Chapter 3: Governance and Shareholders Flashcards
The Articles of Incorporation and ways to amend
The key constitutional document for corp.
May be amended:
Before stock is issued, by board of directors
After stock is issued, if board adopts the amendment the SH must approve by maj. vote.
Hierarchy of Authority
Statutes
Articles of Inc
Bylaws (adopted by board and can be amended by board or SH)
Organizational meeting
Upon formation of corp. meeting is held where bylaws adopted, officers appointed, adn pre-incorporation Ks are assumed.
Types of SH meetings
Annual: elect the directors and conduct any other business
Bylaws set forth time and place for annual meeting
Special: particular purpose
Board usually calls special meetings or for nonpublic corp. 10% of SH may call a special meeting.
Notice must be given including time, date, and location. Special meeting must also state purpose. 10-60 days before the meeting.
Failure to hold meetings doesn’t invalidate corp. action.
SH of closely held corp. often act by unanimous written consent.
Nonpublic companies can have 51% written consent if the articles of inc. so choose.
Voting
Only issued and outstanding stock may vote
SH owning stock on record day may vote
SH vote primarily to elect directors
Default rule is 1 vote per share
To have a quorum of SH in order for SH to act, need 50% of votes voting
Approval is 50%
Directors elected by a plurality
How are directors elected
Straight voting: each SH gets 1 vote per share per director.
Cumulative voting: SH can cumulate their votes and allocate them however they want.
Length of term: default rule 1 year and staggered terms
Proxies
Allow someone else to vote the shares on behalf of the SH of record
Must be signed or bear SH electronic signature and must be delivered to corp.
Valid for 11 months unless otherwise specified
Revocable unless the proxy states that is irrevocable and it is coupled w/ interest.
Revocable proxies may be revoked at will, a subsequent proxy revokes earlier revocable proxies.
SH may pool their votes through a voting pool or may transfer their votes to a trustee of a voting trust. 10 year term, may be extend for another 10 year term, which requires affirmative action.
Corporate books and records
A SH who has been a SH for 6 months or more or who owns 5% of any class of outstanding stock has a right to inspect corp books and records as long as they have a proper purpose and the request is in writing
SH have an absolute right to inspect the foundational documents
Suits by SH
Derivative: SH bringing suit on behalf of the corp; corp is harmed, not the SH. SH must (1) own shares at the time of the ad act and first make a demand upon the board. If board rejects the claim, or doesn’t accept w/in 90 days, SH may filed suit. Boards decision to proceed w/ the suit is tested under the business judgment rule. NC does not recognize the futility exception to the demand requirement. In successful derivative suit, SH may receive reimbursement for litigation expenses from corp.
Direct: a SH suing on her own behalf and name, appropriate when their is a particularized harm to that SH
Piercing the corp veil
As a g/r SH are not liable for corp debts
However, a corp is liable for a debt if the creditor/tort claimant can pierce the corp veil:
Sloppy practices: not maintaining corp formalities, not holding meetings, no board in place
Inadequate capitalization: haven’t put enough $ into business to capitalize it
Siphoning off of corp assets: SH takes corp assets and leaves the corp w/ not enough $ to satisfy its debts
Other ways to get around corp. limited liability
Closely related to piercing the corp veil.
Easier for tort claimants than K claimants bc K parties get to choose who they interact w/.
Minority SH may sometimes be able to sue maj. or controlling SH for oppressive acts
NC provides that maj. SH have a fiduciary duty and obligation of GF towards minority SH.
