Corporations Flashcards
Shareholder removal of directors* & Shareholder voting agreements*
Shareholders may remove directors with or without cause, unless the articles state otherwise. Shareholders remove directors by a majority of shares entitled to vote/ a shareholder that owns 10% + shares of a class can commence a proceeding to have a director removed.
Voting agreements by two or more shareholders are specifically enforceable as long as they are written and signed by the parties.
Shareholder Derivative Lawsuits against director [IMPORTANT TO KNOW]
Shareholder direct suits - when wrong done amounts to a breach of duty owed to the individual personally
Shareholders may file lawsuits against a director to establish that the director acted illegally, fraudulently, breached their fiduciary duties, or their actions were unfair and oppressive to the individual or the corporation.
A derivative lawsuit may be filed on behalf of the corporation if there is injury to the corporation. In order to establish a derivative suit, the shareholder must 1) be a shareholder at the time of the breach of the fiduciary duty until the time of judgment 2) the shareholder must fairly and adequately represent the interests of the corporation, and 3) must file written demand to the corporation to take action, and wait 90 days before filing the lawsuit unless the corporation has rejected the demand or waiting 90 days would cause irreparable injury to the corporation
Duty of Directors - Business judgment rule (IMP)
Directors are required to discharge their fiduciary duties to the corporation in good faith, in a manner they reasonably believe to be in the best interests of the corporation, and with the care that an ordinarily prudent person in a similar position would exercise under similar circumstances. This is presumed under the business judgment rule, absent evidence of fraud, bad faith, self-dealing. It is then up to the plaintiff to overcome this presumption.
Directors can rely on information, opinions, reports etc. from legal counsel, public accountants, engineers, or other persons , as to matters director reasonably believes are within a person’s professional or expert competence.
Shareholder right to inspect & burden of proof (IMP**)
Any shareholder, in person or by attorney or agent has a right to inspect a corporation’s stock ledger, shareholder list and other books and records if they write a written demand to corp. which states with reasonable particularity their purpose for inspecting, the records sought, and this purpose is directly related to records sought.
A proper purpose is one that is reasonably related to person’s interest as a shareholder. The demand can be made through an attorney or other agent as long as the demand is accompanied by writing which authorizes attorney or other agent to act on behalf of the shareholder.
Shareholder can compel inspection if corp. doesn’t permit it within 5 days/imposes unreasonable condition.
When shareholders file suit to compel inspection of stock ledgers or shareholder lists, the burden of proof is on the corporation to show an improper purpose or the records are not directly connected with shareholder’s purpose.
For all other documents, the burden of proof is on the shareholder to establish proper purpose & documents are directly connected with the purpose.
Voting by Proxy ( Shareholder’s having proxies)
shareholders can authorize others to act for them by proxy. A proxy is generally valid for 3 YEARS unless otherwise provided, and if they have granted authority by signed writing, by electronic transmission where it is clear that that transmission was authorised by the shareholder, or by any other way.
Amending articles of incorporation [FEB 2021]
Increasing the aggregate number of shares in a corporation constitutes a fundamental change that forms a basis upon which to amend the articles of incorporation.
In order to amend the articles of incorporation, shareholders must be provided with notice 10-60 days before a meeting in person, by email, or by mail & need board approval + majority of shares entitled to vote must vote for the amendment.
Once amended, a certificate of amendment must be provided to the state.
Preemptive rights**
Preemptive rights allow shareholders to maintain their ownership interest in the corporation when new stocks are issued for money. It is granted on UNIFORM TERMS AND CONDITIONS by the board to provide a FAIR AND REASONABLE OPPORTUNITY to exercise the right to buy proportionate amounts of the corporation’s unissued shares.
Shareholders do not automatically have preemptive rights to acquire a corporation’ unissued shares. Such a right is created by the articles of incorporation or an agreement between the corporation and one or more of its shareholders.
Purchasing Shares - Subscriptions
Subscription agreements must be in signed writing for a definite number of shares and must state a price. The subscription offer requires acceptance by the corporation.
Pre-incorporation subscriptions must also indicate the nature and main purpose of the corporation to be formed.
Insolvency** ( debts owed by corporation, unable to pay)
Before distributing assets to shareholders upon dissolution, a corporation is required to pay or make provisions for its debts. After payment or adequate provision has been made for the corporation’s debts, the remaining assets are distributed to shareholders.
If a DIRECTOR votes to making distributions
to shareholders during or after dissolution of the corporation without paying the debts of the corporation the director is jointly and severally liable to the corporation. The director must at the very least by negligent, and may use the business -judgment rule as a defense. The liability is limited to the difference between the amount paid or distributed and the amount that lawfully could have been paid or distributed.
A shareholder who accepts or receives a share dividend with knowledge of the illegal nature of the distribution is liable to the corporation for the amount received in excess of the shareholder’s share of the amount that lawfully could have been distributed.
A shareholder who does not have knowledge is not liable to the corporation.
remote communication for shareholder meetings
Unless restricted by the articles of incorporation, a shareholder can participate in a meeting by remote communication.
A shareholder is “present in person” and may vote if
1) reasonable measures taken to verify they’re a shareholder
2) they’re provided reasonable opportunity to participate in the meeting & vote
3) a record of the vote is kept by the corporation
Shareholder meetings
- if bylaws don’t provide for annual meeting, and no date set for 15 months, shareholder can file application w/ circuit court to compel a meeting.
if shareholder 10% of all shares entitled to vote, can ask circuit court for a special meeting if good cause is shown for it.
- written notice of meeting must be given 10-60 days b4 meeting stating time, place and purpose of meeting. Must be given personally, electronically or by mail. if timely notice is not given, any action is void. Shareholders waive issues w/ improper notice if they show up at meeting w/o objection, or send a proxy, or expressly waive notice.
Piercing corporate veil and holding shareholders liable ***
Generally, corporations are treated as entities separate from its shareholders, so shareholders are not personally liable for the debts of the corporation. A shareholder can be personally liable ( knowing as piercing the corporate veil) if plaintiff can show
1) corporate entity is found to be a merely an instrumentality
2) the corporate entity was used to commit an injustice, wrong or fraud AND
3) there was unjust injury or loss to P
