Corperations 2 Flashcards
1
Q
A majority of states have enacted
statutes permitting directors to
consider the interests of
A
on- shareholder constituencies.
* Delaware has not enacted such a
statute.
2
Q
Considering the Interests of Others
DGCL allows donations to be made.
- whats implied?
A
reasonableness
3
Q
public benefit corporations
A
a for profit-corporation which expressly makes clear in their charter that they want to address the public good as well
4
Q
DGCL §362 – Public benefit corporations are
A
for-profit corporations that are intended to produce a public benefit or
public benefits and to operate in a responsible and sustainable
manner
- identify one or more specific public benefits
5
Q
B-corp certification
A
a third- party stamp of approval like being
certificated fair trade
6
Q
Roles in the Corporation
Shareholders
A
- elect the board of directors
- Vote on extraordinary matters: amendments to the charter, mergers, sales of substantially all of the assets and dissolutions
7
Q
Roles in the Corporation
Board of directors
A
- appoints officers
- supervises the Officers of the business
8
Q
Roles in the Corporation
Officers
A
run the day-to-day affairs
9
Q
Board of directors are not agents
of the shareholders because
A
they can’t be controlled by the
shareholders.
10
Q
Directors can be removed
Delaware
A
- DE – Majority of shareholders entitled to vote can remove a director with or without cause (DGCL §141(k))
- If the directors are chosen in a staggered rotation only for cause unless the charter says otherwise (DGCL §141(k))
11
Q
Directors can be removed
MBCA
A
Default is shareholders can remove the directors with or without cause unless the charter says only for cause.
12
Q
Directors can be removed
2 Exceptions
A
- Cumulative Voting Exception (DGCL §141(k); MBCA §8.08(c))
- Class Voting Exception (DGCL §141(k); MBCA §8.08(b))
13
Q
Filling Board Vacancies
Board of Directors - DE
A
Default is remaining directors can fill vacancies, but the charter or bylaws can say otherwise (DGCL §223(a)
14
Q
Filling Board Vacancies
Board of Directors: MBCA
A
Default is the directors can fill vacancies, but the charter can say otherwise (MBCA §8.10(a))
15
Q
Filling Board Vacancies
shareholders- DE
A
Common law rule that shareholders can fill vacancies
16
Q
Filling Board Vacancies
SHareholders- MBCA
A
Default is the shareholders can fill vacancies, but the charter can say otherwise (MBCA §8.10(a))
17
Q
Formalities Required for Board Action
Remote meetings
A
DE and MBCA – Unless the charter or bylaws say otherwise, directors can participate through any method that allows the directors to simultaneously hear each other
18
Q
Formalities Required for Board Action
Divide and conquer
A
- DE – Most actions can be taken by a committee. (DGCL § 141(c)
- MBCA – Most actions can be taken by a committee unless the charter or bylaws says otherwise (MBCA §8.25)
19
Q
Formalities Required for Board Action
Rationale
A
- Deliberation
- Changing minds
- Improved decision-making process
20
Q
Written Consent of the Board of Directors
DE and MBCA – Unless the charter or the bylaws say otherwise, the
board of directors can act through
A
unanimous written consent
instead of a meeting
21
Q
Resolutions Adopted at a Meeting
Process
A
- Meeting held
- Vote
- Type up what was agreed to
- Always allowed
22
Q
Written Consent of the Board of Directors
Process
A
No meeting
* Type up what you are agreeing to
* Sign to agree to what was written
(need unanimous)
* Default is they are allowed
23
Q
Notice for Meetings
- MBCA: Unless the charter or bylaws say otherwise
A
- Regular board meeting may be held without official notice
- Special board meetings require at least two days’ notice of the date, time, and place of the meeting.
24
Q
Notice for Meetings
DE
A
No default rules for directors
25
# Notice for Meetings
Required notice can be waived by
writing or by showing up to the meeting and not complaining
26
# Quorum of Directors
Quorum is what is needed for
a meeting to count
27
# Quorum of Directors
Getting a Quorum (DGCL §141(b) and MBCA §8.24)
* Unless the charter or bylaws say otherwise, a majority of AUTHORIZED DIRECTORS will constitute a quorum
* In not event can less than a 1/3 constitute a quorum
28
# Quorum of Directors
Once you have a quorum, you need
a majority of the directors PRESENT for an action unless the charter or bylaws require more than a majority (DGCL §141(b) and MBCA §8.24)
29
2 things to know for board meeting logistics
*Notice for Board Meetings
*Director Quorum
30
# Appointment of Officers
Corporations have officer
positions stated in the
bylaws or as designated
by the board of directors
31
Appointment of Officers
The board of directors
selects the officers
32
# corporations
Officers are agents because
they are subject to the control of the board of directors
* Express Actual Authority
* Implied Actual Authority
* Apparent Authority
* Ratification
33
President/Chief Executive Officer is generally thought to have
apparent authority to bind the corporation to ordinary transactions.
