Chapter 50: Management of Corporations

Stockholder Control As owners, stockholders have the right to control the corporation through the election of directors and through other proposals brought to vote. Ordinarily, stockholder action is taken at a regular or special meeting of the stockholders. The presence of a quorum of the voting shareholders is required.

Management by Directors Day-to-day management of a corporation is under the control of a board of directors. Courts will not interfere with the board’s judgment in the absence of unusual conduct such as fraud. A director is disqualified from taking part in corporate action when the director has a conflict of interest.

Power of Directors Board of Directors Authority to manage the Chapter 49 Power of Directors Board of Directors Authority to manage the corporation May enter into any contract or transaction necessary to carry out business May appoint officers and other agents to act for the company May appoint several of its own members as an executive committee to act for the board between meetings 1

Directors Directors act in a fiduciary capacity in dealing with the corporation. Directors who act in good faith and have exercised reasonable care are not liable for losses resulting from their management decisions. Ordinarily, directors are removed by shareholders.

Officers Officers of a corporation, including a CEO, president, vice president, secretary, and treasurer, are usually selected and removed by the board of directors. Officers are agents of the corporation, and with powers governed by the law of agency. Their relations with the corporation are fiduciary in nature, and they are liable for any secret profits and for diverting corporate opportunities to their own advantage.

Liability Directors and officers, as in the case of agents generally, are personally responsible for any torts or crimes they commit even if they act on behalf of the corporation. The corporation itself may be prosecuted for crimes and is subject to fines if convicted. The ordinary rules of agency law determine the extent to which a corporation is liable for a contract made or tort committed by a director, officer, corporate agent, or employee.