Corporate Governance and Shareholders Flashcards
When the articles of incorporation contain an inaccuracy or were defectively executed, what may be done to fix them?
Filing articles of correction with the state
How may the articles of incorporation be amended?
- If no stock has been issued, then the board (or absent them, the incorporators) may amend the articles.
- If stock has been issued, then it’s a two step process:
(a) the board must adopt the amendment; and
(b) the shareholders must approve by majority vote
Who do the bylaws bind?
Directors, officers, and shareholders, but not third parties with no knowledge of the bylaws
Who may amend the bylaws?
Generally the board, but shareholders may amend or change the bylaws
What bylaws are expressly limited to shareholder adoption or amendment?
Generally matters involving voting, shareholder rights, or director liability, including:
- Amendment of voting provisions;
- Authorized shares;
- Personal liability of directors;
- Selection, removal, or voting rights of directors;
- Quorums;
- Actions by shareholders;
- Classes of membership or voting rights of members;
- Definition of minimum vote;
- Management by shareholders; or
- Issuance and retention of shares.
When does an amendment to a bylaw take effect?
When adopted, unless otherwise provided
How many times a year must a corporation hold a shareholders’ meeting?
At least once each calendar year.
What is the purpose of a shareholders’ meeting?
The primary purpose is to elect directors, but any business not subject to shareholder control may be addressed
What is done in a special meeting?
Whatever is specified by meeting
Who may call a special meeting?
- The board;
- Shareholders who own at least 20% of the shares entitled to vote at the meeting; or
- as provided by the bylaws
Where is a special meeting held?
At the executive office of the corporation, unless bylaws provide otherwise
How much notice is necessary for the shareholders for a special meeting?
At least 5 days, unless the meeting involves a fundamental change, in which case at least 10 days
Can a shareholder waive notice for a meeting?
Yes, either in signed writing or by attending
What must a notice of meeting contain?
The time, date, and place of the meeting
If the annual meeting is not held, who may call it?
Any shareholder, if not held within six months of designated time
Can the right to vote of a subscriber who has not fully paid for stock be limited or denied?
Yes
Can a corporation vote on its own stock?
No, generally not
What are the primary issues that shareholders can vote on?
Election of the board and fundamental corporate changes
How much of a voting right does each share of stock get?
Typically one vote per stock, but the AOI can create classes of stock that have greater or even no voting power
For a decision at a shareholders’ meeting to be valid, what is required?
A quorum of the shares eligible to vote
What is a quorum for a shareholders’ meeting?
A majority, unless the bylaws provide otherwise
When is a plurality of shareholder approval appropriate?
For the election of the directors
What is cumulative voting?
A shareholder may cumulate and cast all votes for one director in the event more than one is elected
Cumulative voting is a presumed shareholder right in PA, unless the articles provide otherwise
For how long is a voting proxy valid?
3 years, unless a longer period is specified
When is a proxy revocable?
A proxy is revocable unless it includes a statement of irrevocability and is coupled with an interest.
When is revocation of a proxy effective?
When written notice is given to the corporation or its agent
Under SEC guidelines for public traded corporations, when is a proxy solicitation valid?
- Full and fair disclosure of material facts relating to any proposals;
- Free from omissions, material misstatements, and fraud; and
- Corporate management must include shareholder proposals and allow proponents to explain their position.
What is a “voting pool”?
A binding voting agreement among shareholders that can be specifically enforced
Who has the right to inspect and copy corporate records?
Any shareholder for any proper purpose
When and where can a shareholder inspect corporate records?
During normal business hours at the corporation’s principal place of business
What are the two types of shareholder suits?
- Direct suits (i.e., breach of a duty owed to the shareholder by a director or officer)
- Derivative suits (i.e., an action brought on behalf of the corporation)
What is required for a shareholder to bring a derivative suit?
- The shareholder must own the shares from the time of the wrong until disposition of the case; and
- the shareholder must first make a written demand that the board enforce the corporation’s rights and the board must refuse such demand
In PA, when is a demand on the board excused?
When futile or there would be irreparable injury to the corporation
Is an oral demand sufficient?
No
When does a shareholder have standing to bring a derivative suit?
When the shareholder held shares at:
- the time of the wrong; and
- the time the action is filed, and throughout the pendency of litigation
What factors guide whether to pierce the corporate veil?
- Undercapitalization at the time of formation
- Disregard of corporate formalities
- Use of corporate assets as shareholder assets
- Self-dealing
- Siphoning of funds
- Use of corporate form to avoid legal obligations
- Shareholder’s impermissible control or domination over the corporation; and
- Wrongful, misleading, or fraudulent dealings with creditors
NOTE: PA courts are reluctant to pierce the veil
What three situations justify piercing the corporate veil?
- Alter ego (ignoring corporate formalities)
- Inadequate capital
- Fraud or personal gain
What duties does a controlling shareholder owe to the corporation?
Fiduciary obligations; they cannot freeze out or oppress minority shareholders
