Corporations

Question 1

are voting agreements specifically enforceable?

Answer 1

Courts are increasingly saying yes
In states that grant SP of a voting agreement, there is no need to use a voting trust

Question 2

Examples of fundamental corporate changes

Answer 2

• amending the articles
• mergers and consolidations
• transferring all of substantially all assets/stock acquisition in a share exchange
• conversion into another form of business
• voluntary dissolution

Question 3

what must the SH prove to win a suit to compel a distribution?

Answer 3

SH must make a very strong showing of abuse of discretion by the board

Question 4

what is the standard for whether a stock transfer restriction is valid

Answer 4

A stock transfer restriction is valid if they are not absolute/undue restraints on alienation
A right of first refusal is valid- not undue

Question 5

when is a SH require to state a proper purpose in exercising their right to inspect?

Answer 5

When the SH wants to inspect minutes of the board meetings, the corp’s accounting, books, and paper records, and SH records

Question 6

share of SH votes needed to approve a fundamental corporate change

Answer 6

majority of shares entitled to vote

Question 7

voting (pooling) agreement definition

Answer 7

an agreement in whcih SH provide for how they’ll vote their shares

Question 8

consolidation def

Answer 8

two corps become one new corp

Question 9

outstanding stock

Answer 9

shares issued by the corp but not reacquired

Question 10

treasury stock

Answer 10

stock the corp has reacquired before the record date so the corp is the owner of the treasury stock as of the record date
No one votes this stock bc it was not outstanding on the record date

exception to the record owner rule

oustanding stock= stock the corp has issued but hasn’t reacquired

Question 11

what is a proper purpose for a SH to inspect records?

Answer 11

Any purpose that is reasonably related to her interest as a SH

Question 12

procedure for adopting a fundamental corporate change

Answer 12

1- board action that adopts the resolution of fundamental change
2- written notice to the SH of the propsed fundamental change, AND
3- SH approval
Most states also require a document to be delivered to the sec of state

Question 13

straight voting

Answer 13

separateelection for each seat on the board being elected
Each outstanding share gets one vote for each seat

Question 14

what is winding up?

Answer 14

the process of ending the corp existence
aka liquidating

Question 15

merger def

Answer 15

one corp is absorbed into another

Question 16

record date

Answer 16

voter eligibility date cut-off

C Corp. sets its annual meeting for July 7 and sets the record date as June 8. S sells B her C Corp. stock on June 25. Who is entitled to vote the shares at the meeting, S or B?
S because she owned the stock on June 8

Question 17

explain “director abuse, waste of assets, or misconduct” for a SH action for dissolution

Answer 17

the directors have acted or will act in an illegal, oppresssie, or fraudulent way or corp assets are being wasted, misapplied, or diverted for noncorp use

Question 18

max time a voting trust can be valid

unless extended by agreement of the parties

Answer 18

ten years

Question 19

what are the requirements to enforce a stock transfer restriction against the transferee

person who purchased the stock (third-party purchaser)

Answer 19

1- if the restriction is noted on the stock certificate in conspicuous manner OR
2- the transferee had actual knowledge of the restriction at the time of the purchase

Question 20

court alternative to ordering involuntary dissolution by SH action

Answer 20

Ordering a buy-out of the objecting SH
most common in close corps

Question 21

explain “SH are deadlocked in voting power” for a SH action for dissolution

Answer 21

SH have failed to elect one or more directors for a period that includes two consecutive annual meeting dates

Question 22

proxy definition

SH voting

Answer 22

a writing authorizing a person other than the SH to vote the shares

Question 23

authorized stock

Answer 23

the maximum number of shares a corp can sell
number is set in the corp articles

Question 24

what is the standard for votes for all fundamental corporate changes?

Answer 24

majority of shares entitled to vote

Question 25

short form merger

Answer 25

Parent corp owning at least 90% of the outstanding shares of the subsidiary corp ** may merge the subsidiary into itself without approval of the SH or directors of the subsidiary**

Question 26

When must the SH make the request to inspect records?

