Expert answer:discussion
Expert answer:For this discussion, you are asked to Review and Comment on the doctrine of “Piercing the Corporate Veil”. Give at least four (4) reasons and in what circumstances the courts will invoke this doctrine?in following some information and power point slides might help http://www.rjmintz.com/piercing-the-corporate-veil.htmlPiercing the Corporate Veilcorporation, unless they dominate and misuse it. When this occurs, courts of equity will pierce the corporate veil and hold the shareholders personally liable. Courts will pierce the corporate veil if (1) the corporation has been formed without sufficient capital (i.e., thin capitalization), or (2) separateness has not been maintained between the corporation and its shareholders. The courts examine this doctrine on a case-by-case basisNote: Be on time and high grade work and avoid plagiarism
ch_37__382.ppt
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BUSINESS LAW
Chapter 37
Corporate Governance
and the Sarbanes-Oxley
Act
Learning Objectives
▪ Describe the functions of shareholders, directors,
and officers in managing the affairs of a
corporation.
▪ Describe a director’s and an officer’s duty of care
and the business judgment rule.
▪ Describe a director’s and an officer’s duty of
loyalty and how this duty is breached.
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37 – 2
Learning Objectives (cont.)
▪ Define piercing the corporate veil, or alter ego
doctrine.
▪ Describe how the Sarbanes-Oxley Act affects
corporate governance.
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37 – 3
Shareholders
▪ Own the corporation
▪ Not agents of the corporation
▪ Cannot bind the corporation to contracts
▪ Have right to vote on fundamental changes in the
corporation
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37 – 4
Exhibit 37.1 – Shareholders
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37 – 5
Shareholder Meetings
▪ Annual shareholders’ meeting: Held by the
corporation to elect directors and to vote on other
matters
▪ Special shareholders’ meetings: Called usually to
consider and vote on important or emergency
issues, such as a proposed merger or amending
the articles of incorporation
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37 – 6
Notice of a Shareholders’ Meeting
▪ Corporation is required to give the shareholders
written notice of the place, day, and time of annual
and special meetings
▪ Proxy
▪ May be authorized to vote on a shareholder’s behalf
▪ May be directed exactly how to vote the shares
▪ May be authorized to vote the shares at his or her
discretion
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37 – 7
Voting Requirements
▪ Record date: Date specified in corporate bylaws
that determines whether a shareholder may vote
at a shareholders’ meeting
▪ Shareholders’ list – Contains the names and
addresses of the shareholders as of the record
date and the class and number of shares owned by
each shareholder
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37 – 8
Voting Requirements (cont.)
▪ Quorum to hold a meeting of the shareholders
▪ Required number of shares that must be
represented in person or by proxy to hold a
shareholders’ meeting
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37 – 9
Voting for Election of Directors
▪ Straight (noncumulative) voting: System in which
each shareholder votes the number of shares he or
she owns on candidates for each of the positions
open
▪ Cumulative voting: System in which a shareholder
can accumulate all of his or her votes
▪ Vote them all for one candidate or split them among
several candidates
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37 – 10
Supramajority Voting Requirement
▪ Articles of incorporation or bylaws may require
more than a majority of shares:
▪ To constitute a quorum
▪ For votes for mergers
▪ For consolidation, or other important matters
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37 – 11
Voting Agreements
▪ Shareholders agree in advance as to how their
shares will be voted
▪ Voting trusts: Arrangement in which the
shareholders transfer their stock certificates to a
trustee who is empowered to vote the shares
▪ Shareholder voting agreements: Agreement
between two or more shareholders that stipulates
how they will vote their shares
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37 – 12
Restrictions on the Sale of Shares
▪ Right of first refusal: An agreement that requires a
selling shareholder to offer his or her shares for
sale to the other parties to the agreement before
selling them to anyone else
▪ Buy-and-sell agreement: An agreement that
requires selling shareholders to sell their shares to
the other shareholders or to the corporation at the
price specified in the agreement
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37 – 13
Preemptive Rights
▪ Rights that give existing shareholders the option
of subscribing to new shares being issued in
proportion to their current ownership interests
▪ Granted by the articles of incorporation
▪ Failure to exercise preemptive right – Shares can be
sold to anyone
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37 – 14
Dividends
▪ Distribution of profits of the corporation to
shareholders
▪ Paid at the discretion of the board of directors
