partnerships, corporations and the variants prof. bruce mccann lecture 10 shareholder duty, etc. pp....

PARTNERSHIPS,CORPORATIONS

AND THE VARIANTS

PROF. BRUCE MCCANN

LECTURE 10SHAREHOLDER DUTY, ETC.

PP. 370 - 438

Business Organizations2009-2010 Lectures

Timberline Equipment v Davenport

Lec. 10, pp 370-438 Corps Prof. McCann

Concept of “De Facto” Corporation extinct in Oregon

Concept of “Corporation by Estoppel” viable only where: Equitable to protect a shareholder or other person acting

on belief had no personal liability AND plaintiff is shown to have intended to contract with the corporation (and was not looking to the shareholder for payment).

Where no corporation de jure, liability imposed on those who “assume to act” for unincorporated association, meaning actively control.

Estoppel


Continued vitality limited to: Instances where defendant seeks to evade liability for

debt owed to defective corporation; and Both parties believe corporation is duly formed at

time of contracting

Shareholders’ Authority


Elect DirectorsApprove certain actions provided actions are

first approved by the Directors: Merger Sale of primary asset Amendments to Charter/Articles Dissolution

VOTING


Statutory (or Regular) Voting One vote per share, each directorship voted on

independently i.e., Jim has 500 shares, there are 3 directorships up for

election. Jim can vote his 500 shares for each of the 3, but cannot accumulate his “1500” votes and put all on one directorship.

Cumulative Voting One vote per share multiplied by the number of

directorships up for election. Total number of votes can be allocated as shareholder wishes i.e., Jim can cast all 1500 votes for one director.

Plurality Voting


Nominees who receive the highest number of affirmative votes cast are elected irrespective of how small the number of affirmative votes is in comparison to the total number of shares voted (i.e., all affirmative votes and withheld votes).

Majority Voting


Nominee is required to receive the affirmative vote of a majority of the total votes cast for and against such nominee in the election.

Who Has the Power to Act for Shareholder?


Shareholder “of record”ProxyAssignee (Pledgee) if assignment or pledge so

allows

Postscript on Consents


Model Act now allows electronic or other consents without unanimity and without notice to all shareholders if: Articles of Incorporation provide for passage by

majority vote, and The action is approved by consents signed, even

electronically, by a majority of eligible voters

By default, Directors are to be elected by “plurality” True both under Model Act and Delaware law BUT, bylaws may provide for majority or other

constraint

Seinfeld


Shareholders Rights Right to review corporate records is not unlimited Must be for “a proper purpose germane to his interest

as a stockholder” Del. Code, Title 8, § 220. “Proper purpose” means a concern relating to

“investment return” BUT investment return can include shareholder

motivated by desire to take control of the corporation

The Powers and Duties of the Board


It is a Board, not a gathering of Generals No director has any power acting alone Their only power derives from decisions they make

acting as a Board and which are recorded in the minutes of the corporation

Power of directors is “original and undelegated.” Their powers are not granted by others but originate with their election to the Board.

Directors’ power comes from the state, if anywhere. The relation of directors to shareholders is that of

trustee to beneficiaries.



May Delegate Some of Its Duties Where large board, usual to allow for subcommittees

to operate with relative autonomy “Executive Committee” is common device, organized to handle

decisions or required resolutions (such as approval of significant contract) when full board cannot be readily convened.

In Public Corporations, Usually See “Inside” and “Outside” Directors Inside: are also officers of corporation Outside: are recruited from other corporations, public service,

etc.



Key Functions:Provide advice and counselInstill discipline in the decision-

making of the corporationOversee crisesMonitor the conduct of Management

Tuesday, 7 May, 2002, 16:43 GMT 17:43 UK Enron directors plead

innocence


“The directors were criticised by Senator Joseph Lieberman for having conflicts of interest, and by Senator Carl Levin for failing to ask sufficient questions about Enron's behaviour.

The failure of Enron, and its ability to effectively disguise its true financial position, has sent shock waves through almost all levels of corporate US.

Netting millions The directors "must accept some of the blame for failing to

uncover the crookedness in the company's behaviour and books," Mr Lieberman said.

"The board is not supposed to be a rubber stamp for auditors or attorneys," Mr Levin said.

The directors - Herbert Winokur, Robert Jaedicke, Charles LeMaistre and John Duncan - also face a lawsuit from angry shareholders.

And they face yet more wrath for having netted millions by selling out of their share options while many employees were not allowed to. “

Former Directors Agree To Settle Class ActionsEnron, WorldCom Officials to Pay Out of Pocket


Washington Post Saturday, January 8, 2005; Page E01

A group of former Enron Corp. directors has agreed to a $168 million settlement of their portion of a class-action securities lawsuit. Insurance will pick up most of the cost, but under the terms of the deal, the former Enron directors will personally pay $13 million.

The announcement of the deal, made by the University of California, lead plaintiff in the Enron class-action case, came on the same day that the lead plaintiff in the WorldCom class-action suit formally announced a $54 million settlement covering 10 former WorldCom directors. WorldCom directors will pay $18 million from their own pockets.

OFFICERS


President Usually Chief Executive Officer (C.E.O,) Often Chair of the Board of Directors

Vice-President Vaguely defined duties other than stand-in for President.

Treasurer Also, Chief Financial Officer (C.F.O.) Responsible for handling the cash and assets of the

company Sometimes, Comptroller (Controller) function separate,

charged with preparing financial statements of the entity No actual or implied authority to bind corporation in

dealings outside of the entity

OFFICERS, CONT’D


Secretary: Responsible for internal matters only Certifying and recording Board actions and the like Maintains minutes of meetings Maintains the corporate seal

partnerships, corporations and the variants prof. bruce mccann lecture 10 shareholder duty, etc. pp....

Documents