A1 Business and Technical College Bussiness Law Discussion

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A1 Business and Technical College

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Chapter 39 Discussion

PROMPT

Reference the portion of your text book on "DIRECTORS' RIGHTS" set forth on pages 253-254. In that portion of text we learn that in some corporations, directors can determine their own compensation. We know from the text that Directors owe a fiduciary duty to the corporation. Discuss whether you think Directors can properly decide to pay themselves from corporate funds while still fulfilling their fiduciary duty to the corporation.

INSTRUCTIONS

Make an initial post that is responsive to the above prompt.

Your post must be between 200-500 words.

  1. Initial response to discussion question(s) due first
  2. Two replies to other students’ postings due when i give you to replies

chapter video

https://www.youtube.com/watch?v=wmErk8hwU9c&feature=youtu.be

Unformatted Attachment Preview

4/29/2018 Chapter 39 Corporations: Directors, Officers, and Shareholders Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Overview • LO39-1: Why is it important to regulate the interactions among directors, officers, and shareholders within a corporation? • LO39-2: What is the role of a director, an officer, and a shareholder? • LO39-3: What are the duties of directors, officers, and shareholders? • LO39-4: In what ways can a director, officer, and shareholder be held liable? • LO39-5: What are the rights of directors, officers, and shareholders? 39-2 Critical Corporate Actors • Directors • Officers • Shareholders 39-3 1 4/29/2018 Why Is Regulation Important? • Each has different interests, sometimes interests conflict • Directors and officers' goals: Survival of institution, keeping their jobs • Shareholders' goal: Raising value of stock • Different roles regulate one another and maintain checks and balances 39-4 Roles of Directors, Officers, and Shareholders • Directors • • • • Vote on important corporate decisions Appoint and supervise officers Declare and pay corporate dividends Manage corporation • Officers • Run day-to-day business of firm • Agents of corporation • Shareholders • Elect board of directors • Approve major board decisions 39-5 Fiduciary Duties • 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 39-6 2 4/29/2018 Liability of Directors and Officers • Can be held personally liable 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 39-7 Liability of Shareholders • Liable (to extent of their investment) for debts of corporation • Liable for breach of contract if stock subscription agreement signed and no stock purchased • Liable for watered stock • Personally liable for receiving illegal dividends 39-8 Rights of Directors, Officers, and Shareholders • Directors • • • • Right to compensation Right to participation Right to inspection Right to indemnification • Officers • Rights determined in employment contract • Shareholders • • • • • • Stock certificates Preemptive rights Right to dividends Right to transfer shares Inspection rights Right to corporate dissolution • Right to file derivative suit • Right to file direct suit 39-9 3 4/29/2018 Terminology Relating to Directors, Officers, and Shareholders • Quorum: Minimum number of directors necessary to validate corporate directors' meeting • Proxy: Provides authorization for third party to vote in place of shareholder at shareholders' meeting • Voting trust: 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 • Business judgment rule: Provides that directors and officers are not liable for decisions that harmed corporation if they were acting in good faith at time of decision 39-10 Other Terms Relating to Directors, Officers, and Shareholders • Stock subscription agreement: Contractually obliges individual to buy shares in corporation • Par-value shares: Fixed face value noted on stock certificate • No-par shares: Stock shares without a par value • Watered stock: Stock issued below its fair market value • Preemptive rights: Preferential rights given to existing shareholders to purchase shares of new stock issue; preference given in proportion to percentage of stock shareholder already owns • Stock warrants: Vouchers issued to shareholders, entitling them to given number of shares at specified price 39-11 Other Terms Relating to Directors, Officers, and Shareholders (cont'd) • Dividend: Distribution of corporate profits/income ordered by directors and paid to shareholders in proportion to their respective shares in corporation • Inspection rights: Protect shareholder interest by giving them right to inspect corporation's books and records after asking in advance to inspect and having proper purpose • Right of first refusal: Given to existing shareholders to purchase any shares of stock offered for resale by shareholder within specified period of time • Shareholder's derivative suit: Filed by corporate shareholder when corporate directors fail to sue in situation where corporation has been harmed by individual/another corporation 39-12 4
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DISCUSSION

1
CHAPTER 39 DISCUSSION

Directors have fiduciary responsibilities and duties while being linked with a company.
The scenario when they may be held answerable for failing to conform to these obligations.
Assuming that a director goes against his fiduciary duty, he can be individually held accountable
for any loss incurred by the corporatio...


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