Rules of Corporate Governance
Rules of corporate governance establish and allocate the responsibilities that shareholders and directors have in operating a business. In general, the right to manage the affairs of a corporation is vested in its board of directors.
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Identification
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The governance rules, also called bylaws, specify how directors are elected, their duties, as well as how frequently they must meet during the calendar year. The bylaws also indicate how frequently shareholder meetings will occur.
Types
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In some corporations where the owners are also the employees, the shareholders have the right to manage the business affairs of the corporation. In these situations, the authority of the shareholders to run the business is either expressly stated in the bylaws or is specifically permitted by state law.
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Considerations
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Except as otherwise provided in the Articles of Incorporation or the bylaws, directors of a corporation are elected by its shareholders.
Effects
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Although directors are typically responsible for enacting corporate policy, any transaction that would substantially change the nature of the corporation may require shareholder approval. Such changes might include merging with or acquiring another business.
Function
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Although directors are allowed some discretion in conducting the operations of the business, they can't implement policies that negatively effect the interests of shareholders or the corporation. Since the bylaws of most public corporations grant the directors exclusive authority to manage its affairs, shareholders can't engage in the daily management of the business.
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