▪ Stock dividend: Additional shares of stock
distributed as a dividend
▪ Distributed in proportion to the existing ownership
interests of shareholders
▪ A shareholder’s proportionate ownership interest
is not increased
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37 – 15
Derivative Lawsuits
▪ Lawsuit a shareholder brings against an offending
party on behalf of a corporation when the
corporation fails to bring the lawsuit
▪ Court may dismiss if the lawsuit is not in best
interests of corporation
▪ Any award goes to corporate treasury
▪ Corporation pays shareholder’s expenses
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37 – 16
Piercing the Corporate Veil
▪ If a shareholder dominates a corporation and uses
it for improper purposes, a court of equity can
disregard the corporate entity
▪ Hold the shareholder personally liable for the
corporation’s debts and obligations
▪ Occurs when:
▪ There is thin capitalization
▪ No separateness is maintained between the
corporation and its shareholders
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37 – 17
Case 37.1: Piercing the Corporate Veil
▪ Case
▪ Northeast Iowa Ethanol, LLC v. Drizin
▪ Web 2006 U.S. Dist. Lexis 4828 (2006)
▪ United States District Court for the Northern
District of Iowa
▪ Issue
▪ Does the doctrine of piercing the corporate veil
apply in this case, thus allowing the plaintiffs to
pierce the corporate veil of GSI and reach
shareholder Drizin for liability for civil fraud?
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37 – 18
Board of Directors
▪ Panel of decision makers who are elected by the
shareholders
▪ Generally compensated for service
▪ Resolutions of the Board of Directors
▪ They specify the decisions that were made by the
board during their meetings
▪ Certain actions may require the shareholders’
approval
▪ The board has absolute right of inspection
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37 – 19
Exhibit 37.2 – Board of Directors
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37 – 20
Selecting Directors
▪ Corporate electronic communications: Modern
method by which corporations communicate with
shareholders, among directors, with regulatory
agencies, and others
▪ Inside director: A member of the board of
directors who is also an officer of the corporation
▪ Outside director: A member of the board of
directors who is not an officer of the corporation
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37 – 21
Meetings of the Board of Directors
▪ Term of Office – Expires at the annual
shareholders’ meeting following a board
member’s election
▪ Regular meetings are held at the times and places
established in the bylaws
▪ The board can call special meetings as provided in
the bylaws
▪ Quorum of the board of directors: The number of
directors necessary to hold a board meeting or
transact business of the board
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37 – 22
Corporate Officers
▪ Employees of a corporation who are appointed by
the board of directors
▪ They manage the day-to-day operations of the
corporation
▪ Audit committee: Committee composed of outside
directors responsible for the oversight of the
outside and internal audits of the corporation
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37 – 23
Corporate Officers (cont.)
▪ Agency authority of officers
▪ Possess authority that may be provided in the
bylaws, or as determined by resolution of the board
of directors
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37 – 24
Exhibit 37.3 – Corporate Officers
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37 – 25
Fiduciary Duty
▪ The duties of obedience, care, and loyalty owed by
directors and officers to their corporation and its
shareholders
▪ Duty of obedience
▪ Duty of care
▪ Duty of loyalty
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37 – 26
Duty of Obedience
▪ Duty that directors and officers of a corporation
have to act within the authority conferred upon
them by
▪
▪
▪
▪
State corporation codes
The articles of incorporation
The corporate bylaws
The resolutions adopted by the board of directors
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37 – 27
Duty of Care
▪ Duty of corporate directors and officers to use
care and diligence when acting on behalf of the
corporation
▪ Requires corporate directors and officers to use
care and diligence when acting on behalf of the
corporation
▪ Negligence: Failure of a corporate director or
officer to exercise the duty of care while
conducting the corporation’s business
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37 – 28
Business Judgment Rule
▪ Rule that says directors and officers are not liable
to the corporation or its shareholders for honest
mistakes of judgment
▪ Determination of whether duty was met is
measured at the time the decision was made
▪ Hindsight not applied
▪ Not liable for honest mistakes of judgment
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37 – 29
Duty of Loyalty
▪ A duty that directors and officers have not to act
adversely to the interests of the corporation
▪ To subordinate their personal interests to those of
the corporation and its shareholders
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37 – 30
Duty of Loyalty (cont.)
