Corporation Law Flashcards
In a shareholders’ meeting, what are “minutes” and “proxies”?
Minutes: documents summarizing the shareholders’ meeting (voting, quorum, resolutions, etc)
Proxies: people assigned to represent shareholders in shareholders’ meetings. Not have the same rights as shareholders: can only vote if its poll vote and cannot speak in public companies’ meetings.
What is the purpose and basic structure of a stock option plan?
A stock option plan allows the company to use its shares as payment to employees. Purpose: attract high-performing employees, incourage them to stay in the company, etc
What is the difference between ordinary share and preferred (preference) share?
Ordinary share: greater risk, more voting rights => more influence company’s decisions, dividends vary
Preferred share: less voting power => less influence, fixed dividends, gets them before ordinary shareholders
dividends: utdelningar
What are the classes of shares and give examples.
There are 6 different classes of shares
Ordinary shares: Shares that recieve the same number of cents per share
Example: Shares available to the public on public stock exchnage
Multiple voting shares: a type stock structure gives certain shares more voting rights than others.
Example: A type of multiple voting share is loyalty shares, that rewards the loyalty of shareholders with votes.
Preference shares: special treatment
Example: In any distribution, I receive a minimum return of 3% before the rest of the profit is distributed
Saving shares: also called non-voting shares, intended for investors that just want return on their money invested.
Example: Cases when companies want to attract investment, but not give upp any control
Deferred shares: Receive dividends last
Example: Can be issued to companies founders to incentivise long term growth and success
Redeemable shares: shares that the company can repurchase from shareholders at a predetermined price and time.
Example: A large company wants to raise capital for a new project.
precedence: företräde
redeemable: uppsägningsbar
Explain bonds issued by a corporation and the difference from shares.
Bonds are a form of debt (skuld). When an investor buys a bond that has been issued by a company, they are essentially lending money to the company.
Shares represent ownership in a company. When an investor buys shares, they become part owners of the company.
This means that bonds offer a fixed return at a lower risk, and shares instead offer ownership stakes, potential for dividends and capital gains to a higher risk.
What is the composition and the purpose of the share capital in a corporation?
Share capital is the total amount of contributions, in money or in assets, a company gets from investors by selling them shares. There are three different types of share capital:
1. Authorized Capital: Maximum amount of share capital that a company is legally allowed to issue. Decided by the Board of Directors.
2. Issued Capital: The number of shares that a company has actually offered to investors.
3. Paid-up Capital: Total amount of money that shareholders have actually paid for the issued shares. It reflects the company’s actual share capital.
Purpose: raise capital to finance company’s activities.
Explain the duty of due care and skill of directors in a company.
Duty of due care: relates to performance - the director should perform well.
A director is expected to show a degree of skill, which might be reasonable for a person of that knowledge and experience.
Directors must exercise their powers with reasonable skill and care when taking decisions for the company.
What is the function of the Audit Committee to the directors?
A critical oversight body within a company’s governance structure, providing independent review and support to the board of directors, particularly regarding financial reporting and auditing processes.
What is the main responsibility of the auditors?
Usually external firms.
* report and verify if the company’s accounts have been properly prepared.
* if the directors report verify it
* external control, act in the interests of shareholders
the auditors’ primary responsibility is to act as independent watchdogs, safeguarding the integrity of a company’s financial reporting and promoting trust in the financial system.
Please explain the concept of legal personality and how it applies to corporations:
The concept of legal personality defines the existence of a company as a distinct legal entity apart from its members. As a result, it has the ability to hold property in its own right, create floating charges over its property, enter into contracts in its own name, and sue and be sued. Also, since the very existence of the company is distinct from its members, the legal personality also entails the perpetual succession of a company despite the death or disqualification of its members.
Explain what is withdrawal right and in which circumstances it is granted to shareholders.
Withdrawal right: shareholder’s right to exit a corporation. It is allowed a limited set of cases that heavily affect the corporation, for example big business purpose changes.
Under which conditions can a director be removed from a corporation?
- Cause: breach of obligation, but shareholders can also remove him without stated reasons by the passing of an ordinary resolution.
- Rotation: 1/3 of the directors (those with the longest service) has to retire at each Annual General Meeting. They are open to re-election and they usually are immediately re-elected.
- Retirement: a director can retire anytime by a previous notice. Directors of public companies must retire at the first Annual General Meeting after they reach 70.
- Disqualification: a director might be disqualified because of bankruptcy, mental illness or prolonged absence from board meetings.
Provide examples of practical application of duty of loyalty of directors toward the corporation.
The duty of loyalty: fiduciary duty. No competing and not being in conflict of interest. Directors should act as an agent of the corporation and act in the interest of the corporation.
The duty of loyalty is breached when the director puts his interest in front of the interest of the corporation.
fiduciary duty: förtroendeplikt
What is corporate purpose clause in the corporation bylaws.
It states how the corporation aims to maximize shareholder value through the activities they aim to perform.
Whats is the agenda of shareholders meeting and its purpose?
An agenda is a list established in order to cover all topics brought in by directors to a general meeting. These are:
1. Appointment or removal of corporate bodies (the Board of Directors, board of statutory auditors/supervisory board).
2. Approval of financial statement and distribution of dividends.
3. Amendments to the bylaws (capital increases).
4. Mergers/Demergers: extraordinary transactions in with one of the companies disappears and either is absorbed by the other company or they both merge equally and for a new corporation.
amendments: tillägg
