CORPORATE GOVERNANCE

Board of Directors
o No Individual Authority
o Act as group if quorum (majority of group) Duly Constituted
o Primary role of directors is to safeguard companys assets and to maximize
shareholder return.
o Declaration of Distributions to Shareholders Including Dividends & Shares.
o Fiduciary Duties Directors are fiduciaries of the corporation and must always act in
the best interests of the corporation. Must act in good faith. Duty of Loyalty.
o Right to Rely A director can rely on information from officers, employees,
accountants, legal council, or a committee of the board whom the director believes to
be reliable and competent.
o Liability for Unlawful Distributions Liable for authorizing a distribution that would be
in violation of the law.
o Corporate Opportunity Doctrine
o Indemnification Company can pay for legal fees.
o Limitation on Director Liability If Directors act in bad faith
Officers
o Officers are individual agents of the corporation who manage day to day operation
and may bind the corporation to contract made on its behalf.
o Selection and Removal By directors and may be removed by the directors with or
without cause.
o Authority
o Actual Oral/Written Instruction
o Apparent Title CEO/CFO
o Fiduciary Duties and Indemnification
o Also May Serve as Directors But according to good Corporate Governance the
majority of the board should be independent.
Sarbanes-Oxley Act of 2002
Corporate Responsibility Enhanced Financial Disclosures Fraud
o Title III Corporate Responsibility
o Audit Committee & CEO/CFO Representations
o Public Audit Committees Public companies are responsible for
reestablishing an audit committee that is directly responsible for the
appointment, compensation and oversight of the work of the public
accounting firm employed by the public company (referred to as an issuer)
The auditor reports directly to the audit committee

 The audit committee is responsible for directly resolving disputes

between the auditor and management.
Auditors are to be members of the issuers board of directors but are
otherwise to be independent.
Audit committees must establish procedures to accept reports of
complaints regarding audit, accounting, or internal control issues.
o Corporate Responsibility for Financial Reports
CEO & the CFO must sign certain representations regarding annual
and quarterly reports including and assertation that states:
They have reviewed the report
Report does not contain untrue statements or omit material
information.
The financial statements fairly present in all material respects
the financial condition and results of operations of the issuer.
By the CEO & the CFO signing the report they have assumed
responsibility for internal controls
o Internal control have been designed to ensure that
material information has been made available
o Internal controls have been evaluated for effectiveness
o The report includes conclusions as to the effectiveness
of internal control based on their evaluation.
o Disclosures are made about any significant deficiencies
of internal controls as well as any fraud.
o Improper Influence on the Conduct of Audits Illegal
o Forfeiture of Certain Bonuses and Profits- If there is any noncompliance by
CEO & CFO they will have to pay for restatement
o Title IV Enhanced Financial Disclosures
o Internal Controls & Audit Committee The enhanced finanicial disclosures
associated with the issuer reports include additional details regarding the
financial statements, internal controls, and the operations of the audit
committee.
o Disclosures in Periodic Report- Disclosures are intended to insure that the
application of GAAP reflects the economics of the transactions included in
the report and that those transactions are transparent to the reader.
All material correcting adjustments identified by the auditor.
Financial statements should disclose all material off-balance sheet
transactions. (operating leases, lawsuits, relationships with other
parties)
Conformance of pro forma financial statements No false statements,
no omitted material information.

o Conflict of Interest Provisions Issuers are generally prohibited from making

personal loans to director or officers.
o Disclosure of Transaction Involving Management and Principal Stockholders
Principal Stockholder = Ownership is greater than 10%
o Management Assessment of Internal Controls Section 404
A statement that management is responsible for establishing and
maintaining an adequate internal control structure.
An assessment of the effectiveness of internal control.
o Code of Ethics for Senior Officer Establishes Tone at the Top
o Disclosure of Audit Committee Financial Expert
At least one financial expert with combined education and experience
o Title VIII Corporate and Criminal Fraud Accountability
o Criminal Penalties for Altering Documents
Altering, destroying, concealing, falsifying documents can lead to fines
and up to 20 years in prison.
Auditors must retain all documents for up to 7 years failure to do so
may lead to fines and up to 10 years in prison.
o Statute of Limitations for Securities Fraud 2 & 5 Rule
The statute of limitations for securities fraud is no later than the earlier
of two years after the discovery of the facts constituting the violation or
five years after the violation.
o Whistle Blower Protection
o Criminal Penalties for Securities Fraud Fines & up to 25 years in prison
o Title IX White-Collar Crime Penalty Enhancements
o Attempt and Conspiracy
Fraud includes mail fraud, wire fraud, and violation of the Employee
Retirement Income Security Act (ERISA) punishment will be predetermined by the United States Sentencing Commission.
o Failure of Corporate Officers to Certify Financial Reports
Any party that certifies the periodic financial