapata rule to determine board acts in good faith with regard to shareholder litigationShareholder Litigation CommitteeVoluntary dissolution: corporation must file articles of dissolution with secretary of stateInvoluntary dissolution: without consent of corporation by judicial or administrative action of the secretary of stateAdministrative dissolution requires that the secretary of state give written notice to the corporation of the grounds for dissolutionDissolution of CorporationsDissolved corporation continues to exist for the sole purpose of winding up, the orderly collection and disposal (liquidation) of assets and distribution of the proceeds from the sale of assetsAfter completing the winding up process, the corporation’s existence terminatesWinding Up & TerminationThought QuestionIs it ethical for a Shareholders Litigation Committee 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?