5. The Right to a Share of the Profits

Each shareholder is entitled to a proportionate share of the profits, which are distributed on the class of stock owned. These dividends are usually paid in money, but they may be in the form of stock shares or other property such as products of the company. Even when profits are earned, the board of directors may decide to retain them in the business for future needs of the firm. In effect, the stockholders are thus forced to make an additional investment in the business. Ideally, this should cause the price of stock to go up, and the stockholders can sell out if they so choose. Under unusual circumstances, courts will intervene to compel distribution of dividends at the request of shareholders who claim that there is an unreasonably large surplus of retained and unused or underutilized earnings.

6. The Right to Share in Distributions of the Capital

If a corporation is dissolved, its creditors have first claim upon the assets of the business. After their claims have been satisfied, any remaining assets or proceeds from the sale of assets (liquidation funds) are distributed to the shareholders. Preferred stockholders generally are given priority over the common stockholders in such a distribution.

7. The Right to Inspect Corporate Books of Account

A shareholder has the right to inspect and to make appropriate records of the accounting books of the corporation. However, this inspection may generally be denied if it is not made at a reasonable time and place, in good faith, and with proper motive. This is in contrast to the open inspection permitted to partners. Yet this restriction is understandable when one realizes that many thousands of persons own shares in large corporations. If the books were open to all without restriction, competitors could buy a few shares simply to gain an unfair advantage by such inspection.

Answer the questions:

1. Name the rights of a shareholder.

2. What is cumulative voting?

3. What is proxy?

4. What is preemptive right?

TEXT 14.

DISSOLUTIION OF A CORPORATION

A variety of reasons may cause the dissolution or termination of a corporation. These include:

1. Agreement of the Shareholders

A corporation terminates upon expiration of the agreed period of its existence.

2. Forfeiture of the Charter

The state may bring judicial proceedings for the forfeiture of the charter of a corporation that has been guilty of certain acts. Examples of such acts would be:

1) fraudulent submission of articles of incorporation,

2) flagrant misuse of corporate powers, and

3) repeated violation of the law.

Forfeiture is rare because the state does not monitor corporate affairs, and aggrieved persons can seek other private relief in court.

3. Consolidation or Merger

A consolidation of corporations can occur with the approval of the boards of directors and a majority of the shareholders in each of the corporations involved. The two corporations cease to exist and a hew corporation is formed.

In a merger one corporation absorbs the other. The surviving corporation retains its charter and identity; the other disappears. Again, approval must be given by the directors and by the shareholders of the merging corporations.

A combination through either consolidation or merger must not violate antitrust laws by interfering unreasonably with free competition. An illegal monopoly is where one company controls the supply of goods, excludes competitors, and sets prices.