Answer 26

five business days in advance in written notice

Question 27

who decides whether/when SH get distributions?

Answer 27

the board of directors
SHs have no right to distributions

Question 28

successor liabilty

Answer 28

A surviving corp in a merger or consolidation takes on all rights an liabilities of the disappearing corp (constituent corp)
The creditors of the dead corp can sue the surviving corp

Question 29

does successor liability apply in a sale of substantially all or all of the assets?

Answer 29

No bc the selling corp still exists and the creditors can sue it
The buyer that buys assets is not liable for the debts of the company that sold the assets

Question 30

what percentage of the vote is required for decisions regardingmatters within the ordinary course of the partnership

Answer 30

majority vote of the partners

Question 31

when can a creditor of the corp seek judicial dissolution (involuntary dissolution) of the corp?

Answer 31

1) if the corp is insolvent and the creditor has an unsatisfied judgment bc of that insolvency OR
2) the corp admits to the debt in writing and the corp is insolvent

Question 32

how to determine your voting power in cumulative voting

Answer 32

multiply the SH number of voting shares times the number of directors to be elected

2 directors to be elected.
A has 30 shares -> A has 60 votes to cast
B has 40 shares -> B has 80 votes to cast
A can put 60 votes on herself to win and B can put 80 votes on herseld to win. A will finish in the top two positions and will win a seat on the board. Helps minority SH get representation

Question 33

when does the dissenting SH’s right of appraisal not apply?

Even if one of the changes is valid

Answer 33

No appraisal right if teh company’s stock is listed on the national exchange or if the company has 2,000 or more SH
right of appraisal only exists in close corps

Question 34

transfer of all or substantially all the assets

Answer 34

type of fundamental corp change in which one company acquires all of the assets or stock of another company

“substantially all” requires the trasnfer of at least 75% of the corp’s assets

Question 35

liquidation preference

Answer 35

pay these SH first when distributing remaining sums during dissolution
works like a dividend preference

liquidation prefences may be relevant to insolvency
- calculate insolvency using liquidation prefences

After paying creditors, there is $10,000 left for shareholders. If
there were a class of 1,000 shares with a $2 liquidation preference,
the first $2,000 would go to those shares, with the remaining
$8,000 going to the common shares.

Question 36

insolvent def

Answer 36

unable to pay debts as they come due or when total assets are less than the total liabilities

Question 37

death of the shareholder- who can vote the decedent’s stock if decedent was the record SH when he died?

S owns stock in C Corp. S is the record shareholder. After the record date, S dies. Who can vote S’ shares?

Answer 37

the executor of S’ estate

Question 38

which fundamental corporate change is a FCC for the selling corp but not the buyer?

Answer 38

Transfer of all or substantially all the assets
Only the corp disposing of the property must follow the FCC procedure

Question 39

issued stock

Answer 39

number of shares the corp actually sells

Question 40

How may a proxy be revoked?

Answer 40

By the SH attending the meeting to vote themselves, by writing to the corp secretary, or by subsequent appointment of another proxy

Question 41

share of SH votes needed to approve an “other matter”

Answer 41

majority of shares that actually votes on the issue

Question 42

what is required to achieve a quorum at a SH meeting

Answer 42

A majority of the number of outstanding shares entitled to vote

A SH quorum will not be lost if poeple leave the meeting

X Corporation has 12,000 shares entitled to vote. X Corporation
has 700 shareholders. What or who must be represented at the
meeting to constitute a quorum?
Need at least 6,001 shares for a quorum (number of pople irrelevant)

Question 43

Prior act

situation where agent exceeds their authority but the P is still bound

what type of authority is this associated with?

Answer 43

P previously allowed A to exceed their express or implied authority and knows the 3P is aware of this -> A has apparent authority

Question 44

who hires and fires corporation officers?

Answer 44

the board of directors

Question 45

share exchange

Answer 45

one company acquires all the stock of another company
type of fundamental corporate change

Question 46

redemption

Answer 46

corp forces a sale of shares back to the corp for a price set in the articles

Question 47

share of SH votes needed to remove a director

Answer 47

majority of shares entitled to vote

sometimes treated as an “other matter”

Question 48

Share of SH votes needed to elect a director

Answer 48

Plurality: person who gets more votes than anyone else is elected

Question 49

steps for winding up

Answer 49

1. written notice to known creditors
2. publish dissolution in a newspaper in county of PPB
3. gather all assets
4. convert those assets to cash
5. pay creditors AND
6. distribute any remaining sums to SH pro rata by share unless there is a liquidation preference

Question 50

notice requirement for SH meetings

Answer 50

must be:
1) in writing to every SH entitled to vote and
2) delivered between 10 and 60 days before the meeting
3) that states the date, time, and place of the meeting AND
4) states the purpose of the meeting

SH cannot do anything beyond the stated purpose of the meeting at that meeting

Question 51

who will be held liable for an improper distribution?

Answer 51

Directors will be held jointly and severally liable for an improper distribution
SHs will be personally liable if they knew the distribution was improper when they received it

Question 52

when can a corp not make distributions (distribution would be improper)

two scenarios

Answer 52

If the corp is insolvent or the distribution would make it insolvent

Question 53

cumulative voting

Answer 53

method of giving smaller SH a better chance of electing someone to the board
typically occurs in close corps
only allowed if the articles explicitly permit it

Question 54

when is cumulative voting available for SH?

in what type of corp and when voting for what?

Answer 54

• only in close corps
• when SH elect directors

Question 55

voting trust definition

Answer 55

a written agreement of SH where the SH all transfer their shares to a trustee, who votes the shares and distributes the dividends according to the voting trust agreement

Question 56

record shareholder

Answer 56

person shown as the stock owner in corporate records

Question 57

SH vote required to approve a fundamental corporate change

Answer 57

traditional rule: A majority of the shares entitled to vote
modern trend: majority of shares that actually vote on the proposed change

Question 58

requirements for a voting trust

Answer 58

1) A written trust agreement that controls how the shares may be voted
2) a copy of which is given to the corp,
3) that transfers legal title of the shares to the voting trustee
4) and gives original SH trust certificates and allows SH to retain all SH rights except for voting

Question 59

right to inspect
- who holds it
- what is it

Answer 59

• Shareholder right
• to review the corp’s books and records on written demand

Question 60

what do SH do at the annual meeting?

Answer 60

they elect directors

primary purpose but SH do other stuff too

Question 61

who fires directors of a corp?

Answer 61

the shareholders

Question 62

Grounds that a SH may petition for involuntary dissolution of the corp

Answer 62

• director abuse, waste of assets, or misconduct
• directors are deadlocked in the management of corp affairs and irreparbale injury to the corp is threatened
• SH are deadlocked in voting power
• corp has abandoned its business and failed to dissolve in a reasonable time

Question 63

what is the dissenting SH right of appraisal?

Answer 63

The SH who did not vote for the fundamentlal corp change can force the corp to buy their stock for fair value
right to be bought out by the company

only applies in certain types of corp changes

Question 64

requirements for a voting agreement

Answer 64

Agreement must be:
1) in writing AND
2) signed

Question 65

types of fundamental corporate changes that will trigger the dissenting SH’s right of appraisal

Answer 65

• merging or consolidating
• transferring substantially all assets
• stock being acquired in a share exchange
• converting to another form of business

Question 66

when the articles and the bylaws of a corp conflict, which rules control?

Answer 66

The articles

Question 67

what are the only type of shares that are voted at a SH meeting?

Answer 67

outstanding shares

Shares that were issued and outstanding but have been repurchased by the corp are not outstanding (usually called treasury stock)