WVU BCOR 320 - Rights of shareholders (4 pages)

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Rights of shareholders

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Rights of shareholders


Lecture number:
Lecture Note
West Virginia University
Bcor 320 - Legal Environment of Business
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BCOR 320 1nd Edition Lecture 38 Chapter 20 Corporations cont Rights of shareholders Right to vote Corporation must have at least one class of stock with voting rights Shareholder meetings Norm for publicly traded companies Proxies The person whom a shareholder appoints to vote for her at a meeting of the corporation The document a shareholder signs appointing this substitute voter Annual report A document containing financial data Securities and Exchange Commission SEC requires that public companies provide it to their shareholders each year Shareholder proposals Under SEC rules any shareholder who has continuously owned for one year at least 1 percent of the company or 2 000 of stock Can require that one proposal be placed in the company s proxy statement to be voted on at the shareholder meeting Election removal of directors A nominating committee from the board of directors produces a slate of directors with one name per opening Leads to a complex and expensive process Disruptive to the company Plurality voting To be elected a candidate only needs to receive more votes than her opponent not a majority of the votes cast A traditional corporate voting method Majority voting systems 79 percent of S P 500 refuse to seat a director if Fewer than half of the shares that vote tick off her name on the ballot These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Independent directors Sarbanes Oxley Act SOX stipulates that all members of a board s audit committee must be independent At least one of these members must be a financial expert The NYSE and NASDAQ require that for companies listed with them Independent directors must comprise a majority of the board They must meet regularly on their own without inside directors Only independent directors can serve an audit compensation or nominating committees Audit committees must have at least three directors who are financially literate Shareholder activists A new development in corporate democracy Advise institutional investors on how to vote their shares Proxy access Required companies to include in their proxy material the names of board nominees selected by large shareholders Compensation for officers and directors Problem Stock options Termination retirement plans and death benefits Lavish perks Directors not shareholders set executive compensation Shareholders bear the risk Benchmarking games The CEO gets all the credit The busier the directors the higher the executive pay Most executives are above average Compensation consultants have conflicts of interest Compensation for officers and directors The solution Proxy rules Amended by the SEC to require more information about executive compensation Must include a summary table setting out the full amount of compensation for the five highest earning executives SOX Under SOX A company Cannot make personal loans to its directors or officers Must follow through the so called claw back provision Dodd Frank Requires that compensation committees for all corporations listed on a stock exchange must be composed solely of independent directors Strengthens the claw back provisions of SOX and extends it to three years Requires say on pay Requires companies to take a nonbonding shareholder vote Shareholders have right to nonbinding vote in the event of merger or sale of company assets Companies must disclose the relationship between financial performance and executive compensation Must disclose the CEO s compensation and the median compensation of all other company employees Emerging growth companies Have annual gross revenues of less than 1 billion Stock has been publicly traded for less than five years Have issued less than 700 million publicly in traded stock Have issued less than 1 billion in convertible debt in a three year period Fundamental corporate changes A corporation must seek shareholder approval before undergoing any of the following fundamental changes Mergers Sales of assets Dissolution Amendments to the Charter Rights to dissent If a private corporation decides to undertake a fundamental change The Model Act and many state laws require the company to buy back the stock of any shareholders who object Referred to as dissenters right Right to protection from other shareholders Anyone who owns enough stock to control a corporation has a fiduciary duty to the minority shareholders Minority shareholders Those with less than a controlling interest Enforcing shareholders rights Derivative lawsuits Brought by shareholders to remedy a wrong that the board of directors has committed against the corporation Direct lawsuits Shareholders are permitted to sue the corporation directly only if their own rights have been harmed

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