Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 22 Issue 2

In conclusion, shareholders have no right to any of the corporate income because state statues do not force the board to declare dividends. Moreover, case law shows that courts will force the board to declare dividends only under idiosyncratic circumstances. Thus, legal experts agree that shareholders have negligible power to force the board to declare dividends. l) Right to Capital Do shareholders have a right to capital? One with the right to capital has the, “…liberty to consume, waste or destroy the whole or part of it.” (Honoré 1961, 120) Taking this definition less literally, upon dissolution, shareholders may receive the remaining assets after all other claimants are paid. But for shareholders to claim the right to capital , they would need the power to dissolve the corporation. A shareholder does not have unilateral power to dissolve the corporation, as state statutes provide that the board has sole discretion. 35 Therefore, shareholders have no right to capital . 36 m) Right to Residuarity Do shareholders have a right to residuarity in the corporate assets or income? When a person’s incident of ownership terminates, the person who receives that incident is said to have a “residuary right” to it . 37 One might argue that the shareholder’s right to vote gives shareholders residuary rights to those incidents claimed by the board (e.g., the right to manage ). Certainly, the more power shareholders have For example, when a lease terminates, the less or claims the right to possess ; thus, the lessor has the residuary right to possess . In the principal-agent model, when the agency relationship terminates, the principal regains the right to manage. In this case, the principal has the residuary right to manage . 35 Per DGCL § 275: “Dissolution generally; procedure. (a) If it should be deemed advisable in the judgment of the board of directors of any corporation that it should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. (b) At the meeting a vote shall be taken upon the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon shall vote for the proposed dissolution, a certification of dissolution shall be filed with the Secretary of State pursuant to subsection...” Also, see RMBCA § 14.02. 36 The sole shareholder is a special case. According to the DGCL § 275(c), “Dissolution of a corporation may also be authorized without action of the directors if all the stockholders entitled to vote thereon shall consent in writing and power to secure its vote.” Thus, a sole shareholder has the power to dissolve the corporation, which, combined with the right to the capital upon dissolution, gives a sole shareholder the residuary right to the capital that remains after all other claimants are paid. 37 Regarding the right to residuarity, Honoré (1961, 127) states, “…whenever an interest less than ownership terminates, legal systems always provide for corresponding rights to vest in another. When easements terminate, the “owner’ can exercise the corresponding rights…” to designate board membership, the more powerful their residuary rights . Since, as was noted, non-controlling shareholders have negligible power to designate board membership, their residuary rights are negligible. For this incident of ownership, the situation is different for sole and controlling shareholders. The sole shareholder, through the exclusive power to nominate and elect the full board, has strong residuary rights to manage and income . Controlling shareholders have less power to designate board membership 38 and, thus, weaker residuary rights to manage and income . 39 In addition, controlling shareholders also have the residuary right to capital , which the sole shareholder has outright . 40 Regarding the power to alienate & transfer and immunity from expropriation . An analysis is unnecessary for these 3 incidents of ownership since they are either subsumed by other incidents or contingent on the presumption of ownership. Non-controlling shareholders’ residuary rights are negligible, while the sole shareholder and controlling shareholders have residuary rights to manage and income --the controlling shareholder also has the residuary right to capital . 41 n) Test of Hypothesis That is, the presence of these incidents is contingent upon ownership, without which the incidents are meaningless. Since corporate assets cannot be transferred or expropriated if they are not owned in the first place, these incidents are not discussed further. Table 2 summarizes the evidence, listing whether the legal relation necessary to claim an incident of ownership is present, absent, or a residuary right for each firm-type. As previous noted, the sole proprietor has every incident of ownership, while the firm-members 38 Technically, cumulative voting can, at times, reduce a controlling shareholder’s power to vote in every board member. 39 However, the controlling shareholder’s residuary right to manage would be diminished by additional fiduciary duties to minority shareholders. 40 The sole shareholder’s power to propose dissolution combines with a sole shareholder’s power to secure the vote, resulting in the right to capital (See footnote 36). 41 The power to alienate refers to the transfer of ownership (i.e., a sale). Alienating “all or substantially all” corporate assets occurs upon dissolution, which is discussed later in relation to the “right to capital.” Alienating some corporate assets falls under the “right to manage.” Thus, the power to alienate is subsumed by other incidents of ownership. The incidents of ownership, power to transfer and immunity from expropriation , while they involve economic benefits, are only contingently related to ownership. Waldron (1985) argues that power to transfer is not, in fact, part of the definition of ownership, “but only contingently connected with it.” “…in France the operation of the doctrine of legitima portio casts a different complexion on wills, bequest and inheritance altogether. What does this show? Does it show that the French have a different concept of ownership from the Americans and the English, so that it is a linguistic error to translate ‘ propriete ’ as ‘ownership’? Or does it show that the power of transmissibility by will is not part of the definition of ownership but only contingently connected with it?” (Waldron 1985, 316) The Effects of Entity Shielding on Claims to Assets: Implications for Financial Reporting 29 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals