corporations Flashcards

Question

What is a Rule 10b-5 action? What is required to bring it? What are the important parts of each element?

Answer 1

federal cause of action for FRAUDULENT PURCHASE/SALE of stock or other securities for a PRIVATE PERSON to bring this action, reqs: 1) P has to have BOUGHT OR SOLD the security; 2) transaction involves INTERSTATE COMMERCE 3) D engaged in FRAUDULENT or DECEPTIVE conduct; - -making an UNTRUE STATEMENT of material fact - -FAILING to state a material fact that is NECESSARY to prevent statements already made from being misleading - -OPINIONS and PREDICTIONS DON'T COUNT as untrue statements 4) conduct is related to MATERIAL information; - -would a REASONABLE INVESTOR find that fact IMPORTANT in deciding to buy or sell the security? 5) D acted INTENTIONALLY OR RECKLESSLY 6) P RELIED on D's conduct; and 7) P suffered HARM - -OUT OF POCKET DAMAGES allowed: diff between stock's value and price paid/received - -NO PUNITIVE DAMAGES

Answer 2

CORPORATE INSIDER can be forced to RETURN SHORT-SWING PROFITS to corporation 1) ONLY COMPANIES THAT HAVE: - -securities traded on NATIONAL EXCHANGE; OR - -assets of OVER $10 MILLION AND OVER 500 SHAREHOLDERS 2) CORPORATE INSIDER = - -directors - -officers - -shareholders who hold more than 10% of any class of stock 3) TIMING: - -made WHILE (or sometimes after) being a corporate insider - -BEFORE INSIDER, DOESN'T COUNT result/rule: during any SIX MONTH PERIOD, a corporate insider who BUYS or SELLS corp's stock is LIABLE to corporation for ANY PROFIT made on those transactions --insiders must REPORT CHANGES IN STOCK OWNERSHIP to SEC

Answer 3

ELECT THE BOARD OF DIRECTORS they also vote on major decisions that affect FUNDAMENTAL CHANGES in the corporation

Answer 4

ANNUAL MEETING: elect directors SPECIAL MEETINGS: fundamental changes in life of corporation --state law determines who may call these NEED NOTICE! - -must give notice 10 to 60 days before the meeting - -must include time, date, and location - -if it's a SPECIAL MEETING, need to state the PURPOSE Insufficient notice can allow a shareholder to challenge ANY ACTIONS TAKEN at the meeting --WAIVED by actual attendance ONLY shareholders who ACTUALLY OWN SHARES on the RECORD DATE can vote - -set by DIRECTORS - -must be NO MORE than 70 DAYS before meeting

Answer 5

YES, by UNANIMOUS WRITTEN CONSENT of shareholders (impossible in big businesses, more of a closely-held corp thing) Shareholders are allowed to send proxies to meetings

Answer 6

QUORUM of the SHARES - -NOT shareholders - -quorum = MAJORITY of OUTSTANDING SHARES - -START of meeting NECESSARY VOTE = more votes for than against (abstentions don't matter)

Answer 7

applies ONLY TO ELECTION OF DIRECTORS corporation can CHOOSE to permit it in the ARTICLES shareholders get the number of votes = their shares MULTIPLIED by number of director positions being voted on (so you can put all your votes behind one guy and have more of a say)

Answer 8

shareholder needs a PROPER PURPOSE PP = related to shareholder's FINANCIAL INTEREST in corp (not to harass officers)

Answer 9

DIRECT LAWSUIT: shareholder sues IN OWN NAME for damages, which go directly to shareholder DERIVATIVE LAWSUIT: shareholder sues ON BEHALF OF CORPORATION, in CORP'S NAME over harm TO CORP (bad biz decision, typically), and damages go BACK TO CORP Standing for derivative suit: - -stockholder at time of harm - -holds shares throughout litigation - -fairly adequately reps interests of corp Need to make a DEMAND to directors to bring the lawsuit first --unless FUTILITY PROVISION in state law (it would be futile because, e.g., directors are named as defendants) can get ATTORNEYS' FEES if the litigation produces a "SUBSTANTIAL BENEFIT" to corporation

