Corporation - Introduction Flashcards
Nature of corporation
A legally separate entity from people who participate in it
1) perpetual existence
2) freely-transferable ownership
3) limited liability
4) separation of ownership and control - agency issues
Corporate governance
Relationships, rights and powers of SH, Directors, and officers
CG - Closely held corp
Concern that owners with a majority ownership position will treat minority SH badly and unfairly.
CG - Public corp
Concern of separation of ownership and control, which gives rise to agency issues - i.e. how to ensure that those controlling the corp are doing so in the corp’s best interest instead of their own
Theories of corp/Corp purpose debate - Wealth Maximization Theory [Posner & Bratton]
Relationships among directors, SH, officers - structured by K, markets, and the law
Law and economics: Corp exists to maximize the wealth of SH - utilitarian
Role of law: limited role for corp law
Role of K: stakeholder relationships governed by the nexus of k.
Pros: Max. efficiency; more likely to attract investors; Simple obj;
Cons: the idea that directors’ power to bypass SH is inconsistent with the idea that directors are the agents of SH.
Theories of corp/Corp purpose debate - Team Production Theory [Blair & Stout]
Board acts as a mediating hierarch - Board not prefer SH over EE and creditors - political nature of corp
A compromise between SH primacy model and progressive law theory.
Role of law: not designed to primarily protect SH, but to protect corp coalition by allowing directors to allocate rents among various stakeholders, while guarding the coalition as a whole only from self-dealing by directors
Role of K: relationship among parties are governed by k - gaps in k filled by Board
Pros: Serving SH alone may undermine corp as a whole; Lead to better relationship with community and government.
Cons: Bd owe fiduciary duties to SH; Can be sued by SH; Can be voted out by SH
Theories of corp/Corp purpose debate - Progressive law theory [Greenfield]
Board acts to promote social welfare - ultimate purpose of corp is to serve the interest of society as a whole. - Corp wealth should be shared fairly among those who contribute to it - participatory and democratic CG - directors need to be held to fiduciary obligation to all stakeholders.
Role of law: should keep corp focused on primary duties and ensure that they don’t create undue cost - but current law forces directors to put SH interest first.
Role of K:
Pros: Sustainable
Cons:
People v Wise [2004 SCC] - para 42
Best interest of the corporation should not be read simply as the “best interest of the SH”.
In determining whether they are acting with a view to the best interests of the corporation it may be legitimate, given all the circumstances of a given case, for the board of directors to consider, inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment.
Clear adoption of stakeholder view of corp, but also some SH primacy
BCE v 1976 Debenture holder [2008 SCC]
SCC reiterated that directors owe fiduciary duty to corporation not to any stakeholders directly.
para 66: Where there’s conflict between the interest of stakeholders and between stakeholders and the corp, it falls to the directors of the corp to resolve them in accordance with their fiduciary duty to act in the best interest of the corp, viewed as a good corp citizen.
W: arguably, SCC adopted a progressive law view.
- Can be said, esp after BCE, that Canada lies somewhere in btw the pure stakeholder perspective as in EU and Japan, and the pure SH perspective, as in the US.
