4. Shareholders

Question 1

_Management

Do SHs manage the company? How come?

Answer 1

No, because the board does

Question 2

_Management

What one type of company can SHs manage?

Answer 2

Close corp (few SHs and not publically traded)

Question 3

_Management

What special duty is owed by SHs in a close corp?

Answer 3

Duty of utmost good faith

Question 4

_{Piercing the corporate veil}

What are the two requirements?

Answer 4

1. SHs must have abused privilege of incorporating
2. Fairness must require holding them liable

Question 5

_{Piercing the corporate veil}

What are the two instances where the CV will be P’d?

Answer 5

1. Alter ego
2. Undercapitalisation

Question 6

_{Piercing the corporate veil}

What are the two instances where the CV will be P’d?

Answer 6

1. Alter ego
2. Undercapitalisation

Question 7

_{Piercing the corporate veil}

What two things can trigger alter ego?

Answer 7

1. Mixing corp and personal funds
2. Using corporate assets as your own

Question 8

_{Piercing the corporate veil}

In an alter ego case, who is liable?

Answer 8

Only the abusing SH

Question 9

_{Piercing the corporate veil}

What is the structure of an alter ego answer?

Answer 9

1. State the general rule that SHs are not personally liable
2. State PCV 2 steps
3. Apply facts to abuse and fairness

Question 10

_{Piercing the corporate veil}

What is undercapitalisation?

Answer 10

Corp does not have enough money to cover prospective liabilities

Question 11

_{Piercing the corporate veil}

What is the structure of an undercapitalisation answer?

Answer 11

1. State the general rule that SHs are not personally liable
2. State PCV 2 steps
3. State corp was undercapitalised when formed

Question 12

_{Piercing the corporate veil}

In an undercapitalisation case, what plaintiffs is a court more likely to PCV for?

Answer 12

Tort victims, as opposed contract

Question 13

_{Derivative Suits}

What is a derivative suit?

Answer 13

Suit brought by SH on behalf of corp

Question 14

_{Derivative Suits}

What question do we ask to determine if an action by a SH is a derivative suit?

Answer 14

Could the corp have brought this suit themselves?

Question 15

_{Derivative Suits}

Who gets the proceeds from a derivative suit?

Answer 15

The corp directly, but SH is reimbursed

Question 16

_{Derivative Suits}

What are the two consequences when a SH loses a derivative suit?

Answer 16

1. Cannot recover costs from corp
2. SH personally liable for D’s costs if SH sued without reasonable cause

Question 17

_{Derivative Suits}

What are the four requirements a SH must satisfy to take a derivative suit?

Answer 17

1. Stock ownership when claim arose and throughout the case
2. SH must adequately represent corp’s interest
3. Make written demand on corp to take the suit
4. Join D as defendant

Question 18

_{Derivative Suits}

After making a written demand on the corp to take the suit, what is the waiting period set by most states before SH can commence suit?

Answer 18

90 days

Question 19

_{Derivative Suits}

What is the one exception to the 90 day waiting period?

Answer 19

Where waiting is futile, e.g. directors are defendant who would never sue themselves

Question 20

_{Derivative Suits}

How can a derivative suit be dismissed?

Answer 20

With court approval only

Question 21

_{Shareholder Voting - Who votes?}

What is the record shareholder vote rule?

Answer 21

The person who owns the stock at the record date votes, even if they sell the stock between the record date and the vote

Question 22

_{Shareholder Voting - Who votes?}

What happens if a SH dies between record date and the vote?

Answer 22

His estate vote

Question 23

_{Shareholder Voting - Who votes?}

What is a proxy vote?

Answer 23

Writing signed by record SH, directed to secretary or corp, authorises another to vote his share

Question 24

_{Shareholder Voting - Who votes?}

Unless otherwise stated, how long does a proxy last?

Answer 24

11 months

Question 25

_{Shareholder Voting - Who votes?}

How is a proxy revoked?

Answer 25

1. In writing to secretary
2. By attending meeting and voting

Question 26

_{Shareholder Voting - Who votes?}

When is a proxy truly irrevocable?

