B. Business Corporations - Management & Control

Question 1

When may SH exercise his right to dissent from certain corporate actions (right of appraisal)?*

Answer 1

SH opposes consolidation/merger plan to which Corporation is a party

SH opposes transfer/disposition of Corporation’s assets that are NOT in regular course of business

SH (target company) opposes share exchange

SH opposes certain amendments to Certificate of Incorporation that either;

• Alter/abolish/impair SH’s preferential/redemption/pre-emptive rights
• Exclude/limit voting rights

Question 2

What is required for SH to exercise his right to dissent (right of appraisal)?*

Answer 2

1) File written objection to action to Corporation before vote is taken
- Including demand for payment of fair value of his shares
- UNLESS action is by written consent

2) Make written offer to each SH who filed notice of election

3) SH cuts off actions/rights as SH
- EXCEPT actions based on fraud
- EXCEPT actions being objected to

Question 3

What if Corporation fails to make timely offer of payment OR dissenting SH fails to agree with price specified in the offer?

Answer 3

Corporation (if NOT, SH) may start special proceeding to fix fair value of SHs’ shares

Question 4

What is required for minority SH to seek special judicial dissolution of the Corporation?*

Answer 4

1) Minority SH holds +20% of ‘outstanding’ shares of close corporation

2) Either;
- Director is guilty of illegal/fraudulent/oppressive action towards Minority SH
- Corporation’s assets are looted/wasted/diverted for non-corporate purposes by Directors/Officers

Question 5

What must Court determine in involuntary dissolution of Corporation?*

Answer 5

• Whether liquidation is only feasible means for SH to obtain fair return
• Whether liquidation is reasonably necessary for protecting substantial number of SHs’ rights

Question 6

What is required for majority SH to seek dissolution of the Corporation?

Answer 6

1) Majority SH holds +50% of ‘outstanding’ shares of Corporation

2) Either;
- Deadlock among Ds re Corporation’s management in which required votes for board action can NOT be obtained
- Deadlock among SHs in which required votes for election of directors can NOT be obtained
- Internal dissension + Deadlock among +2 SHs in which dissolution would be beneficial to SHs

Question 7

What voting is required for corporate actions?*

Answer 7

Any corporate action
- Majority SH votes cast at meeting (as permitted by Certificate of Incorporation/By-laws)

Amendment to Certificate of Incorporation
- Majority of voting shares required

Approval of merger/sale/lease/exchange/disposition of assets (NOT in regular course of business)

• 2/3 of votes cast (corporations existed on 22/02/98)
• Majority vote of outstanding shares (corporations existed after 22/02/98 OR if permitted by Certificate of Incorporation)

Question 8

Do abstentions constitute vote casts?*

Answer 8

NO

Question 9

What is required for the election of directors?*

Answer 9

Plurality of votes cast at SH meeting by SHs entitled to vote

Question 10

What is required for the removal of directors?*

Answer 10

1) SH vote!!!
2) Either;
- With cause!!!
- With NO cause (if provided by Certificate of Incorporation/By-Laws)!!!

Question 11

What is required for board action?

Answer 11

1) Majority vote of Ds present at time of vote

2) Quorum (majority of Ds)
- UNLESS CoI/By-Laws state otherwise
- At least 1/3 required regardless

Question 12

When is a transaction between Corporation and Directors/Directors’ business considered NOT void/voidable?*

Answer 12

• Material facts of D’s interest are disclosed in good faith/known to Board + Board approves by sufficient votes (excluding that D’s vote)/Unanimous vote of disinterested Ds
• Material facts of D’s interest are disclosed in good faith/known to SHs entitled to vote + transaction is approved by SHs’ votes
• Parties establish that transaction was ‘fair and reasonable’ to Corporation at time of approval

Question 13

What is the rule for liability of SHs and Directors?*

Answer 13

SHs

• 10 largest SHs of ‘close’ corporation
• Jointly + severally liable
• To employees for all due wages

Directors

• Jointly + severally liable
• For voting on declaration of improper dividends/share purchases/loans/distribution of assets post-liquidation

Question 14

What is the Business Judgment Rule?*

Answer 14

Ds must perform duties;

• In good faith (NOT relying on NON-warranted opinions/statements)
• With degree of care as ordinarily prudent person would

Ds can rely on info/opinions/statements presented by;

• Employees of Corporation
• Counsel/Public accountants/others who Officer believes to be within competence + acting in good faith

Question 15

What is required for election/removal of Officers?*

Answer 15

Election by Board/SHs

• As it may determine/by-laws provides
• Person can be appointed to hold more than one office

Removal by Board/SHs

• With/With NO cause
• If elected by SHs => Only remove by SHs

Question 16

How may Business Judgment rule be rebutted?*

Answer 16

Plaintiff has burden to prove Board breached fiduciary duty;

• Bad faith
• Self-dealing

Question 17

When may Corporation make loans to Directors/Guarantees of Directors?*

Answer 17

Approved by SHs

Approved by Ds
- If they determine that loan/guarantee benefits Corporation