Corporations Flashcards
In a shareholders’ meeting, what are “minutes” and “proxies”?
Minutes are documents that summarize what was discussed in the shareholders meeting. They describe topics discussed, quorum, resolutions, records of votes, further discussions and the required following actions to conclude the pendencies
Proxies are people designated by a shareholder to be their representative in a shareholders meeting. However, they do not have the same rights as other shareholders. They may not speak during public companies meetings and may only vote in voting polls
What is the purpose and basic structure of a stock option plan?
A stock option is a right to acquire a share in the future at a previously agreed, set price. A stock option plan is the document that governs a company’s stock options.
A stock option plan is a program established by a company that provides its employees, executives, and sometimes other stakeholders the right to purchase the company’s stock at a predetermined price.
The purpose of this is to encourage employees to work according to the wishes of shareholders, since the value created will profit both shareholders and the employees.
The structure of a stock option plan contains basic rules surrounding the stock options such as who the options can be granted to, when they can be granted (called grant-date), how the options are granted, how many and over what time period they can be granted and potential restrictions surrounding the stock options.
What is the difference between ordinary share and preferred (preference) share?
Ordinary shares are shares with the same value, meaning each share receives the same number of cents by share. Preference shares are shares with a preferential treatment attached to them. A preference attached can be that the shareholders obtain a distribution of profits with a fixed rate before the remaining shareholders, such as those who are holders of ordinary shares. This also means that holders of ordinary shares have a floating rate, and will therefore get whatever profit is left after distribution to preferential shareholders.
Preference shareholders also have less voting rights than ordinary shareholders
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.
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;
Authorized share capital: Maximum number of shares the company is authorized to issue without changing the bylaws
Issued share capital: The total number of shares the company has officially offered to shareholders
Paid-up share capital: The total amount of money the shareholders have actually invested in the company through the buying of shares.
The purpose of share capital is to raise capital to finance the company’s activity
Explain the duty of due care and skill of directors in a company.
Directors must act with the care, diligence, and skill that a reasonably prudent person would exercise in similar circumstances. This includes making informed decisions and performing their responsibilities competently.
The level of skill expected is not uniform for all directors, and may vary based on the circumstances and characteristics of their specific role.
What is the function of the Audit Committee to the directors?.
An Audit committee is charged with overseeing the financial reporting and disclosure, and is an operating committee part of the Board of Directors/supervisory board/board of statutory auditors depending on which system the company is operating within.
In some industries and companies, the company must also appoint an independent auditor external to the firm that has to revise accounts.
What is the main responsibility of the auditors?
Auditing companies are usually external firms whose duty is to report and verify if the company’s accounts have been properly prepared, and if the director report (förvaltningsberättelse) is consistent with those accounts.
Their position is of external control as they are not part of the corporation and they represent the interests of shareholders
Please explain the concept of legal personality and how it applies to corporations
The concept of legal personality is that the corporation is totally independent from the people who own and operate it. This means that the corporation is created by an operation of law and is taxed as a separate entity from the owners.
As a result of a corporation having a separate legal personality, the corporation has the ability to own property, enter into contracts in its own name, as well as sue and be sued.
Explain what is withdrawal right and in which circumstances it is granted to shareholders
Withdrawal right is the right for shareholders to exit the corporation. If you exercise your withdrawal right, the corporation has to have the money in their pockets to reimburse you. This is not the same as the shareholder simply selling their shares on the market.
Exercising the withdrawal right as a shareholder is allowed in a limited set of cases that heavily affect the corporations, for example big business purpose changes or mergers.
Under which conditions can a director be removed from a corporation?
A director can be removed with or without cause.
With cause: Specific reasons such as breach of fiduciary duties (förvaltaransvar), misconduct, or failure to meet performance standards.
Without cause: When a director is removed at any time by the passing of an ordinary resolution , as long as it is majority.
Ordinary resolution: A formal decision made by the shareholders of a company during a general meeting
Provide examples of practical application of duty of loyalty of directors toward the corporation.
The duty of loyalty is a fiduciary duty (förtroendeplikt) that involves no competing and not being in conflict of interest. This means that 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.
What is the corporate purpose clause in the corporation bylaws?
The corporate purpose clause is written in the Contents of Memorandum/Charter of incorporation. It states how the corporation aims to maximize shareholder value through the activities they aim to perform.
What is the agenda of a shareholders meeting and its purpose?
The agenda ensures that all topics brought in by directors to a general meeting are covered, which includes
Appointment or removal of corporate bodies (the Board of
Directors, board of statutory auditors/supervisory board)
Approval of financial statements and distribution of dividends
Changes to the bylaws, for example capital increases
Mergers/demergers
The purpose of a shareholder meeting is to provide a forum where shareholders can participate in the governance of a company by voting on important matters.
