Ga Corporations Flashcards
SH Derivative Suits: Definition
SH as P suing to enforce corp’s claim not her personal claim
- ALWAYS ask: could corp have brought this suit? (yes = derivative suit) - Breach of duty/loyalty claims = always derivative - SH wins derivative suit--> corp gets the money, SH receives costs/atty fees - SH loses derivative suit --> SH cant recover, SH may be liable to D if SH sued w/out reasonable cause. Other SH can not later sue on the same transaction (claim preclusion)
Requirements to bring Derivative Suits
- Requirements to bring SH derivative suit?
1) stock ownership when claim arose/throughout litigation. SH bringing suit must have owned stocked @ time claim arose or 2) have gotten it by either inheritance or divorce decree
2) Adequate representation of corp interest
3) written demand on board that corp bring the suit–SH cant sue until 90 days after this demand unless directors reject before 90 days is up or waiting 90 days would harm the suit–demand is NEVER excused
4) must join corp as D
Dismissing or Settling Derivative Suits?
Parties cant settle/dismiss without ct. approval.
Corp can move to dismiss on showing that independent investigation showed suit = not in corps best interest —investigation must be made by independent directors or ct appointed panel of one/more independent persons.
SH Voting who votes?
General rule = record SH as of the record date
Record SH = person shown as the owner of the corp records
Record Date = voter eligibility cut off
Hypo: C Corp sets annual meeting for July 7 and record date for June 6. S sells B her C Corp stock on June 25. Who is entitled to vote on the shares at the meeting?
S, b.c she owned it on June 6 (the record date)
SH Voting Exceptions
Corp reacquires stock before record date = corp owner of stock on record date–> However, nobody would vote because this stock is no longer outstanding. Corp doesn’t vote
Death of SH: SH’s executor can vote on the stock
Proxies: Proxy = writing (fax/email = ok), signed by record SH, directed to Sec of Cotp authorizing another to vote on the shares. Proxy is only good for 11 months unless it says otherwise. It is revocable even if it says its not.
Only way to have an irrevocable proxy= if the words irrevocable proxy is coupled with an interest. Requires 1) to state proxy = revocable and 2) proxy holder has some interest in the shares other than voting
Voting Trusts/Agreements
When asked for advice on pooling voting power…what do you say?
Doing so = ok if for a proper purpose (ok to prevent rivals from taking control, not ok to increase salary).
How to pool voting power?
Option 1: Voting Trust: written trust agreement controlling how shares will be voted, transfer of legal title os shares to voting trustee, transfer of legal title recorded with corp, original SH recieve trust certificates and retain all SH rights except voting. Has 10 yr max
Option 2: Voting Agreement: an agreement in writing and signed by the SH. Specifically enforceable, 20 year max, renewable up to 20 more years
Where do SH vote?
during a meeting w/ a quorum and voting rules or by unanimous written consent of all voting shares
SH Meetings: not restricted to Ga, can be by tele/internet
Kinds: 1) Annual: elect directors, if none is held for 15 mo then a SH can seek ct order, 2) Special: called by board or holders of @ least 25 % of voting shares or by anyone authorized in the bylaws–Must be for a proper SH purpose
SH voting Meeting Notice Requirements
Notice Requirement: must give notice to every SH entitled to vote 10-60 prior to the meeting
Notice content: when, where and why (must tell why b/c that is the only business that can be conducted at the meeting)
What happens if corp fails to give notice? Any act at the meeting is void unless those not given notice waive the defect either expressly (in writing/signed anytime) or impliedly (attend meeting w/out objection)
How do SH vote?
must be a quorum (focus on the # of shares represented, not the actual # of SH)
requires a majority of outstanding shares
quorum is not lost if people leave the meeting
If quorum = met, maj. may act to bind the corp unless articles/bylaws require higher. (Maj = maj of votes actually casts on the proposal, not necessarily of all the shares present)
SH Cumulative Voting. . .when available and how to calculate?
only available when SH = electing directors. Gives small SH better chance of electing a Board mem.
How to calculate: Multiply # of shares times directors to be elected (# shares x directors to be elected)
Only available if the articles allow it
SH right to inspect/copy books or records of corp
Routine Material
Routine Material: any SH can demand access to inspect/copy during regular bus hours–must be in writing @ least 5 days before inspection–no statement of why SH wants records is needed
Stock Transfer Restrictions
Right of First Refusal: stock is subject to a stock transfer restriction requiring owner to offer stock to the corp
RFR = valid if corp pays reasonable price orp first
Test for Valid Stock Restriction: Restriction = ok if its not undue restraint on alienation.
Action against transfer of stock: valid restriction cannot be invoked against transferee unless a) it is conspicuously noted on stock certificate or b) transferee had actual knowledge of restriction.
SH right to inspect/copy corp records
Sensitive Material
Sensitive Material: any SH can make written demand at least 5 bus days in advance–must describe the documents and state a proper purpose (must be related to your int as a SH)
What occurs when corp fails to provide access to record materials?
Superior Ct can compel it
Directors’ access to corp records
Directors have unfettered access to sensitive and routine materials.
Does NOT have to go through the same process as SH to get the info.
