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

1
Q

Do shareholders (SH) get to manage the corporation?

A

Generally No

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2
Q

Why do SHs not get to mange the corporation?

A

Because the BOD manages the corporation.

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3
Q

When can SHs run the corporation directly?

A

shareholders can run the corporation directly in a close corporation

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4
Q

What are the characteristics of a close corporation?

A
  1. small number of shareholders.

2. Stock is not publicly traded.

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5
Q

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

A

shareholders can eliminate the board and run the corporation directly.

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6
Q

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

A
  1. In the articles or bylaws and approved by all shareholders or
  2. By unanimous written shareholder agreement.
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7
Q

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

A

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

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8
Q

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

A

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

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9
Q

What is a close corporation kind of like in substance?

A

A partnership

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10
Q

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

A

Yes

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11
Q

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

A

controlling shareholders

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12
Q

are controlling SHs allowed to oppress minority SHs?

A

No

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13
Q

What is an example of controlling SHs oppressing minority SHs?

A

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

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14
Q

Are minority SHs all African American?

A

No, and affirmative action does not apply.

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15
Q

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

A

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

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16
Q

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

A

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

17
Q

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

A

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

18
Q

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

A

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

19
Q

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

A

Yes. But not to render the professional services.

20
Q

Are the professionals personally liable for their malpractice?

A

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

21
Q

What rules apply to a professional corporation?

A

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