FACT PATTERN 4: SHAREHOLDERS- DO SHAREHOLDERS GET TO MANAGE THE CORPORATION? Flashcards
Do shareholders (SH) get to manage the corporation?
Generally No
Why do SHs not get to mange the corporation?
Because the BOD manages the corporation.
When can SHs run the corporation directly?
shareholders can run the corporation directly in a close corporation
What are the characteristics of a close corporation?
- small number of shareholders.
2. Stock is not publicly traded.
If the corporation is not traded on a national exchange what may the SHs do?
shareholders can eliminate the board and run the corporation directly.
How can SHs eliminate the board and run the corporation directly?
- In the articles or bylaws and approved by all shareholders or
- By unanimous written shareholder agreement.
If the SHs eliminate the board and run the corporation directly what where do they note the agreement to do so?
the agreement should be conspicuously noted on the front and back of the stock certificates.
If the shareholders eliminate the board, who owes the duties of care and loyalty to the corporation?
The managing shareholders. Those who actual manage owe the duties.
What is a close corporation kind of like in substance?
A partnership
Can SHs owe each other fiduciary duties in a closely held corporation?
Yes
Who does fiduciary duties for closely held corporations especially apply to?
controlling shareholders
are controlling SHs allowed to oppress minority SHs?
No
What is an example of controlling SHs oppressing minority SHs?
selling control to people who loot the corporation (without reasonable investigation of
the buyer).
Are minority SHs all African American?
No, and affirmative action does not apply.
What if there is oppression by a controlling SH against minority SHs?
If there’s oppression, a harmed minority shareholder can sue the controlling shareholder who oppressed her.
Why do courts allow minority SHs to sue controlling SHs for oppression?
Because minority shareholders have no way out. There is no market for the stock in a close corporation.
Look for breach of fiduciary duty.
Licensed professionals, including lawyers, medical professionals, and CPAs, may incorporate as a what 2 things?
“professional corporation” or “professional association.” The name must have this or an abreviation
What must the articles state for a “professional corporation” or “professional association?”
The articles must state that the purpose is to practice in a particular profession.
Directors, officers, and shareholders of a P.C. or a P.A usually must be licensed professionals. May the P.C. employ non-professionals?
Yes. But not to render the professional services.
Are the professionals personally liable for their malpractice?
Yes, a person is always liable for his own tort.
What rules apply to a professional corporation?
Generally, the rules governing regular corporations apply to the P.C.
