What are the roles and responsibilities of directors, officers and shareholders in a business corporation? What potential liability does each class have for claims against the corporation?

Question

What will be an ideal response?

Answer 1

The shareholders are the owners of the corporation who are issued shares of stock in exchange for their capital investment. Shareholders have the right to elect and remove directors, and meet at least annually for this purpose. They have the right to obtain information from the corporation, and to vote their shares in person or by proxy, a transfer of the voting rights by a shareholder to another. Their approval is required to amend the Articles of Incorporation of for any extraordinary corporate action to occur. Shareholders have the right to inspect corporate records. Shareholders have the ability to maintain their relative ownership of the corporation through exercise of preemptive rights, entitling them to acquire additionally issued shares of common stock. If the directors decide to issue a distribution of profits, shareholders are entitled to a dividend. This dividend income, along with the profit made upon a sale of corporate stock, are the means by which a shareholder receives a return on his investment in the corporation. Shareholders are not personally liable for the debts of the corporation. They are only liable to the extent of their investment in shares of the corporation.

Directors are liable for establishing the policy for management of the corporation. Directors act collectively by resolution at meetings of the board. They may elect officers who have responsibilities for the day-to-day functioning of the corporation, who in turn hire employees for the corporation. Officers are agents of the corporation, who act with actual or apparent authority. Directors and officers have a duty to exercise reasonable care in managing the corporation. The business judgment rule requires that corporate management exercise reasonably prudent discretion. Management also owes a duty of loyalty to the corporation, to excuse themselves in situations that present a conflict of interest and to not take a corporate opportunity to its own benefit. Management may be liable for acts that are a violation of these obligations.