Rights and duties Shareholders in a company/corporation

Summary

what is a corporation
a corporation is a separate legal entity (or legal person)

legal entity
has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.

corporate entity
is legally distinct from its members; it has legal personality and can hold property, sue and be sued in its own name as if it were a natural person

what can be an owner?
any legal entity
natural persons,
partnerships,
corporations

who are corporate owners
shareholders

corporations are treated as
artificial (legal) persons created by the state

what can corporations do
Sue or be sued
Enter into and enforce contracts
Hold title to and transfer property
Be found civilly and criminally liable for violations
Exercise some constitutional rights

who are part of corporate personnel(overall management of the firm)
1.board of directors
3.officers
2.shareholders (with limited liability unless voluntarily assume personal liability)

how do you become a shareholder?
when a individual purcheses a share of stock in a corporation, the person becomes a shareholder and the owner of the corporation

shareholders have..
limited liability unless voluntarily assume personal liability

dividend
a distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held

retained earnings
the portion of a corporations profits that has not been paid out as dividends to shareholders

domestic corporation
a corporation that does business in, and is organized under the law of that state

foreign corporation
corporation that does business in the state without being incorporated in

profit
making an income ($)

non profit
corporations formed for purposes other than making a profit

examples of non profit
hospitals
educational institutions
charities
religious organizations

alien corporation
corporation formed in another country bu doing business in the united states

publicly held
any corporation whose shares are publicly traded in securities markets (holding the corporations in the public eye)

closely held(close)
one who shares are held by members of a family or by relatively few persons

most corporate enterprises in US are what type of corporations?
closed corporations

who can hold shares to a close corporation?
members of a family
privately held corporations

what are closed corporations also refereed to as?
closely held
family
privately held corporations

close corporation is similar to
partnership

promotional activites
steps that are taken to organize and promote the business prior to incorportating
EX-making contracts with investors, accountants, or others

incorporation
legal business

incorporation procedures
1.select a state of incorporation
2.secure the corporate name by confirming its availability
3.prepare the articles of incorporation
4.file the articles of incorporation with the secretary of state and pay the specified fees

what are the 3 parts of the legal process
Name
Articles of incorporation/bylaws
Organizational meeting

name is subject to
state approval

who runs a check for the proposed name?
the secretary of state

all corporate states require the corporation name to include
the words(or abbreviated) corporation, incorporated, company or limited

what is the primary document needed to incorporate a business?
articles of incorporation(basic info about corporation, and serve as a primary source of authority for its future organization an business functions)

articles of incorporation must include the following info
the name of the corporation
the number of shares the corporation is authorized to use
the name and addressees of the corporations initial register agent
the name and address of each incorporator

who is the person/persons who sign the articles of incorporation?
incorporators

who has implied powers?
corporate officers
( perform all other lawful acts reasonably necessary to accomplish the business purpose.)

after incorporating
the first organizational meeting must be held

most important function of organizational meeting
adoption of the bylaws (internal rules of management since the articles do not provide much detail about the firms opperation)

bylaws can not conflict with a corporations statue or articles of corporation

corporate powers
the express and implied powers necessary to achieve the corporations purpose also come into existence

• not stated in the companies charter)

(when a corporation is created the express and implied powers necessary to achieve its purpose also come into existence)

where are express powers found
in its articles of incorporation,
in the law of the state of incorporation
in the state and federal constitutions

power to conduct business, appoint officers, adopt bylaws, enter into contracts, to sue and be sued, and to own and convey property

order of priority(when there are conflicts among documents)
the us constitution
state constitutions
state statues
the article of incorporation
bylaws
resolutions of the board of directors

why does a corporation have implied powers
to borrow funds with certain limits
to lend funds
and to extend credit to those who have legal or contractual relationship with(give credit to people who have a relationship with that corporation)

expressed powers basic definition
expressed powers of a corp. are found in the following laws and documents

implied powers basic definition
if not express constitutional, law, or other prohibitions, the corp. has the implied to do all acts reasonably appropriate and necessary to accomplish its corporate purpose( good faith)

who and what is a corporation liable for?
the torts committed by its agents or officers within the course and scope of their employement

are corporations liable for criminal acts?
yes but they only get fined

piercing the corporate veil
when the court disregards the corporate entity(group or practice) and holds the shareholders personally liable for corporate debts and obligations

