Chapter 48 Management of Corporations

1. Twomey  JenningsAnderson’s Business Law and the Legal Environment, Comprehensive 20eAnderson’s Business Law and the Legal Environment, Standard 20eBusiness Law: Principles for Today’s Commercial Environment 2e Chapter 48 Management of Corporations

2. Shareholders • As owners, stockholders have the right to control the corporation through the election of directors and through other proposals brought to vote. • Ordinarily, stockholder action is taken at a regular or special meeting of the stockholders. • The presence of a quorum of the voting shareholders is required.

3. Directors • General oversight of a corporation is under the control of a board of directors, e.g.: • Strategic plans; • Approving SEC Filings; • Acting on Mergers, Acquisitions. • Number of Directors is fixed in the corporate bylaws.

4. Directors • Courts will not interfere with the board’s judgment in the absence of unusual conduct such as fraud. • A director is disqualified from taking part in corporate action when the director has a conflict of interest. • Sarbanes Oxley Act of 2002. • Prohibits all direct/indirect loans to directors and officers.

5. Powers of Directors Board of Directors Authority to manage the corporation May enter into any contract or transaction necessary to carry out business May appoint officers and other agents to act for the company May appoint several of its own members as an executive committee to act for the board between meetings

6. Liability of Directors Smith v Van Gorkam (1985) Did the Directors act in the best interest of the corporation? • Directors act in a fiduciary capacity in dealing with the corporation. • Business Judgment Rule: Defense for Directors who act in good faith and have exercised reasonable care.

7. Liability of Directors In Re Abbott Laboratories Derivative Shareholder Litigation (2002) Were the directors personally liable? • Suits against Directors. • Action against directors should be brought by the corporation. • Shareholders can bring a derivative suit.

8. Officers, Agents, and Employees • Officers of a corporation, including a CEO, president, vice president, secretary, and treasurer, are usually selected and removed by the board of directors. • Officers are agents of the corporation, and with powers governed by the law of agency.

9. Officers, Agents, and Employees • Their relations with the corporation are fiduciary in nature, and they are liable for any secret profits and for diverting corporate opportunities to their own advantage.

10. Liability Demoulas v Demoulas Super Markets, Inc. (1997) Was there a breach of fiduciary duty? • Officers, as agents generally of the corporation, are personally responsible for any torts or crimes they commit even if they act on behalf of the corporation. • Officers may be liable for taking advantage of a corporate opportunity.

11. Liability to Third Persons • Shareholders enjoy limited liability. • Liability of Management to Third Persons. • Generally not liable for economic consequences if decision made in good faith.

12. Liability to Third Persons • Liability of Management to Third Persons (cont’d): • Generally not liable to third parties for poor decisions (but there may be a derivative suit). • Criminal Liability. • Responsible Corporate Officer Doctrine: control the facility with knowledge of violations.

13. Liability to Third Persons • Generally, directors and officers are not liable for corporate obligations or debts. • A corporation is civilly liable to a third party if one of its agents causes injury.