* Includes hiring and discharging employees
34
Board of directors as agents of the company
- not shareholders
35
# corp authority
implied actual authority and apparent authority can be given through
a title
36
Vice-President can be an honorary title, or it could mean something.
- Bylaws can point to VP having authority
- If CEO holds out VP as having authority
- VP not a title to have authority from
37
# Which Officers Have Apparent Authority?
Secretaries have
apparent authority to certify the corporation’s records as
being accurate.
- not apparent authority to enter into contract
38
# Which Officers Have Apparent Authority?
Treasurer/Chief Financial Officer duties are
to receive and safeguard
funds.
39
# Which Officers Have Apparent Authority?
look at
Look at the situation in addition to just the title
40
Meetings of shareholders are held
annually
41
The corporation will have an annual meeting of the
shareholders
42
What they do in the annual meeting of the shareholders
* Elect directors
* Any other business
43
# Annual Meeting of Shareholders
Notice
* Date, time and place (DGCL §222(a) and MBCA §7.05(a))
* Notice at least 10 days and not more than 60 days before the meeting (DGCL §222(b) and MBCA §7.05(a))
* Required notice can be waived in writing or by showing up to the meeting and not complaining (DGCL §229 and MBCA §7.06)
44
# Special Meetings of Shareholders
Shareholders Calling a Meeting
DE
Shareholders can call a special meeting only if given that power in the certificate or bylaws.
45
# Special Meetings of Shareholders
Shareholders Calling a Meeting
MCBA
Shareholders holding (default is 10% but can never be more than 25%) or more of the votes entitled to be cast can demand a meeting describing the purpose or purposes for which it is to be held
46
# Special Meetings of Shareholders
Notice
* Date, time, place AND PURPOSE (DGCL §222(a) and MBCA §7.05(a) and (c))
* Notice at least 10 days and not more than 60 days before the meeting
(DGCL §222(b) and MBCA §7.05(a))
* Required notice can be waived in writing or by showing up to the meeting and not complaining (DGCL §229 and MBCA §7.06)
47
# Meetings
Shareholder Written Consent
DE
Default is shareholders
owning enough shares to
win a vote at a meeting can
act by written consent.
48
# Meetings
Shareholder Written Consent
MBCA
Unanimous vote always works; If the
charters say enough shares to win a vote at a meeting, that is fine
49
# Delaware Record Dates for Shareholder Action
Who are the shareholders as of the cutoff day?
- DE Shareholder Meetings
* The board of directors may specify
* Set date can’t go outside notice range (between 10 and 60 days
before the meeting or action)
* If the board of directors doesn’t establish a record day, the date
before notice is given
50
# Delaware Record Dates for Shareholder Action
Who are the shareholders as of the cutoff day?
- DE Shareholder Written Consent
* Depends on if the board has to act in addition to the shareholders
* If its just the shareholders, when the consent is delivered
51
# MBCA Record Dates for Shareholder Action
MBCA Shareholder Meetings
* What the bylaws say
* If the bylaws don’t say, the board of directors may specify
* Can’t be more than 70 days before the meeting
* Depends on if the board has to act in addition to the shareholders
* If its just the shareholders, when the consent is delivered
52
Lifetime contracts are considered as
a extraordinary action
53
A corps prez and lifetime contracts
A corps prez has apparent authority to bind the compant by acts that arise in hte usual sourse of business, but not for contracts that are axtraordinary in nature
54
If buying a share after record date, you should
ask for a proxy
55
Proxy
1. vote on my behalf
2. electoral college
56
# Quorum for Shareholders
Default rule in DE and MBCA
Majority of shares entitled to vote on a matter
57
# Quorum for Shareholders
DE
- setting a different percentage to voting on a matter
Charter or bylaws can set a difference percentage, but it can’t be less than 1/3
58
# Quorum for Shareholders
MBCA
- setting a different percentage to voting on a matter
Charter can provide a different percentage but if the specified action requires a particular quorum the charter can’t lower the quorum below that
59
# Amount of Shareholder Votes Needed
DE
* Ordinary matters, other than the election of directors, require a majority of the shareholders or proxies there
* Supermajority votes can be required by the charter or bylaws
* Generally, 1 vote per share but DE allows that to be changed in the charter (DGCL §212(a))
60
# Amount of Shareholder Votes Needed
MBCA
* Matters, other than the election of directors, require more yes than no at the meeting
* The charter can require more votes
61
# Amount of Shareholder Votes Needed
Election of DIrectors
* Whoever has the most votes (DGCL §216; MBCA §7.28)
* DE – charter or bylaws can specify otherwise (DGCL §216)
* MBCA – charter can specify otherwise (MBCA §7.28)
62
# Cumulative Voting
Can distribute votes for directors however
the shareholder choose
63
Straight voting means
you have to vote for the number of seats open. In cumulative you can throw all your votes to 1 seat.