*corporate privilege is abused for personal benefit or when the corporation is treated so carelessly that you cannot tell who the shareholder is)

when do the courts pierce the corporate veil?
-if a party was misled into dealing with corporation rather then individual
-corp is set up never to make profit/insufficient capital
-personal and corporate funds are commingled
-statutory corporation formalities are not followed

what do directors do?
make corproate policy and hire officers

directors have
rights, duties, liability(not help responsible for corp. or shareholders)

duties of a director
loyalty, care and not commit waste

officers have
duties, liability(not help responsible for corp. or shareholders)

duties of officers
loyaly, care

rights of directors
the right to participation- meaning the directors are entitled to participate in all board of directors meetings & be notified
the right to inspection- each director can access the corporations books and records, facilities, and premise
right to indemnification- reimbursement for legal cost, fees, and damages incurred(expose yourself too)

participate
inspect
indemnification(reimbursement)

duty of care (for both officer and director)
must exercise due care in performing their duties
basically exercise duties in good faith (like a good person would do)

duty of loyalty (for both officer and director)
acting in the company’s best interest
sacrificing personal interests to the welfare of the corporation

duty of loyalty involves
-competing with corporation
-taking advantage of corporate corporation
-having an interest that conflicts with the interest of corp.
-using info that is not available to the public to make profit
-authorizing corporate transaction that is detrimental to minority shareholders
-selling control over the corporation

what are shareholder rights?
elect directors
preemptive rights(rights that entitle shareholders to purchase new shares of corp. stock before the stock is offered to outside buyers)
inspection rights(examine records)
derivative lawsuits(a suit brought by a shareholder to enforce a corp. cause of action against third party)
voting rights(resolutions for shareholders vote to approve/disapprove, and entitled to 1 vote per share of stock)
right to dividends(corporate profits paid to shareholders compared to their respective shares in the corporation)
right upon dissolution(when a corp. is becoming removed the remaining assets are distributed to the shareholders in comparison to the % of shares owned by each shareholder)

liability of the shareholders
limited with exceptions(such as piercing corp veil)

corporate governance
the relationship between a corporation and its shareholders

governance and corporate law
state corporations( laws) that set up the legal framework for governance

(all companies must have a certain structure)

the most important structure of corporations is?
board of directors

Sarbanes-Oxley Act
the act attempts to increase corporate accountability by imposing strict disclosed requirements and harsh penalties for violations of securities law

(set up confidential reporting systems for unethical behavior
hold chief executives responsible for accuracy of all financial statements)

corporate dissolution
is the termination of a corporation, either a) voluntarily by resolution, paying debts, distributing assets, and filing dissolution documents with the Secretary of State; b) by state suspension for not paying corporate taxes or some other action of the government.

Voluntary Dissolution
is an action taken by shareholders, incorporators or initial directors to dissolve a corporation.

Administrative Dissolution
is the process by which the state administrator overseeing business entities takes away the rights, powers and authority of a corporation, LLC or other business entity, due to the entity’s failure to comply with certain obligations of the business entity statute

Judicial Dissolution
The termination of a corporation’s existence handled by the courts located within the state of the company’s incorporation.

Rights and duties

• A shareholder or stockholder is any person, company, or institution that owns at least one share in any given company which qualifies them as partial owners.
• Shareholders should not be confused with stakeholders, as the latter has an interest in the performance of the company reasons other than stock.

There are two general types of shareholders:

• Equity shareholders who are main stakeholders
• Preference shareholders who have no voting right

Rights of shareholders

The right to appoint directors

• Before a manager is appointed by a company, the shareholders must approve of the appointment.
• Shareholders can also appoint a nominee director or additional director when applicable.

Legal Action against the directors

• Shareholders can bring legal action against the company’s directors rules stipulated by the company are broken.
• Such instances when the director may find himself facing legal action against the shareholders include when they divert funds from the company, when they act in a mala fide manner, when they are involved in fraud and when act against the constitution.

Right to appoint company auditors

• A shareholder has the right to appoint company auditors by recommending directors and audit committee during an annual general meeting

Right to Vote

• Shareholders have the right to vote in the annual general body meeting.
• However, some shareholders may not have the right to vote depending on the type of corporation, the stake in the company and the type of shares they hold. Examples of shareholders not allowed to vote are the preferred stock owners.

Right for general meetings

• Shareholders have the right to call for a general meeting

Right to inspect registers and books

• Since shareholders are considered the main stakeholders in a company and are bound to lose a lot if the company makes losses, they are allowed to view financial statements either on an annual basis or quarterly basis.

Right to wind up the company

• The law defines situations under which a company or corporation can be dissolved. The company can as well decide to wind up due to internal or external factors like decreased revenue or lack of competitiveness in the market.
• However, before the company winds up, the shareholders must be informed and their credit covered.

Other rights include

• Receiving dividends when due
• To get a share of profit when the company sells any material
• Approach the court when the company is dissolved.

Duties of shareholders

Along with various rights awarded to shareholders of a company, they also have their duties which they must perform rest risk losing their position in the company.

In summary, shareholders’ rights include:

• Partial ownership of the company
• Voting power on major issues affecting the company and its operations
• Right to transfer ownership
• Right to receive dividends
• Right to inspect financial records
• Right to sue for wrongful act.