CHAPTER 31: FINANCIAL AND OPERATIONAL FEATURES OF

CORPORATIONS

Learning Objectives:• Financial Features• Operational Features:

Shareholders Directors Liability of Officers and Directors

Chapter 31 2

CHAPTER 31: FINANCIAL AND OPERATIONAL FEATURES OF

CORPORATIONS

1. Introductiona. Role of Bonds: Debtor/Creditor

Relationship

b. Role of Stocks: Equity Relationship

c. Types of Stock:i. Common

ii. Preferred

d. Par vs. No-Par Stock

e. Treasury Stock

Chapter 31 3

FINANCIAL FEATURES

2. Stock Subscriptions: pre-incorporation agreement to purchase shares.

3. Right to Transfer Stock:a. Generally: free transferability

b. Close Corporation: restrictions are proper.

4. Mechanics of Transfer

Chapter 31 4

FINANCIAL FEATURES

1. Rights of Shareholdersa. To Inspect Records

b. To Participate in Meetings

c. To Vote

d. Preemptive Rights

2. Derivative Suitsa. Nature

b. Proper Use

Chapter 31 5

SHAREHOLDERS

3. Right to Dividendsa. General Rule: Unfettered right of

directors to declare a dividend

b. Exceptions

4. Fiduciary Aspects: Within a Closely-Held Corporation

a. Duty of Majority to Minority

b. Rationale

Chapter 31 6

SHAREHOLDERS

1. Powers

2. Meetings

3. Compensation

Chapter 31 7

DIRECTORS

1. Generallya. Liability to Third Persons

b. Directors and Officers are Fiduciaries of the Corporation

2. Business Judgment Rulea. Nature of the Rule

b. Application

c. Situations Where the Rule Does Not Apply

Chapter 31 8

LIABILITY OF OFFICERS AND DIRECTORS

3. Duty of Loyaltya. Generally

b. The Corporate Opportunity Doctrine

4. Duty of Carea. Obligation of Directors

b. Immunity of Directors

5. Indemnification and Insurance

Chapter 31 9

LIABILITY OF OFFICERS AND DIRECTORS

CHAPTER 31: FINANCIAL AND OPERATIONAL FEATURES OF

CORPORATIONS