Controlling Shareholders Flashcards
Do shareholders owe fiduciary duties to each other or the corporation?
Outside a close corporation no they don’t. They can act in their own self interest.
What duty does the shareholder who occupies a control position such as director?
They owe fiduciary duty to minority shareholders and sometimes others.
Can a control position director use their position to their advantage?
No they cannot at the expense of minority shareholders or corporation.
What is it called when the control position director sells their shares for more than a general shareholder can?
A control premium.
Does a person get to keep a control premium?
Yes.
What are the three areas the court will impose liability on if a holder of a control premium does something wrong?
1) Controlling shareholder sells to looters without reasonable investigation. Requirement to disgorge profits and liable for damage to corporation;
2) Controlling shareholder de facto sells corporate asset. Buys stock just to get at assets. Because there is no right to sell assets, remedy is that all shareholder share control premium.
3) Controlling shareholder sold a seat on the board. Fiduciaries cannot sell positions. Disgorge profit.
What is a freeze out merger?
It is aimed at solely cashing out minority shareholders unfairly.
What will be looked at to ensure that a merger is not simply a freeze out?
Whether deal was fair and reasonable, whether deal tainted by self-dealing or fraud, or whether minority shareholders have been dealt with fairly, or whether there is a legitimate business reason for the merger.
What happens if you engage in insider trading?
You have breached your duty to the corporation and it can sue to recover its insider profit.
What duty does a director and officer owe?
Duty not to trade on special facts in a securities transaction with non insider.
What are the special facts that you have a duty not to trade?
Special facts that a reasonable investor would consider important in making an investment decision.
What happens if special facts doctrine is violated?
Shareholder can sue. The measure of damage is the difference between price paid and value of stock a reasonable time after the public disclosure.
