Controlling Shareholders and Related Topics Flashcards
Do shareholders owe a fiduciary duty to the corporation or other shareholders?
Outside of a close corporation, generally no.
Does a controlling shareholder owe a duty to the corporation or other shareholders?
A SH who occupies a control position owes a fiduciary duty to minority SHs (look for in close corps)
What is a control premium?
A controlling SH may sell their controlling shares at a premium price because they come with the power to run the corporation
When will a controlling shareholder be liable for selling his shares?
- Sold to looters w/o reasonable investigation
- De facto sale of corporate asset
- Sells a seat on the Board
What are the remedies for improper sale of a controlling interest?
Disgorge the seller’s profit
Liability for corporate damages
Share premium with all SHs (de facto sale of asset)
What is a freeze out merger?
A majority of SHs cause their corporation to merge with another corp which they own. Minority shares are purchased for cash so they have no interest in either corp.
When will a freeze out merger be upheld?
- Fair price
- Fair dealing
- Legitimate corporate purpose
What are the two types of insider trading?
- Market trading on insider information
2. Non-disclosure of special facts (those a reasonable investor would want to know)
What is the result when a corporate office traders her own stock on inside information and makes a profit?
She has breached a duty to the corporation, and the corporation (or SH in derivative suit) may sue to recover the profit
When an inside fails to disclose special facts, what duty is breached?
A duty to the shareholder (this is not a corporate claim)
What is the measure of damages for failure to disclose special facts?
The difference between the price paid by the SH and the value of the stock a reasonable time after public disclosure.
