lecture 3

Question 1

Legal strategies

Answer 1

mitigate the vulnerability of principals to the opportunism of their agents

Question 2

Regulatory strategies

Answer 2

agent constraining

Question 3

Governance strategies

Answer 3

Principal empowering (focus EU)

Question 4

If limited liability is the most distinctive feature of corporate law, voting is second
Voting = shareholder decision rights
Fundamental decisions

Answer 4

1) appointment rights (related to election and reelection of boardmembers)

2) Decision rights (not used ac-hoc, formally structured)

and

1) Management proposals (veto/ratification)

2) Shareholder proposal (initiation)

Question 5

share

Answer 5

financial instrument that grants capital rights and control rights

Question 6

Control rights (3)

Answer 6

Statetory control rights
Contractual control rights
Property rights

Question 7

property rights

Answer 7

direct link to ownership
(not like owning a laptop)

Question 8

Residual rights

Answer 8

Residual rights to ownership of a company

Everything that is not determined by law or by the contract can be considered residual rights

The type of property rights a person has in the company

Question 9

Appointment rights

Answer 9

shareholders vote on the selection of board members

Board nominates director though

Shareholders can remove boardmembers as well

One tier and two tier boards (both allowed in NL)
Codetermination in germany

Question 10

Plurality voting rule (example US (delaware))

Answer 10

When an election is uncontested, that is, the number of candidates equals the number of directors to be elected – any number of votes suffices to elect a nominee to a board seat

Hence: one vote is sufficient

US is board centric juristiction –> less shareholder rights

If a lot of people are against one specific nominee, only one person is needed to add them to the board

Question 11

Default rule

Answer 11

means you can deviate by contract

Company puts that they use simple majority voting rule in charter (to apply to specific companies when you want to overrule statetory law for default rules)

Question 12

Decision making rights include

Answer 12

Increasing the share capital (issuance of shares)

Waiver of pre-emption rights

Repurchase of shares

Nachgründung

Dividends

Annual financial statements

Etc.

Question 13

Authorized capital

Answer 13

The capital authorized in the AoA and shareholder approval needed to increase this amount

Question 14

Issued capital

Answer 14

issued capital is part of the authorized capital that is issued to investors

Question 15

subscribed capital

Answer 15

The subscribed capital is often equal to the issued capital, but can be lower if the public applies for less shares (or higher in case of oversubscription)

Question 16

Outtanding capital and treasury shares

Answer 16

Issued capital is that outstanding by investors or bought back by the company and held in treasury

Question 17

Paid up capital

Answer 17

the amount of money received from shareholders for the shares is called the paid-up capital

Question 18

shareholder proposals
14a-8

Answer 18

if you want to propose something that the other shareholders should vote on, they have to all be aware of it

–>Proxy statements: those documents that the company initiates to all shareholders (you can use these to include your proposal)

At least 2000 USD market value or 1 per cent of the voting shares

New rules 1 jan 2022 including:

New ownership requirements: 2000; 15000 or; 25000 USD
If youve been for 1 year: 25000USD market share
If youve been for 2 years: 15000USD
If youve been for 3 years: 2000USD

One proposal rule

Resubmission thresholds

But: not all proposals are added to the companys proxy materials –> proxy fights

Question 19

shareholder proposals Rule 14a-8 (13. grouds for exclusion)

Answer 19

Including a proposal related to inclusion of a “specific individual in the companys proxy materials for election of the board members, or management functions (if the proposal deals with a matter relating to the companys ordinary business operations)

-> social and precatory proposals dominate

Key = based on these grounds, a company can seek no-action relief from the SEC staff to exclude a shareholder proposal from its proxy materials if the proposal fails to meet any of the procedural and substantive requirements of exchange act rule 14a-8

Question 20

Proxy contests: (fights)

Answer 20

Shareholder proposals soliceted using shareholder proxy materials at shareholders expense, for example to nominate own directors

Like campaigning for yourself

Question 21

Not allowed “ordinary business operations” in rule 14a-8

Answer 21

Proposals that trancend the day to day business operations because it raises a policy issue so significant that it would be appropriate for a shareholder vote (is allowed to be in proxy statements)

But micromanagement is not allowed: too prescriptive, limiting the discretionary powers of the board of directors (not allowed in proxy statement)