CORPORATE GOVERNANCE Flashcards
Internal Affairs of a Corporation
1) Directors
* supervise the officers
2) Officers
* run the business of the corporation
3) Shareholders
* owners of the corporation
4) Stakeholders
* other interested parties, e.g. employees, creditors, community, etc.
General Power of Directors
Manage or supervise the management of the corporation’s business and affairs.
Specific Power of Directors
Power to Issue Shares
Power to Declare Dividends
Power to Adopt By-laws
Power to Call Meetings of the Shareholders
CBCA - rules about directors
CBCA requires a corporation to have 1 or more directors; and for a publicly held corporation minimum of 3 directors
* Shareholders cannot direct directors
How are directors chosen?
Initial directors are appointed by Articles of Incorporation, but must hold General Meeting of Shareholders within 18 months of incorporation
Subsequent directors are elected by SH
A director can sit for 3 years before the need to be re-elected but can be removed earlier by a Special Meeting of the SH
Duties of directors
Fiduciary Duties
Duty of care
A director can be personally liable if:
- If a director acquiesces in situations of misconduct or negligence
- If a director votes for a decision that is financially detrimental to the corp. & the corp. becomes insolvent (for employees unpaid wages)
- If taxes are not paid (HST, and employee deductions)
Defences for Duties of Care and Skill torts
- Due diligence: Acted diligently and Relied on audited financial statements
- Business Judgment Rule
Fiduciary Duties
- Must place corp. ahead of own interests
- Must avoid conflicts of interest
- Must declare a conflict of interest and cannot vote on the matter
- Cannot intercept a Corporate Opportunity
- May not carry on business in competition with the Corp.
Breach of a fiduciary duty
Any property acquired by the director as part of the breach will be held in the name of the corporation as a constructive trust
Where property has been transferred to a bona fide purchaser for value, director will be liable to account for profits.
Illegal Insider Trading
– the use of confidential information relating to a corporation in dealing in its securities
Having material information not known to the public and you trade based on that information
Ordinary vs. Special Resolutions
Ordinary Resolutions: Require a simple majority vote.
- Election of Directors, Approval of Financial Statements, Appointment of Auditors
Special Resolutions: Require a 2/3 majority vote.
- Amendments to Articles of Incorporation,
Approval of a Merger or Amalgamation, Voluntary Dissolution
ROI (Return on Investment)
Shareholders expect to gain through dividends or capital growth.
Appraisal Remedy
– allows a minority SH who dissents on changes to the corporation to have the corporation buy back his/her shares
Where a price cannot be decided, then the court will set a price
Winding Up
Dissolution for liquidation of a corporation
Courts are often reluctant to do this if the corporation is viable and of a reasonable size
Oppression Remedy
Statutory procedure allowing individual shareholders to seek a personal remedy if they have been unfairly treated
Plaintiff must show that the action complained of:
* Has been oppressive or unfairly prejudicial; or
* Unfairly disregards the interests of the complainant
Remedy is usually to have corporation buy back the complainant’s shares at fair market value
Derivative Action
when a shareholder sues on behalf of the corporation for a wrong done to it.
The shareholder must obtain leave (permission) and show:
1. The directors won’t take action themselves.
2. The shareholder is acting in good faith
3. The action is in the best interest of the corporation or its shareholders.
The court may:
- Order the corporation to cover the shareholder’s legal costs.
- Direct that any damages won from the lawsuit be paid to the shareholders instead of the corporation.
What is insolvency?
Insolvency means either:
1. Having liabilities greater than the realizable value of assets, or
2. Being unable to pay debts as they fall due.
What is the “Maintenance Test” under CBCA Section 42?
A corporation cannot declare a dividend if:
(a) It would be unable to pay its liabilities as they become due; or
(b) Its realizable assets would be less than the total of its liabilities and the stated capital of all classes.
What law governs environmental offences in Ontario?
The Environmental Protection Act, R.S.O. 1990, c. E.19, regulatory offences
Who can be held personally responsible for environmental damage?
- The actor who caused the damage, and
- Directors/officers if they allowed or acquiesced to the hazard