Distributions
Distribution = payments by the corp to SH (dividends, repurchase of SH stock, and redemption)
made in board discretion
Dividends: preferred, participating, cumulative and common
What funds can be used for a distribution?
Corp can make distribution even if it lost money that year; cannot make distribution if it is insolvent or distribution would render it insolvent
Insolvent: corp = unable to pay debts as they come due or total assets = less than liabilities (including preferential liquidation rights)
Liability for Improper Distribution
Directors are jointly/severally liable if declaring it was negligent/reckless/intentional.
SH = personally liable if they knew distributions = improper when they received it
Fundamental Corp Changes
Characteristics
board acting adopting resolution of fund change, board submits proposal to SH w/ written notice, SH approval by majority of shares entitled to vote, must deliver document to Sec. of St.
Dissenting SH right of appraisal
right to force corp to buy your stock for fair value
only applies in close corps
right = NOT available if stock is listed on national exchange or has 2000 or more SH
exclusive remedy for a SH who objects to one of the fundamental changes unless vote was obtained by fraud
Steps of SH to perfect right of appraisal
file w/ corp written notice of objection/intent to demand payment,
abstain/vote against proposed change
after the vote, within time set by corp, make written demand to be bought and deposit stock w/ corp
IF SH and Corp cant agree on fair value of shares, corp sues and ct may appoint appraisal
Actions by corp that trigger dissenting SH right of appraisal.
amends to articles, merger, disposition of substantially all assets not in ordinary course of bus, or transfer of shares in a share exchange
Fundamental change: Article Amendment
same characteristics, dissenting SH rights of appraisal exist if amendment materially and adversely affects SH’s stock
Fund Change: Merger
same characteristics except no SH approval needed if a 90% or more owned subsidiary is being merged into a parent corp (called a short form merger).
Dissenting SH right of appraisal is available to SH of both companies & for SH of sub in short form merger
Effect of merger
Surviving comp succeeds to all rights/liability of disappearing comp. –creditor of disappearing corp can sue new company for liability (called successor liability)
Successor liability
Occurs after a merger when creditor of disappearing corp can sue new company for liabilty
Disposition (Sale) of All/Substantially All Assets Not in Ordinary Course of Bus/Share Exchange (one comp acquires all the stock of another)
these are fundamental corp changes for the seller corp NOT the buyer
Requirements: same characteristics (Buyer corp does not need approval of its SH). Dissenting SH rights of apprasial apply to teh selling corp only
No filing is required for a transfer of assets
No successor liability unless the buyer of assets is a mere continuation of the selling corp (same management/SH,etc)
Dissolution of Corp
Not the end of corp, only beg of a process. Begins Liquidating time (wind up)= gathering all assets, converting to cash, paying creditors and THEN distributing remainder to SH by share unless there is a liquidation preference
liquidation preference = pays first. Must be in the articles (Insolvency)
during wind up-corp gives money to SH first instead of creditors what then?–> creditors can sue SH to recover $
Voluntary Dissolution
Board action, approval by maj of shares entitled to vote–notice of intent to dissolve filed with Sec. of St. –corp stays in existence till wind up–notify creditors so they can make claims
Involuntary Dissolution
(By ct order)
Present SH can petition b/c of: director deadlock causing irreparable harm to corp, waste of assets, SH failed at two consecutive meetings to fill board vacancy, 20% of outstanding shares petition b/c of illegal, oppressive or fraud by directors
Creditors can petition b/c corp =insolvent and has an unsatisfied judgement or corp admits debt in writing.
Ga Atty General can seek it procuring incorp through fraud/abusing authority
Debt Securities
Debt Securities: investor lends capital to corp to be repaid–investor = creditor not owner–can be secure by corporate assets (bond) or be unsecured (debenture)
Equity Securities
investor buys stock from corp generating capital for corp–investor = owner, not creditor.
Rule 10b-5: Deceit/Fraud
Definition
Elements
law prohibits fraud/misrepresentation/nondisclosure in connection w/ purchase/sale of any security
Elements:
1) deal must use an instrument of interstate commerce
2) type transactions: misrepresentation of material info, insider trading (trading securities on the basis of material inside info–only applies to ppl whose jobs give access to secrets b/c that person has a duty to abstain/disclose–an insider is one w/ a relationship of trust and confidence with SH), tipping: insider passes along material insider info for wrongful purpose
3) Materiality: misrep/omission must concern a material fact-
4) Possible Ps: SEC, Private action for damages by buyer/seller of securities (claim by buyer/seller who was defrauded)
5) Possible Ds: any person/entities: company issuing misleading press release, buyer/seller of securities who defrauds/misrep material info, buyer/seller who trades on inside info when there is a duty to disclose, tipper/tippee (Tipper = one who passes along inside info and who benefits from it–making a gift/enhancing reputation = enough) (Tippee = one who traded on the tip and knew/should have known info = improperly passed) If there is NO tipper then there is no Tippee
6) Scienter: D must have an intent to deceive/manipulate/defraud (recklessness may suffice)
7) Reliance: presumed in public misrep/nondisclosure cases, said to be a separate claim in fraud case
