38: Corporate Governance and The Sarbanes-Oxley Act Flashcards
special shareholders’ meeting
meetings of shareholders that may be called to consider and vote on important or emergency issues, such as a proposed merger or amending the articles of incorporation
record date
a date specified in corporate bylaws that determines whether a shareholder may vote at a shareholders’ meeting
quorum to hold the meeting of the shareholders
the number of directors necessary to hold a board meeting or committee meeting in order to transact business of the board
supramajority/supermajority voting requirement
a rule established by a corporation that stipulates that more than a majority of shares (the percentage as set by corporation code or corporate document) are needed to constitute a quorum for a vote of the shareholders
straight voting / noncumulative voting
a system of shareholder voting for the board of directors of a corporation whereby each shareholder votes the number of shares he or she owns for his or her choices from the candidates running for the board of director positions that must be filed
cumulative voting
a system of shareholder voting for the board of directors for a corporation whereby each shareholder can accumulate all of his or her votes (determined b the number of directors to be elected multiplied by the number of shares the shareholder owns) and vote them all for a single candidate or split them among several candidates
shareholder agreement
an agreement that shareholders may enter into for the corporation regarding the board of directors, management of the corporation, allocating voting rights, and such
voting trust
an arrangement in which the shareholders transfer their stock certificates to a trustee who is empowered to vote the shares. legal title to these shares is held in the name of the trustee
voting trust certificate
documents that are issued to shareholders that evidence their ownership interests in a voting trust
shareholder voting agreement
an agreement between two or more shareholders of a corporation that stipulates how they will vote their shares for the election of directors or other matters that require a shareholder vote
right of first refusal
an agreement among shareholders of a corporation that requires a selling shareholder who is a signatory to the agreement to offer his or her shares for sale to the other parties to the agreement before selling them to anyone else
buy-and-sell agreement
an agreement among shareholders of a corporation that requires a selling shareholder who is a signatory to the agreement to sell his or her shares to the other shareholders or to the corporation at the price specified in the agreement
preemptive rights
rights that give existing shareholders of a corporation the option to purchase new shares issued by the corporation in proportion to their current ownership interests
stock dividend
additional shares of stock distributed as a dividend
derivative lawsuit / derivative action
a lawsuit a shareholder brings against an offending party on behalf of a corporation when the corporation fails to bring the lawsuit
universal demand rule
a rule that requires a shareholder to make a demand on the directors of a corporation to bring a legal action against a party for allegedly injuring the corporation before the shareholder can bring a derivative lawsuit (derivative action) on behalf of the corporation
futility exception
a rule that excuses a shareholder from making a demand on the board of directors to sue a third party prior to the shareholder bringing a derivative lawsuit on behalf of the corporation if such demand would be futile to make
piercing the corporate veil / alter ego doctrine
a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation’s debts and obigations
inside director
a member of the board of directors of a corporation who is also an officer of the corporation
outside director / independent director
a member of a board of directors of a corporation who is not an officer of the corporation
staggered terms
a situation in which a board of directors of a corporation is divided into classes that are elected to serve two or three years on the board of directors
resolution
actions taken by the board of directors of a corporation, usually at a board meeting (e.g., authorizing the corporation to enter into contracts or mergers, or to employ corporate officers). corporate resolutions are recorded in minutes of the board of directors’ meetings and specify the decisions that were made by the board during their meetings
committees of the board of directors
committees created by a corporation’s board of directors composed of board members who are granted special powers as authorized by the board
audit committee
a committee of the board of directors of a corporation that oversees the integrity of financial statements, public audits of the company by certified public accountants, internal audits of the company, and compliance with legal and regulatory requirements. the audit committee must be composed of independent members of the board of directors
compensation committee
a committee of the board of directors of a corporation that is responsible for human resource policies and procedures, employee benefit plans, and eecutive and employee compensation
corporate governance and nominating committee
a committee of the board of directors of a corporation that examines the eligibility of nominees for the board of directors, reviews corporate governance principles and practices, and recommends board members’ compensation
executive committee
a committee of the board of directors of a corporation, usually consisting of the chairman of the board, chief executive officer, and other key directors and officers, that has the power to act as the full board in case of emergencies
social responsibility committee
a committee of the board of directors of a corporation that oversees corporate efforts to address social and environmental concerns
corporate officers
employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation
duty of obedience
a duty that directors and officers owe to their corporation to act within the authority conferred upon them by state corporation codes, the articles of incorporation, the corporate bylaws, and the resolutions adopted by the board of directors
duty of care of individuals
the obligation people awe each other not to cause any unreasonable harm or risk of harm
negligence (unintentional tort or ordinary negligence)
the failure to do something that a reasonable person would do or doing something that a reasonable person would not do, in like or similar circumstances
business judgment rule
a rule that protects the decisions of a board of directors of a corporation where the board has acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation and its shareholders
duty of loyalty
a duty that directors and officers of a corporation owe not to act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders
usurping an opportunity
a situation that occurs when an agent, a general partner, a director or an officer of a corporation, a partner in a LLP, certain members of a LLC, and anyone else who owes fiduciary duty to a principal personally takes (usurps) an opportunity that belongs to their principal
self-dealing
anyone who owes a fiduciary duty to a principal engages in undisclosed self-dealing with their principal, such as undisclosed purchasing, selling, or leasing of property with their principal
competing with the corporation
a situation that occurs when a director or officer of a corporation engages in undisclosed and unauthorized competition with the corporation that has employed him or her
secret profit
anyone who owes a fiduciary duty to a principal makes a secret profit during the course of their employment by their principal
misuse of property
a duty of agents, general partners, officers, directors and employees of corporations, employees of businesses, and others not to misuse the property of their principal for their own personal use
sarbanes-oxley act (SOX)
a federal statute enacted by congress to improve corporate governance, bring more transparency to securities markets, eliminate conflicts of interest that previously existed in the securities industry, promote business ethics, and impose civil and criminal penalties for violations of the act
CEO and CFO certification
a certification that the SOX requires, which the CEO and CFO of a public company file with each annual and quarterly report of the company