64
Default voting is
straight voting unless the charter says otherwise (DGCL §214; MBCA §7.28(a))
65
Staggered voting reduces the
the impact of cumulative voting
66
Removal of directors uses
Cumulative Voting and removal of directors
67
Shareholder meetings can be
held remotely
* verify the person is a
shareholder or the
proxyholder
* reasonable opportunity to
participate in the meeting
68
Voting Trust Requirements (DGCL §218(a); MBCA §7.30(a))
* (1) signed trust agreement setting forth the trust’s terms
* (2) transfer legal ownership in the shares to trustee(s)
* (3) Have to deliver to the company a copy of the trust agreement
69
Trustee(s) votes shares in accordance with the trust agreement
- If they dont...
sue for breach of contract or fiduciary duty
70
# Voting Trusts
Dividends go to the
beneficial owners (who transferred their legal ownership to the trust)
71
Voting Agreement Requirements
Signed written agreement between 2 or more shareholders regarding how to vote their shares
72
# Voting Agreement
Common law prohibition
against vote buying
73
# Voting Agreement
Enforcement
* Court can award specific performance
* Self-enforcement through irrevocable proxies coupled with an interest
74
Proxy
- Agency relationship where
1 person give another
the power to vote shares on their behalf
* Need a signed authorization
* Valid for a certain period of time
* DE (DGCL §212(b)– 3 years unless the
authorization says otherwise
* MBCA (MBCA §7.22(c))– – 11 months unless the authorization says otherwise
75
Revocable Proxies
* Default rule
* You can revoke
authorization and vote
yourself
* How to revoke:
1. Writing
2. Showing up to vote
3. Replacing the proxyholder
76
Irrevocable
Can’t take it back if it is designated as
irrevocable AND coupled with an interest
77
Proxies coupled with an interest
- DE
* Share itself
* Corporation generally
78
Proxies coupled with an interest
* A pledgee (that is, one who is pledged
shares as collateral for a loan);
* A person who purchased or agreed to
purchase the shares;
* A creditor of the corporation who
extended credit to the corporation
under terms requiring the appointment;
* An employee of the corporation whose employment contract requires the appointment; or
* A party to a voting agreement.
79
Classified Voting
Allows Customization
* Some classes can be non-voting
* Allow economic rights and voting rights not to mirror each other
80
# General Rules on Share Transfer Restrictions
Automatically reasonable
- Preserve tax advantage (S. Corp)
* Preserve regulatory advantage
* Depend on the type of restriction
81
# General Rules on Share Transfer Restrictions
Where they live
* Charter
* Bylaws
* Shareholders’ Agreement
82
# Right of First Option
Requires a shareholder to
offer shares to the corporation or the other shareholders at a setprice prior to selling the shares to 3rd parties
83
# Right of First Option
Could set what the price will be based on
different metrics
* Could be a set $ amount
* Could be a method to calculate
84
Right of First Refusal
- Requires a shareholder to
to offer shares to the corporation or the other shareholders at the price agreed to by a 3rd party
85
# Right of First Refusal
Corporation or other
shareholders can be swapped
out for the
3rd party
86
# Consent Agreement
Have to get the corporation’s consent to transfer
- Consent can’t be withheld
unreasonably or
arbitrarily
87
Consent can’t be withheld unreasonably or
arbitrarily
* Withholding consent to keep shares from
going to a competitor is reasonable
* Withhold consent to keep shares within a family
88
DQ List
* Prohibit transfers to designated persons or groups as long as the provisions are not
“manifestly unreasonable”
89
DQ List
- Prohibits to protect
legitimate business interests
90
# Buy-sell
The corporation or the other shareholders have a right or obligation to
purchase shares under stated circumstances and the shareholder must sell the shares to the corporation
* Employee termination
* Death
* Also called: Buy-out and Call Option
91
two types of proxies
* Revocable
* Irrevocable coupled with an interest
