The Corporate Process - Research Paper Example

The Corporate Process Affiliation) The Corporate Process Introduction This paper will cover the duties conducted by important entities of a corporation; the paper even discusses the differences between publicly held corporations and closed corporations. The three most important entities of a corporation are the shareholders, directors and officers. Duties of Directors and Officers of Corporations The officers and directors of an organization are referred to as fiduciaries of an organization, being fiduciaries; they are liable to perform two main duties (Becker, 2011, p.6). Fiduciary refers to an individual who has a duty to operate or act on another’s behalf.

Fiduciary relationship is created when one trusts an individual and that individual performs duties on his or her behalf. The relationship that a director or officer has with the organization and the shareholders, is recognized as a fiduciary relationship. The shareholders and the organization have confidence and trust in the officers and the directors and the officers and directors are responsible to carry out duties and task on shareholders and organizations behalf. The fiduciary duties that all officers and directors have to carry out on behalf of shareholders and organizations are duty of loyalty and care.

According to duty of care, directors are liable to act in good faith and make use of prudent business judgment while making decisions or conducting business for their organization. Good faith refers to the honesty and sincerity that directors and officers have to show while conducting business. Prudent business judgment refers to careful and analytical decisions made by directors and officers. Directors should be very careful while conducting business and making decisions on behalf of the organization and shareholders; his/her degree of care should be as high as the degree of care he/she takes in making personal decisions.

Directors should have all the information required while making decisions and they should apply all their training and education in conducting business. If directors do not exercise duty of care in their operations, they become answerable to shareholders and the corporation they are working for. Directors are even answerable and held responsible for conducting mismanagement and negligent of corporate employees if they do not supervise the activities of their subordinates (officers). The directors and officers are even responsible for conducting their duties with faithfulness.

The process of carrying out duties with faithfulness is recognized as director’s duty of loyalty (Overton, 2002, p.29). While directors and officers conduct duty of loyalty, they have to forego their own self interest for the interest of the organization. Under the duty of loyalty, directors are obstructed form using organization’s resources and information for personal use. In certain cases, the director has self interest in certain transactions of their organization. In these cases, the director has to completely disclose his self interest and has to keep out of voting for these business transactions.

The directors have to make various decisions for the organization, directors cannot be held responsible for the outcomes of those decisions if those decisions are made honestly. This rule is recognized as the business judgment rule. The rule provides immunity from responsibility to directors and officers if they have exercised duty of care and loyalty in making decisions for the organization. Duties of Shareholders of Corporations Shareholders are mostly not allowed to take part in day to day running of corporations; their main duty includes selection of board of directors (BOD) for the organization.

There are two kinds of shareholders, minority and majority. If the majority share holders use their power to conduct fraud against minority shareholders, they are held responsible. The majority shareholders have a fiduciary duty towards minority shareholders and corporations. This means that they have to be loyal and fair to the minority shareholders and corporations while they deal business of for the corporation or with the corporations. Publicly held vs. closed corporation Corporations are categorized into two parts, publicly held or public corporations and closely held or close corporations.

In case of close corporations, there are very limited numbers of private individuals that own and operate the company, the shares owned by these individuals cannot be sold on stock market or to the public, and in several close corporations; shareholders reach an agreement of not selling their shares to anyone (Li, 2007, p.99). In case of publicly held or public corporations, there are huge numbers of shareholders, the shares of the corporation are openly sold in the stock exchange and their shares are easily transferable.

Conclusion The directors and the officers have a duty to carefully, sincerely and faithfully conduct business for the corporation and the major share holders have a fiduciary duty towards minor shareholders. References: Becker, B., Stro?mberg, P., & Harvard Business School. (2011). Fiduciary duties and equity-debtholder conflicts. Boston: Harvard Business School. Li, X. (2007). A comparative study of shareholders' derivative actions: England, the United States, Germany, and China. Deventer: Kluwer.

Overton, G. W., Frey, J. C., & American Bar Association. (2002). Guidebook for directors of nonprofit corporations. Chicago, Ill: American Bar Association, Section of Business Law.