Corporate Governance and the Sarbanes-Oxley Act

These flashcards cover key concepts of corporate governance, duties of directors and officers, and legal frameworks such as the Sarbanes-Oxley Act, essential for understanding business law.

Shareholders

Owners of the corporation; not agents; they cannot bind the corporation to contracts and have the right to vote on fundamental changes.

Board of Directors

A group elected by shareholders to make corporate policy decisions, typically compensated for their service.

Corporate Officers

Employees of a corporation appointed by the Board of Directors to manage day-to-day operations.

Fiduciary Duty

The duties of obedience, care, and loyalty owed by directors and officers to their corporation and its shareholders.

Duty of Obedience

The responsibility of directors and officers to act within the authority conferred by state codes, articles, bylaws, and board resolutions.

Duty of Care

The responsibility of directors and officers to use care and diligence when acting on behalf of the corporation.

Duty of Loyalty

The obligation of directors and officers to act in the best interests of the corporation and its shareholders, subordinating personal interests.

Business Judgment Rule

A rule stating that directors and officers are not liable for honest mistakes of judgment made while performing their duties.

Sarbanes-Oxley Act

A federal law enacted in 2002 aimed at improving corporate governance and instilling confidence in public companies.

Foreign Corrupt Practices Act

A federal statute making it illegal for U.S. companies to bribe foreign officials to influence business decisions.

Resolutions of the Board of Directors

Decisions reached in board meetings that might need approval from shareholders.

Agency authority of corporate officers

Possess authority that may be provided in the bylaws, or as determined by resolution of the board of directors

Key Goals of the Sarbanes-Oxley Act

To improve corporate governance, eliminate conflicts of interest, instill confidence in public companies, prohibit convicted security fraud offenders from Board and Officer positions, and forbid corporate loans to Directors and Officers.

Breach of Duty of Loyalty

A corporation can sue its directors or officers to recover secret profits from transactions. If a director/officer usurps a corporate opportunity, the corporation can reclaim the opportunity and any profits. Contracts with directors or officers are voidable if deemed unfair, and profits from nonapproved competition are recoverable.

Breach of Duty of Care

Personal liability to the corporation and its shareholders for any damages caused

Breach of Duty of Obedience

Personal liability for resultant damages