Answer 10

NOTHING!!! two exceptions: CONTROLLING SHAREHOLDER may owe duty to minority shareholders when: 1) sale of stock to an outsider/looter: could be liable in selling stock to outsider set on looting/destroying company - -red flags: had done it before, had given some indication 2) transactions between the corporation and controlling shareholder - -owes duty of loyalty (e.g., sell real estate to company you control for a reasonable price) CONTROLLING SHAREHOLDER = 50% + 1 share, OR a large part of a company with no other large owners

Answer 11

AT LEAST ONE must be a NATURAL PERSON (no corporations)

Answer 12

GENERALLY, directors may be removed, BY SHAREHOLDERS, WITH OR WITHOUT CAUSE exception: STAGGERED BOARD - -classes of directors elected at different times - -if articles provide, can only be removed FOR CAUSE - -different classes of shareholders may elect different directors, who can only be removed by that class exception: VACANCY or an INCREASE IN SIZE OF BOARD - -can be chosen by shareholders at a special meeting OR - -by the board of directors itself

Answer 13

NOTICE: - -REQUIRED for special meetings - -NOT REQUIRED for regular meetings Attendance waives notice --UNLESS director PROMPTLY OBJECTS at the meeting NO PROXY VOTING

Answer 14

QUORUM = majority of total number of directors (unless bylaws say otherwise) majority of PRESENT is enough to pass a resolution board may approve a proposal without a meeting if agreed upon by UNANIMOUS WRITTEN CONSENT

Answer 15

must DISSENT in one of three ways: 1) entering dissent in MEETING MINUTES 2) file WRITTEN DISSENT BEFORE meeting ADJOURNS 3) provide written dissent by certified or registered mail to corp's secretary IMMEDIATELY FOLLOWING adjournment of meeting

Answer 16

DUTY OF CARE DUTY OF LOYALTY

Answer 17

Directors and officers are protected from legal liability under this rule: in the ABSENCE of FRAUD, ILLEGALITY, or SELF-DEALING, courts will NOT DISTURB GOOD-FAITH business decisions. STANDARD OF CARE: act with care that a PERSON IN A LIKE POSITION would REASONABLY BELIEVE APPROPRIATE under SIMILAR CIRCUMSTANCES. --special skills are expected to be used DEFENSE: RELIANCE --director or office is entitled to rely on expertise of officers and other employees, outside experts, and committees of the board

Answer 18

May not receive an UNFAIR BENEFIT to the DETRIMENT of the corporation WITHOUT: - -effective DISCLOSURE, AND - -RATIFICATION these are typically SELF-DEALING transactions: when officer or their relative receives a SUBSTANTIAL BENEFIT DIRECTLY FROM CORP (e.g., salary) also cannot USURP corporate opportunity INSULATION: self-interested transaction may be upheld if it is DISCLOSED AND RATIFIED BY: 1) majority of disinterested DIRECTORS; OR 2) majority of disinterested SHAREHOLDERS can also show that it was FAIR to insulate from liability

Answer 19

INDEMNIFICATION = paying cost of defense in ligation MUST indemnify when director/officer SUCCESSFULLY DEFENDS THE CASE CANNOT indemnify director/officer who is LIABLE for receiving an IMPROPER BENEFIT from the corporation or otherwise LOSES A LAWSUIT MAY (but not required to) indemnify director/officer for costs of suit if director/officer: 1) acted in GOOD FAITH with no intent to harm corp; OR 2) had NO REASONABLE CAUSE to believe the conduct was ILLEGAL

Answer 20

approval of SHAREHOLDERS and DIRECTORS! BOTH!

Answer 21

merger = company a eats company b, still company a consolidation = company a and company b become company c

Answer 22

if they can show: 1) corporate assets are being wasted; 2) directors are acting fraudulently; OR 3) directors and shareholders are deadlocked

Answer 23

1) board must adopt a resolution proposing change 2) notice sent to shareholders of special meeting 3) majority of shareholders casting votes must vote in favor of fundamental change

Answer 24

if a shareholder doesn't want to participate in an authorized merger, asset sale, amendment of articles, etc, he can get his shares PURCHASED by corporation at a FAIR VALUE as determined by court process—shareholder must: 1) give written notice to corporation prior to vote 2) vote no or abstain 3) make prompt written demand for fair market value (can be determined by an expert appraiser)