FACT PATTERN 4: SHAREHOLDERS- DO SHAREHOLDERS GET TO MANAGE THE CORPORATION?

Question 1

Do shareholders (SH) get to manage the corporation?

Answer 1

Generally No

Question 2

Why do SHs not get to mange the corporation?

Answer 2

Because the BOD manages the corporation.

Question 3

When can SHs run the corporation directly?

Answer 3

shareholders can run the corporation directly in a close corporation

Question 4

What are the characteristics of a close corporation?

Answer 4

1. small number of shareholders.

2. Stock is not publicly traded.

Question 5

If the corporation is not traded on a national exchange what may the SHs do?

Answer 5

shareholders can eliminate the board and run the corporation directly.

Question 6

How can SHs eliminate the board and run the corporation directly?

Answer 6

1. In the articles or bylaws and approved by all shareholders or
2. By unanimous written shareholder agreement.

Question 7

If the SHs eliminate the board and run the corporation directly what where do they note the agreement to do so?

Answer 7

the agreement should be conspicuously noted on the front and back of the stock certificates.

Question 8

If the shareholders eliminate the board, who owes the duties of care and loyalty to the corporation?

Answer 8

The managing shareholders. Those who actual manage owe the duties.

Question 9

What is a close corporation kind of like in substance?

Answer 9

A partnership

Question 10

Can SHs owe each other fiduciary duties in a closely held corporation?

Answer 10

Yes

Question 11

Who does fiduciary duties for closely held corporations especially apply to?

Answer 11

controlling shareholders

Question 12

are controlling SHs allowed to oppress minority SHs?

Answer 12

No

Question 13

What is an example of controlling SHs oppressing minority SHs?

Answer 13

selling control to people who loot the corporation (without reasonable investigation of
the buyer).

Question 14

Are minority SHs all African American?

Answer 14

No, and affirmative action does not apply.

Question 15

What if there is oppression by a controlling SH against minority SHs?

Answer 15

If there’s oppression, a harmed minority shareholder can sue the controlling shareholder who oppressed her.

Question 16

Why do courts allow minority SHs to sue controlling SHs for oppression?

Answer 16

Because minority shareholders have no way out. There is no market for the stock in a close corporation.
Look for breach of fiduciary duty.

Question 17

Licensed professionals, including lawyers, medical professionals, and CPAs, may incorporate as a what 2 things?

Answer 17

“professional corporation” or “professional association.” The name must have this or an abreviation

Question 18

What must the articles state for a “professional corporation” or “professional association?”

Answer 18

The articles must state that the purpose is to practice in a particular profession.

Question 19

Directors, officers, and shareholders of a P.C. or a P.A usually must be licensed professionals. May the P.C. employ non-professionals?

Answer 19

Yes. But not to render the professional services.

Question 20

Are the professionals personally liable for their malpractice?

Answer 20

Yes, a person is always liable for his own tort.

Question 21

What rules apply to a professional corporation?

Answer 21

Generally, the rules governing regular corporations apply to the P.C.