Corporate Management Structure

1
Corporate Management Structure

• Chapter 36

2
Shareholders

• Collectively own the corporation
• Indirect methods of control
• Elect Directors
• Approve amendments to articles
• Approve fundamental changes
• Amend by-laws
• Annual shareholder meeting
• Special Meetings
• may be called by the Board or holders of at
  least 1/10 outstanding voting shares
• Record date for eligibility to vote may not be
  more than 70 days prior to a meeting
• Voting list must be compiled at least 10 days
  before the shareholders meeting

3
Proxy

• Authorization by a shareholder for someone else
  to vote on his/her behalf.
• Must be in writing
• Effective up to 11 months
• Proxy may be revoked unless coupled with an
  interest and states its irrevocable
• General or limited proxies
• Proxy Solicitations

4
Quorum

• A majority of the outstanding shares entitled to
  vote (i.e, no treasury shares) represented either
  in person or by proxy
• Articles may provide for no less than 1/3 quorum,
  or provide for a super-majority quorum, when
  permitted by state law.

5
Voting Rights

• CUMULATIVE VOTING
• Allows minority shareholders to accumulate his
  votes and cast them all on one candidate.
• of voting shares X of Ds to be elected,
  equals Total of votes that can be cast
• EX 100 shares owned X 3 Ds to be
  elected, shareholder may cast 300 votes for any
  one director, or divide in any proportion.
  

• STRAIGHT VOTING - One share, one vote majority
  wins.
• EX - 100 shareholders, 60 votes for A, 40 votes
  for B, A wins.
• A majority shareholder can elect an entire Board.

6
Voting Example

• At the annual shareholder meeting, 3 Directors
  will be elected from a choice of 6 candidates
  (U,V,W,X,Y, and Z). A, the minority shareholder,
  owns 100 shares B owns 150 shares. A likes U,
  V, and W B likes X, Y, and Z.
• Under straight voting, A may cast 100 votes
  towards any one Director, but will always lose by
  50 votes to Bs candidates.
• If cumulative, A has 300 votes B has 450. To
  defeat As candidates, B will need 301 votes,
  leaving only 149 left. Therefore, B might cast
  his votes as follows 301 for X, 148 for Y and 1
  for Z OR 250 for X and 200 for Y, 0 for Z, etc.
  A might cast all 300 votes for U, which would
  enable at least one of the minority shareholders
  candidates to be elected.

7
Formula to Determine How Many Votes are Necessary
to Elect a D, or a Given of Ds

• X TS X ND___ 1
• TD 1
• X is the desired quotient, the minimum number
  of shares needed to elect 1 Director
• TS (total shares voting at the meeting)
• ND (number of directors desired by shareholder to
  be elected)
• TD (total of Directors to be elected)

8
How Many Shares are Needed to Elect a Director?

• B owns 600 shares, C owns 400 shares. There are
  a total of 1000 shares. There are 6 Board
  vacancies and 12 candidates.
• C has a possible 2400 votes B has 3600.
• How many shares does C need to elect a director?
  How many directors may she elect with her 400
  votes?
• C needs 144 votes to elect each Director. At
  most, C can elect 2 of her favorite Director
  candidates, using 288 votes.
• 1000(1) 1 1000 1 143 1 144
• 6 1 7

9

• Voting Trusts - Concentrates voting control in a
  trustee.
• Irrevocable a writing is required.
• A copy must be available for inspection
• Shareholder gets a voting trust certificate from
  the trustee. Trustee becomes the record holder
  and pays dividends over to holders of trust
  certificate.
• Limited in duration, up to a maximum of 10 years.

• Shareholder Agreements - A contract by
  shareholders as to how they will not only vote
  their shares, but manage the business. May be
  perpetual.
• Used in close corporations.
• Agreements may relate to
• Eliminating or restricting the powers of the
  directors
• Governing the making of distributions
• Establishing who shall be directors or officers
  of the corporation
• Governing the exercise or division of voting
  power.
• Establishing terms for the transfer or use of any
  property or services
• Subject to specific performance

10
Shareholders Right to Inspect Corporate Records

• Shareholders have a right to inspect and copy
  corporate records in good faith and for any
  proper purpose.
• To determine corps financial condition, value of
  stock, names of shareholders, propriety of
  dividends
• NOT to harass management, discover trade
  secrets, gain a competitive edge or develop and
  sell a mailing list of shareholders
• Must give notice of demand

11
Shareholder Suits

• An individual shareholder may sue a corporation
  to preclude ultra vires acts and enforce
  shareholder rights.
• Direct Suit - Shareholders may sue directly
  either individually or as members of a class. In
  a class action, the plaintiffs represent not only
  themselves but all others similarly situated.
• Shareholder Derivative Suit - To recover for a
  wrong done to the corporation. The action is for
  the benefit of the corporation and any recovery
  belongs to the corporation, not the shareholders.
  The corporation is the real plaintiff.
• Demand must be made on Board of Directors
• Directors refuse to sue
• Shareholder must own shares at time of
  wrongdoing.
• Shareholder can recover reasonable litigation
  expenses but no compensation for his time.

12
Board of Directors

• Duty to act socially responsible
• May rely on others (accountants, committees) for
  information
• Fiduciary duties
• To be informed, loyalty, obedience, diligence
  due care, Board cant usurp a corporate
  opportunity
• Business Judgment rule
• Avoid conflicts of interest
• May be removed with or without cause
• Inside and Outside Directors
• Determine capital structure

Elected by shareholders Need at least 1, over the
age of 18 If corporation has less than 35
shareholders, dont need a Board of
Directors Terms may be staggered Initial Board
named in Articles Main objective is to maximize
profits manage business A Director is not an
agent
13
Business Judgment Rule

• Directors should be protected if they
• Act in good faith
• Are not motivated by fraud and illegality
• Are not grossly negligent
• Indemnification for liability
• Liability limitation statutes

14
Shareholder Approval of Board Actions

• No Shareholder Approval Needed
• General power to manage
• Declare dividends
• Issue stock
• Set share prices
• Some mergers (if they dont fundamentally alter
  business character, i.e, short form merger)

• Shareholder Approval Needed
• Fundamental corporate changes,i.e., mergers,
  consolidations
• Amending the articles
• Dissolution
• Sale of all or of substantially all assets

15
Board Approval of Actions

• Full Board Approval Needed
• Declaring dividends
• Filing Board vacancies
• Adopting/amending by-laws
• Approving share issuance
• Repurchase of corporate shares

• Approval Needed by only some Board
  Members/Committee Work
• Choosing management slate
• audit committee
• shareholder litigation committee
• compensation committee

16
Officers

• Officers are agents of the corporation
• express, implied, apparent authority
• May bind the corporation in the ordinary course
  of business, not extraordinary actions
• Fiduciaries
• May be removed with or without cause
• Held to a reasonably prudent person standard,
  which may be higher if they possess special
  skills

Run the day to day operations Elected or
appointed by the Board