1. Briefly distinguish between shareholders, directors, and officers of a corporation and describe the dynamics between them. Which of them would hold the most power?Generally, shareholders are the owners (through investments in shares of stock) of a corporation and less involved in running the corporation, compared to the board of directors, who are mainly tasked with decision making while adhering to their fiduciary duties to act in the best interest of the firm. Daily corporate affairs are run by the officers who include senior managers like firm presidents and treasurers who implement decisions made by the board of directors, who answer to and are appointed by the shareholders; leaving more power to the shareholders.
2. Would you be willing to invest a large portion of your savings for a minority interest in a private company? Why or why not?
Having to invest a large portion of one’s savings for a non-controlling/minority interest in a private firm would be disadvantageous due to lack of issuance of dividends and seemingly poor management due to liquidity issues that would put off potential investors. However, considering that this is not always the case and that it allows less regulatory pressure and disclosure alongside special chances for purchasing share before they are offered to outsiders, sinking one’s savings at a minority interest may not be that bad even though caution and due diligence is advised.
3. I had a professor in law school that said we should eliminate most securities laws. He thought that most of the disclosures were a waste of money and investors should simply demand the information before they invest. If they do not it is their fault. What do you think of this?
The law, in general, provides guidelines for the maintenance of order which also applies to securities laws; and which provide a legal framework with which businesspeople can act in good faith while elimination potential conflict that even arises when parties exploit legal loopholes. It would seem that disclosures have an overarching goal of promoting good business practice, for the benefit of all parties involved, even though resources may seem as being misused.
Posts Critique
1. Posted by Nicole Hicks
The executive committee is given the authority to act for the board when it is not in session: it consists of both inside and outside directors Audit committees are directly responsible for the appointment, compensation and oversight of independent public accountants. Nominating committees review and approve the salaries, bonuses, stock options, and other benefits of high-level corporate executives. Shareholder litigation committees are tasked with determining if a corporation should sue someone who has allegedly harmed the corporation.
Reply
The information on the executive, shareholder litigation and audit committees is accurate even though the compensation of independent public accountants is not part of the audit committee’s responsibility. Additionally, nominating committees are primarily tasked with proposing nominees to the various committees and the board.
Posted by Ly Bui
Directors and officers of corporations have fiduciary duties to corporate stockholders and to the business. Therefore, corporate directors and officers are called fiduciaries. Fiduciary duties require directors and officers to act in good faith, to apply their best business judgment, and to promote the best interests of the corporation.
Directors and officers must be careful not to violate their fiduciary duties, they can take reasonable risks, direct corporate business and affairs, and make innocent mistakes without judicial scrutiny and court’s second-guessing. Directors and officers must follow “business judgment rule to avoid personal liability to corporation and its shareholders.
Duty of Care – directors and officers must use care and be diligent when making decisions on behalf of the corporation and its shareholders.
Duty of Loyalty – directors and officers must have an undivided duty of loyalty to the corporation and shareholders. In another words, they must put the interests of shareholders and the corporation above their own interests.
Duty of Good Faith is considered as “conscious disregard” or “intentional dereliction of duty.
Reply
This information on directors and corporate officers is spot on especially in regard to the duty of care, loyalty and good faith. It is good to add that due to infringement of rules as experienced in financial scandals like Enron’s, among others, more safeguards are being formulated and implemented to ensure that fiduciary duties, among other rules, are not breached.
3. Posted by KRISTOPHER CLEVELAND
Much like any investment, this question depends on another question which is how much a large portion of my savings would be in this situation. If we are talking hypothetically and I have the money to blow then absolutely. This is because any investment is a gamble. Much like actual gambling in a casino, if you have the money to do so then it makes more sense to gamble big then it does to gamble small and not win nearly as much as you could have. Now, if we are talking realistically then there is no way that I would risk my savings for just a minority interest in a private company. Since I live in the real world where I pay bills myself and not through an accountant, I want to understand and control where my money is at all times. So if I am to invest in a company, then I want to be fully invested financially and personally in that company to insure that I am getting my money’s worth.
Reply
Even though, your gambling analogy provides some insight into making the better decision, a more financially-informed input emphasizing pros and cons would have been better. Nonetheless, you are right in regards to the risk tied to investment of a large portion of one’s savings for a minority interest in a company but accounting for all relevant factors will enable one to make the best decision on whether to invest.
