Corporations

Question 1

Shareholder Meetings

Answer 1

Shareholders are entitled to annual meetings. These meetings require written notice 10 to 60 days in advance. Shareholders have a right to be represented by proxy at the meetings.

Any shareholder can ask a court to compel an annual meeting if there has not been one within 15 months of incorporation or within 15 months of the last meeting.

Shareholders may also attend special meetings. Special meetings have the same notice requirements as annual meetings.

A shareholder can ask a court to compel a special meeting only if 10% or more of the shares join in the request.

Question 2

Shareholder Voting

Answer 2

Shareholder voting is based on a simple majority for most resolutions.

Shareholder voting for director election/removal or other fundamental change requires an absolute majority.

Question 3

Director Voting

Answer 3

Directors do not have the power of proxy like shareholders do. Directors cannot engage in vote agreements or voting trusts. This is all because Directors are hired as individuals and are expected to act as agents on behalf of the corporation and principals as individuals.

Each director gets one vote per meeting unless otherwise indicated in the articles or bylaws.

Question 4

Shareholder RIght of Inspection

Answer 4

Any shareholder of record has the right to inspect the stockledger, list of shareholder, and other books and records for any proper purpose. This right may be done by the shareholder himself or by an agent/lawyer.

In order to invoke this right, the shareholder must give a WRITTEN demand that states with reasonable particularity:

1. the shareholder’s purpose
2. the records sought
3. the records sought are directly connected with the purpose

Burden of proof is on the corporation to show IMPROPER purpose if the shareholder seeks to inspect the stockledger or the list of shareholders

Burden of proof is on the shareholder to show PROPER purpose to review any other record or book

Question 5

Liability of shareholders for corporate actions

Answer 5

As a general rule, the corporate form shields the shareholders from liability.

The exception is when a plaintiff (typically a creditor) can pierce the corporate veil and find the shareholder(s) personally liable for the corporate actions.

Piercing the corporate veil is difficult:

1. corporation is a mere instrumentality of another individual
2. the corporate entity was used to commit an injsutice/wrong/or fraud
3. there was an unjust injury or loss to the plaintiff

Question 6

Liability of directors for corporate actions

Answer 6

Just as the corporate form shields shareholders, it also shields directors as a rule.

Directors are protected by the Business-Judgment Rule - which provides protection from personal liability for corporate decisions.

BJR presumes that the directors are acting in the best interest of the corporation, and thus are entitled to broad discretion. The decisions only need be reasonable.

Question 7

BJR

Answer 7

Directors are protected by the Business-Judgment Rule - which provides protection from personal liability for corporate decisions.

BJR presumes that the directors are acting in the best interest of the corporation, and thus are entitled to broad discretion. The decisions only need be reasonable.

BJR does NOT protect a director f the director is truly unreasonable or has otherwise breached his duty of loyalty.

Question 8

Duty of Loyalty

Answer 8

Directors have a fiduciary duty of loyalty to the corporation.

This means that directors cannot usurp corporate opportunity unless the corporation has consented

Directors cannot engage in self-dealing unless the majority of directors or majority of shareholders knowingly and informedly approve. IF that does not happen, the DIrector can still demonstrate that the transaction was fair and beneficial to both sides of the transaction.

Question 9

Derivative lawsit

Answer 9

A deriviative lawsuit is when a plaintiff-shareholder brings a lawsuit on behalf of the hurt corporation.

First, a demand on the board must be made before the suit is brought. The board has 90 days to answer or deny. Failure to respond allows the plaintiff to bring the suit.

A plaintiff may avoid the demand requirement if she can show a good cause need to avoid it (but it will not be for futility - that is not a reason in Michigan).

Question 10

Amending Articles of Incorporation

Answer 10

1. Notice given to shareholders of vote (see meeting notice requirements)
2. Amendment could have been included in original filing
3. Amendment is lawful
4. Amendment has majority vote of all shareholder votes with eligibility to vote

Question 11

Corporation Repurchase of Shares

Answer 11

A corporation has the power to repurchase shares if it chooses to do so, or if it is compelled to do so by agreement.

A court can compel the corporation to buy the shares absent agreement if

1. an amendment to the articles materially alters/abolishes rights of shares OR alters/abolishes a right of redemption of shares
2. Shareholder voted against the amendment
3. Shareholder properly petitions the court

Question 12

Shareholder Agreements of Transfer

Answer 12

Shares of a corproation are transferable in compliance with the UCC as limited by the BCA.

Shareholders have the right to limit the right of transfer by agreeing to sell shares to one another. The agreement can be conditional or immediate.

Shareholder agreements concerning who will sell shares to whom are enforceable, just like shareholder trusts and shareholder voting agreements.