Corporations Flashcards
Are Private Restrictions on the Sale of Securities Permitted?
Yes,
(1) Security must be certified,
(2) Restriction much be conspicuously noted on security certificate,
(3) the person must have knowledge of the restriction
Test to Challenge Restrictions on Transfer of Stock
The test is one off reasonableness
Rule 10b-5 Action Requirements
Fraudulent Purchase or Sale of a stock or security can give rise to a 10b-5 action.
For a private person to bring a 10b-5 action, each of these requirements must be met:
(1) Plaintiff purchased or sold the security,
(2) Transaction involved the use of interstate commerce,
(3) Defendant engaged in fraudulent or deceptive conduct,
(4) Materiality–Conduct related to material information (a reasonable investor would find the fact important ini deciding whether to purchase or sell a security),
(5) Scienter–def acted intentionally or reckless.y
(6) Plaintiff justifiably relied on the defendant’s conduct, and
(7) Plaintiff suffered harm because of the defendant’s comment.
Rule 16(b) Action
A corporate insider can be forced to return short-swing profits to the corporation through a 16(b) action.
4 Necessary Elements
(1) Publicly Traded Corps–must have securities traded on a national securities exchange or have assets of more than $10 million and more than 500 SHs
(2) Corporate Insiders–Directors, Officers, or Shareholders who own more than 10% of stock
(3) Short Swing Profits–a corporate insider both bought and sold Corp stock within a 6 month period
(4) Reporting–SEC report oof change in stock ownership
How can the articles of incorporation be amended?
If no stock has been issued than the BoD can amend
If stock has been issues then the BoD adopts amendments and submits them to SHs for majority approval
What are bylaws?
lawful provisions for the management of Corp’s business and the regulation of its affairs.
Not inconsistent with articles.
Instruments that Govern a Corp
(1) Articles of Incorporation
(2) Bylaws
Articles control if they conflict
Who can call a SH Special meeting
(1) Board of Directions or
(2) SHs who own more than 10% of voting shares
Effect of failure to hold a SH meeting.
Failure to hold meetings does not affect C’s existence or invalidate C’s business
SH alternative to in person meeting
SHs can take any action that could have been taken at a meeting by unanimous written consent
What SH’s are eligible to vote?
Generally, only record owners of voting stock are permitted to vote
An owner of voting stock at the close of business on the record date has the right to vote
3 Ways to Vote with Other SHs
(1) Voting Pool
(2) Voting Trust
(3) Management Agreement
Voting Pool
A binding voting agreement under which provides for the manner in which they will vote their shares.
SH retain legal ownership, does not need to be filed with C, no time limit
Voting Trust
A trust to which legal ownership of SHs’ stock is transferred to a trustee, who votes the shares and distributes the dividends according to the trust.
Shareholders maintain beneficial ownership
Requirements
- Must be Writing
- Limited to 10 Years
- Filed with the C
Management Agreement
Allows SHs to alter the way the Corp is managed even if the agreement is inconsistent with statutory provisions
SH Inspection of Records
A SH with a proper purpose (relating to SH’s financial interest) has right to inspect and copy corporate records in person upon 5 days written notice.
2 Types of SH Suits
(1) Direct Actions (an action to enforce SH rights for breach of fiduciary duty by D or O, or an action based on grounds unrelated to SH’s status)
(2) Derivative Actions
Standing
(a) P must have been SH at time of harm
(b) must continue to be a SH during litigation
(c) must fairly and adequately represent CC’s interests
- -Written demand upon DS unless it would be futile
When can a board dismiss a derivative action?
Only if a majority of qualified directors decide in good faith after reasonable inquiry that the action is not in the corporations best interest.
Piercing Corporate Veil Factors Considered
- Undercapitalization
- Disregard of Corporate Formalities
- Using C’s assets as SH’s own assets
- Self-dealing with C
- Siphoning of C’s funds
- Using corporate form to avoid statutory requirements
- SH’s domination over CC
- Fraudulent Dealings with a Corporate Creditor
Controlling SH fiduciary duty to minority SHs
and when a duty arises
Controlling Sh is
(1) selling interest to an outsider,
(2) seeking to eliminate other SHs from the Corp, or
(3) Receiving a distribution denied to other SHs
Duty to disclose info that a reasonable person would consider important in deciding how to vote on a transaction AND
Duty of Fair Dealing with purchasing a minority SH’s interest
3 Ways for a Director to Stop Being a Director
(1) Typically one year term unless terms are staggered
(2) Ds can be removed by SHs with or without cause unless articles provide otherwise
(3) D can resign at any time with written notice to the BDs, its chair, or C
D Meeting Requirements
(1) Special Meetings–2 days notice of fate, time, and place (purpose not required)
(2) Regular Meetings–may be held without notice of the date, time, place, or purpose.
