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Corporate Directors’ Duties and Their Interactions with Shareholders

Although most of us have questioned the exorbitant salaries often paid to various corporate officers and directors, the incredible breadth of their duties and responsibilities can at least partially explain their compensation. After all, except in some “close” corporations, the directors are required to manage all of the general business of a corporation. Yet each director must be careful to only take action for a proper corporate purpose.

How Directors Are Chosen

            The shareholders have the right to elect their board of directors, often appointing them to staggered terms. In many states, it is possible to remove a director without cause or when the individual has been accused of specific wrongdoing. However, this type of removal is the exception and not the rule.

Basic Duties of a Corporate Director           

          This individual must protect the corporation’s integrity, exercise careful oversight by reviewing corporate books and ledgers as needed, and regularly vote on proposed contracts and activities brought before the entire board. However, each director is expected to abstain from voting on any measures that might directly benefit him/her financially.

          Furthermore, directors should always be doing whatever they can to improve their corporation’s image and standing in the worldwide business community, regularly assessing potential business risks, and requesting legal oversight when necessary regarding any questionable management decisions.

           Of course, all of these management decisions are supposed to be primarily made to increase corporate earnings and shareholder profits.

How Shareholders Can Affect Directors’ Rights

          While directors generally make all major business decisions for a corporation, shareholders can exercise their right to vote at times when they believe one or more directors should be removed. Otherwise, directors usually serve out their staggered periods of service. One or two may start one year while others may be leaving the board during the following year – and so forth.

          When fundamental changes are being considered by the corporate board of directors and officers, the shareholders have a right to vote on such changes. These may include new amendments to the articles of incorporation, bylaws of the corporation, possible mergers, sales of large portions of corporate assets, or possible dissolution. In addition, shareholders are sometimes asked to vote to ratify or approve a specific management transactions – possibly to help protect the board of directors or officers against future legal liability.

          Under unusually negative circumstances, when no other reliable courses of action are available, shareholders can also bring lawsuits – perhaps claiming that their rights are being abridged in some manner or that profits owing to them have not been paid on a timely basis.

 

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
Advocate for the Seriously Injured in Georgia