Answer 26

The proxy-holder has an interest in the share, other than voting

Question 27

_{Shareholder Voting - Who votes?}

When are the ways to poor voting power together?

Answer 27

1. Voting Trust
2. Voting Agreement

Question 28

_{Shareholder Voting - Who votes?}

What is a voting trust and what is its max duration?

Answer 28

Written trust agreement controlling how shares will be voted, which transfers legal title to the voting trustee

Question 29

_{Shareholder Voting - Who votes?}

What rights do SHs retain when they enter into a voting trust?

Answer 29

All rights, except right to vote

Question 30

_{Shareholder Voting - Who votes?}

What is a voting agreement?

Answer 30

A written contract to vote a certain way, signed

Question 31

_{Shareholder Voting - Who votes?}

Are voting agreements allowed?

Answer 31

States a split, but there is a trend towards yes

Question 32

_{Shareholder Voting - Where do they vote?}

Does there have to be a meeting for a vote?

Answer 32

No, SHs can assent to an action unanimously in writing

Question 33

_{Shareholder Voting - Where do they vote?}

Does the meeting have to be in the state of incorporation?

Answer 33

No

Question 34

_{Shareholder Voting - Where do they vote?}

What notice is required for meetings?

Answer 34

Between 10 and 60

Question 35

_{Shareholder Voting - Where do they vote?}

Does the purpose of the meeting need to be included in the notice?

Answer 35

Only if it is a special meeting, i.e. not the annual meeting

Question 36

_{Shareholder Voting - Where do they vote?}

What is the scope of a special meeting?

Answer 36

Cannot go beyond the purpose stated in the notice

Question 37

_{Shareholder Voting - How do they vote?}

What do SHs vote on, and is this list absolute?

Answer 37

1. Elect/remove directors
2. Fundamental corporate changes

No, board can broaden scope of what SHs can vote on

Question 38

_{Shareholder Voting - How do they vote?}

How is a quorum determined?

Answer 38

Majority of the number of shares, not shareholders

Question 39

_{Shareholder Voting - How do they vote?}

What vote is required to elect a director?

Answer 39

Director who gets most votes wins

Question 40

_{Shareholder Voting - How do they vote?}

What vote is required to remove a director?

Answer 40

Traditionally, majority of shares entitled to vote

Recent trend toward majority of votes cast at meeting

Question 41

_{Shareholder Voting - How do they vote?}

What vote is required for all other matters?

Answer 41

Majority of votes cast at meeting

Question 42

_{Stock Transfer Restrictions}

Are STRs allowed?

Answer 42

Yes, unless an undue restraint on alienation

Question 43

_{Stock Transfer Restrictions}

If A sells stock with an STR to B, what two things are required to make it enforceable against B?

Answer 43

1. STR conspicuously noted on stock
2. B had actual knowledge of STR

Question 44

_{Right to Inspect or Copy Corp’s Records}

Who can demand access?

Answer 44

Any SH

Question 45

_{Right to Inspect or Copy Corp’s Records}

What are the two categories of records?

Answer 45

1. Non-controversial
2. Controversial

Question 46

_{Right to Inspect or Copy Corp’s Records}

What one thing must a SH do to access non-controversial records?

Answer 46

Request in writing 5 days in advance

Question 47

_{Right to Inspect or Copy Corp’s Records}

What one thing must a SH do to access controversial records?

Answer 47

Request in writing 5 days in advance and state a proper purpose

Question 48

_{Right to Inspect or Copy Corp’s Records}

Do directors need to request access? How come?

Answer 48

No, they have unfettered access to everything

Question 49

_{Distributions}

Do SHs have a right to a distribution? How come?

Answer 49

No, distributions are at the discretion of the board

Question 50

_{Distributions}

Is a suit to compel a distribution a direct or derivative suit, and what must SH show?

Answer 50

Direct; serious abuse of discretion, e.g. no distribution but board pays themselves a bonus

Question 51

_{Distributions}

What is the order of priority?

Answer 51

1. Cumulative shares (if any)
2. Preferred shares (if any)
3. Common stock