▪ Usurping a corporate opportunity – If proven, the
corporation can
▪ Acquire the opportunity from the director/officer
▪ Recover any profits made
▪ Self-dealing
▪ Contracts or transactions with a corporate director
or officer is voidable by the corporation if it is
unfair to the corporation
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37 – 31
Duty of Loyalty (cont.)
▪ Competing with the corporation
▪ Any profits made by nonapproved competition and
any other damages caused to the corporation can
be recovered
▪ Making a secret profit
▪ The corporation can sue the director or officer to
recover the secret profit
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37 – 32
Case 37.2: Fiduciary Duties of Corporate
Directors and Officers
▪ Case
▪ McPadden v. Sidhu
▪ 964 A.2d 1262 (2008)
▪ Court of Chancery of Delaware
▪ Issue
▪ Did the plaintiff plead sufficient facts of i2’s board
of directors bad faith and Dubreville’s breach of the
duty of loyalty to withstand the defendants’
motions to dismiss?
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37 – 33
Sarbanes-Oxley Act
▪ Enacted by Congress in 2002
▪ Goals
▪ To improve corporate governance
▪ Eliminate conflicts of interest
▪ Instill confidence in public companies
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37 – 34
© 2016 by Pearson Education, Inc. All rights reserved
37 – 35
BUSINESS LAW
Chapter 38
Corporate Acquisitions
and Multinational
Corporations
Learning Objectives
▪ Describe the process of soliciting proxies from
shareholders and engaging in a proxy contest.
▪ Define shareholder resolution and identify when a
shareholder can include a resolution in proxy
materials.
▪ Describe the process for approving a merger or
share exchange.
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38 – 2
Learning Objectives (cont.)
▪ Define tender offer and describe poison pills and
other defensive maneuvers to prevent hostile
takeover.
▪ Examine the use of multinational corporations in
conducting international business.
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38 – 3
Proxy Solicitation
▪ Proxy: Written document signed by a shareholder
that authorizes another person to vote the
shareholder’s shares
▪ Shareholders have right to vote on the election of
directors, mergers, and charter amendments
▪ They can exercise their power to vote either in
person or by proxy
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38 – 4
Federal Proxy Rules
▪ Section 14(a): Provision of Securities Exchange Act
of 1934 that gives the SEC the authority to
regulate the solicitation of proxies
▪ SEC requires party seeking proxy to prepare and
file Proxy statement
▪ Proxy Statement: Document that fully describes:
▪ Matter for which the proxy is being solicited
▪ Who is soliciting the proxy
▪ Any other pertinent information
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38 – 5
Antifraud Provision
▪ Section 14(a) of the Securities Exchange Act of
1934, which prohibits misrepresentations or
omissions of a material fact in proxy materials
▪ SEC, U.S. Justice Department, or shareholders who
are injured by the misrepresentation or omission
may
▪ Sue the wrongdoer
▪ Both criminal and civil liability possible
▪ Court may also order new election
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38 – 6
Proxy Contests
▪ Incumbent directors: Current directors of the
corporation
▪ Insurgent directors: Proposed slate of directors to
replace the incumbent directors
▪ Proxy contest: Contest in which opposing factions
of shareholders and managers solicit proxies from
other shareholders
▪ Side that receives the greatest number of votes
wins the proxy contest
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38 – 7
Shareholder Resolution
▪ A resolution that a shareholder who meets certain
ownership requirements may submit to other
shareholders for a vote
▪ Many shareholder resolutions concern social
issues
▪ Most shareholder resolutions have a slim chance
of being enacted – Large-scale investors usually
support management
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38 – 8
Mergers
▪ Merger: Situation in which one corporation is
absorbed into another corporation and ceases to
exist
▪ Surviving corporation: Corporation that continues
to exist after a merger
▪ Merged corporation: Corporation that is absorbed
in the merger and ceases to exist after the merger
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38 – 9
Exhibit 38.1 – Merger
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38 – 10
Share Exchange
▪ A situation in which one corporation acquires all
the shares of another corporation
▪ Both corporations retain their separate legal
existence
▪ Parent corporation: The corporation that owns the
shares of the subsidiary corporation in a share
exchange
