BUSA2106 1st EditionLecture 12Outline of Current Lecture I. Shareholder PowerII. Business Judgment RuleCurrent Lecture: Shareholder power •How can the shareholders (owners) exercise power over the corporation? 1. Vote on amendments to articles of incorporation and bylaws 2. Make proposals and vote3. Elect/ remove members of the board of directors 4. Sue directors or officers for breach of fiduciary duty5. Bring shareholder’s derivative suit Directors and officers have: o Duty of care o Duty of loyalty Duty of Care Make informed and disinterested decisions Trend toward due diligence -- question data, reports, and recommendations Exercise reasonable supervision Duty of Loyalty Act in the best interest of the corporation and subordinate personal interests to those of the corporation No self-dealing No taking advantage of business opportunities that rightfully belong to the corporation, without adequate disclosure to and approval by disinterested directors Avoid conflicts of interest Business judgment rule o Protects officers and directors from personal liability o No liability for honest mistakes of judgment, based on information known at the time a decision is made - Court examines process of decision-making, not the decision or outcome itself - Must act in good faith and due care Shareholder’s derivative suits • Derivative lawsuits are: brought by shareholders against an offending party on behalf of the corporation when the corporation fails to bring its own lawsuit Advantages •Limited liability for owners (shareholders) •Easy to transfer ownership/ shares •Perpetual life •Can grant stock options as compensation •Can raise capital by selling stocks, attracting venture capital Disadvantages •Separates ownership and control •Formalities to form, run and dissolve corporation •Piercing the “corporate veil” exposes owners to personal liability
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