University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

342

Pages:

2
Author:

bratrochanter

Key Points on Shareholder Rights and Liabilities 1. Close Corporations and Fiduciary Duty: o In close corporations, shareholders owe one another fiduciary duties similar to those in partnerships. This includes preventing "freezeouts," where majority shareholders deprive minority shareholders of corporate benefits. o Case Example (Brodie v. Jordan): Mary Brodie, a minority shareholder, was excluded from corporate benefits and decisionmaking. The court ruled that her reasonable expectations were violated, but a forced buyout of her shares was not warranted. Instead, the court suggested remedies that restore her expected benefits, such as financial compensation or governance rights, without granting an undue advantage. 2. Nonprofit Corporation Member Rights: o In nonprofit corporations, members have rights to participate in decision-making, inspection, and voting, guided by the Model Nonprofit Corporation Act (MNCA). o Unlike shareholders, nonprofit members focus on rights to use services and have financial obligations, with voting power and other rights determined by the organization’s bylaws. Members can bring derivative suits but must represent a significant voting block and meet criteria to prevent frivolous litigation. 3. Corporate Dissolution and Winding Up: o Corporations can dissolve voluntarily or involuntarily through judicial or administrative action. Upon dissolution, assets are liquidated, creditors paid, and remaining assets distributed to shareholders. o Shareholders in close corporations may have dissolution rights similar to those in partnerships, especially in cases of shareholder deadlock or mismanagement. After winding up, corporate existence ends, and directors or officers acting beyond this point may face personal liability. 4. U.S. vs. German Corporate Governance: o In Germany, shareholder powers differ from those in the U.S., with more decisions, such as dividend declaration and major asset transfers, requiring shareholder approval. German law provides limited mechanisms for shareholder litigation compared to the U.S., where derivative suits are more accessible to minority shareholders. o In Germany, shareholders holding 10% or more of shares can demand corporate action against management; however, there are fewer options for direct shareholder action against board members. These elements collectively reflect the complex rights and remedies available to shareholders in various corporate structures, emphasizing fiduciary responsibility, minority shareholder protection, and regulatory distinctions between corporate governance practices globally.