▪ Subsidiary corporation: The corporation that is
owned by the parent corporation in a share
exchange
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38 – 11
Exhibit 38.2 – Share Exchange
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38 – 12
Required Approvals for Merger
or Share Exchange
▪ Recommendation of board of directors of each
corporation
▪ Affirmative vote of the majority of voting shares of
each corporation
▪ Approved articles of merger or articles share
exchange filed with secretary of state
▪ State issues a certificate of merger or share
exchange to the surviving corporation
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38 – 13
Short-form Merger
▪ A merger between a parent corporation and a
subsidiary corporation
▪ Does not require the approval of the shareholders
of either corporation
▪ Does not require the approval of the board of
directors of the subsidiary corporation
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38 – 14
Sale or Lease of Assets
▪ A corporation may sell, lease, or otherwise dispose
of all or substantially all of its property
▪ Requires
▪ Recommendation of the board of directors
▪ Affirmative vote of the majority of the voting shares
of the selling corporation
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38 – 15
Dissenting Shareholder Appraisal Rights
▪ The rights of shareholders who object to
▪ A proposed merger
▪ Share exchange
▪ Sale or lease of all or substantially all of the
property of a corporation
▪ Objecting shareholders are provided statutory
right to dissent and obtain payment of the fair
value of their shares
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38 – 16
Case 38.1: Dissenting Shareholder Appraisal Rights
▪ Case
▪ Global GT LP v. Golden Telecom, Inc.
▪ 993 A.2d 497, 2010 Del. Ch. Lexis 76 (2010)
▪ Court of Chancery of Delaware
▪ Issue
▪ What is the appraisal value of Golden stock?
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38 – 17
Tender Offer
▪ Tender offeror: The party that makes a tender
offer
▪ Tender offer: Offer that an acquirer makes directly
to a target corporation’s shareholders
▪ To acquire the target corporation
▪ Target corporation: The corporation that is
proposed to be acquired in a tender offer situation
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38 – 18
Exhibit 38.3 – Tender Offer
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38 – 19
Williams Act
▪ An amendment to the Securities Exchange Act of
1934
▪ Made in 1968 – Specifically regulates tender offers
▪ Establishes certain disclosure requirements and
antifraud provisions
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38 – 20
Tender Offer Rules
▪ Duration – Offer cannot be closed before 20
business days after commencement
▪ If tender offeror increases number of
shares/payment, offer must be extended for 10
business days
▪ Fair price rule: Stipulates that any increase in price
paid for shares tendered must be offered to all
shareholders
▪ Pro rata rule: If too many shares are tendered,
purchase must be made on a pro rata basis
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38 – 21
Antifraud Provision
▪ Section 14(e) of the Williams Act: Prohibits
fraudulent, deceptive, and manipulative practices
in connection with a tender offer
▪ Violations may result in
▪ The SEC bringing civil charges
▪ The Justice Department bringing criminal charges
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38 – 22
Fighting a Tender Offer
▪ Persuasion of shareholders – Media campaigns
▪ Delaying lawsuits
▪ Selling a crown jewel – Target corporation’s
valuable asset that the tender offer or wants to
acquire
▪ Adopting a poison pill – Defensive strategies that
are built into the target corporation’s
▪ Articles of incorporation
▪ Corporate bylaws
▪ Contracts and leases
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38 – 23
Fighting a Tender Offer (cont.)
▪ White knight merger – Mergers with friendly
parties
▪ Pac-Man tender offer – A reverse tender offer
▪ Issuing additional stock – Increases the number of
outstanding shares
▪ Creating an employee stock ownership plan
▪ Flip-over and flip-in plans – Shareholders of target
corporation convert their shares for greater
number of:
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38 – 24
Fighting a Tender Offer (cont.)
▪ Shares of the acquiring corporation (flip-over)
▪ Debt securities of the target company (flip-in)
▪ Greenmail and standstill agreements
▪ Greenmail: Purchase by a target corporation of its
stock from an actual or perceived tender offer or at
a premium
▪ Standstill agreement – Agreement of the tender
offer or to abandon its tender offer and not
purchase any additional stock
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38 – …
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