Corporate Governance

Question 1

What are the three roles of ownership and management in a corporation and what do they do?

Answer 1

Shareholders: provide capital and elect directors
Directors: Make major policy decisions
Officers: Execute policies and make day-to-day decisions

Question 2

What rights do shareholders have? (2)

Answer 2

Right to sell their shares if they don’t like the way the board is managing things
Right to sue for breach of fiduciary duties by directors

Question 3

What makes shareholders residual claimants?

Answer 3

If corp goes out of business, they get what is left over after creditors are paid

Question 4

What powers do shareholders have?

Answer 4

i. Annual election of the board of directors
ii. Approve certain M&A transactions
iii. Approve changes to the articles of incorporation (but directors must submit/approve amendment prior to shareholder vote)
iv. Vote on amendments to bylaws
v. Can bring shareholder proposals
vi. EXAM: Shareholders can’t vote on a transaction unless it’s one of these rights, even if it seems like they should (material change to corp, etc.)

Question 5

Shareholders have ____ liability and aren’t liable for the ____ of the business.

Answer 5

“limited” & “debts”

Question 6

What are the two types of investors?

Answer 6

1) Individual - rational apathy; won’t vote b/c can’t control company
2) Institutional - challenges RA and pools individual investors together