General Flashcards
stock subscriptions
- ask people to agree in advance to buy stock before corporation formed
- prior to incorporation: subscription agreements are irrevocable for 6 months
preemptive rights
- right to acquire stock to maintain the percentage of ownership
- default rule: shareholders do not have preemptive rights unless negotiated or included in the articles
what are the two ways to get money out of a corporation (distribution)?
- board can declare a dividend
- board can buy back shares of the corporation
who has the right to authorize dividends?
board of directors
when can the board of directors not distribute dividends?
- if corporation is insolvent OR
- if, by issuing the dividend, the corporation would become insolvent
what happens if the board of directors authorize unlawful dividends?
board of directors who vote to authorize the unlawful dividend are personally liable, jointly and severally, to the corporation for the amount in excess of the lawful amount
UNLESS director relied in good faith on financial statements
participating preferred shares
each share in the class collects a dividend as part of the preferred class and then collects an additional amount together with the common class
preferred shares
when there is a dividend, they get preference for the amount of divident preference they have (and then the remaining goes to the holders of common stock)
cumulative preferred shares
when there is a dividend, they get preference for the amount of divident preference they have for that year AND for any prior year where no dividend was issued (and then the remaining goes to the holders of common stock)
what are the two possible types of restrictions on the sale of securities?
- closely held corporations (private restrictions on the sale of securities)
- federal restrictions
what are the requirements for a closely held corporation to put restrictions on the sale of its securities?
- restrictions must be conspicuously noted (stock certificate contains conspicuous statement or restrictions will be provided on request)
- types of restrictions: outright prohibition, requires company consent, company has option to buy, company has right of refusal
- upheld if reasonable
what is necessary to bring a Rule 10b-5 action?
- P purchased or sold the security
- transaction involves interstate commerce
- D engage in fraudulent or deceptive conduct (NOT opinions or predictions)
- conduct related to material information (reasonable investor would think important)
- D acted with scienter (intentional or reckless, NOT merely negligent)
- P relied on D’s conduct
- P suffered harm (out of pocket damages only)
what is necessary to bring a Section 16(b) action?
- corporation with securities traded on national securities exchange OR corporation with assets fo more than $10 million and more than 500 shareholders AND
- corporate insider (director, officer, shareholder with more than 10% of any class of stock)
- short swing profits: during any 6 motnh period, a corporate insider who both buys and sells the corporation’s stock is liable to the corporation for any profits made on those transactions
- reporting: must report changes in stock ownership to the SEC
shareholder meeting - annual meetings
- every corporation must hold an annual meeting to elect directors and conduct other shareholder business
shareholder meeting - special meetings
- may be called to vote upon fundamental changes (e.g. dissolution, merger)
- state laws typically specify who may call special meetings (e.g. board of directors, senior officer, % shareholders)
what are the notice requirements for shareholder meetings?
- must be given notice between 60-10 days before the meeting
- notice must include time, date, and location
- special meeting only: must include the purpose of the meeting
- insufficient notice + didn’t attend (didn’t waive)–> shareholder can challenge any actions taken at the meeting
Record Date: how do you determine which shareholders are eligible to vote at a shareholder meeting?
- directors must fix a record date
- must be no more than 70 days before the meeting
- only shareholders who actually own shares on teh date are entitled to vote
what are the two alternatives to shareholder meetings?
- unanimous written consent to the action (usually only feasible for closely held corps)
- vote by proxy
requirements for voting via proxy
proxy - authorizes others to vote shares in accordance with the wishes of the shareholder
* in writing
* signed by the shareholder as of the record date
* sent to secretary of the corporation
* state that it authorizes another to vote the shareholder’s shares, and
* cannot be valid for more than 11 months, unless otherwise specified
issues that shareholders typically vote on
- election of directors
- mergers
- share exchanges
- amendments to teh articles of incorporation
- sales of all or substantially all of its assets
- dissolution
Quorum
- for a** vote to be effective**, a quorum of the corporation’s shares must be represented at the meeting (in person or via proxy)
- quorum = majority of the corporation’s outstanding shares reprented at the start of the meeting
Necessary vote
- if a quorum is present, a shareholder vote is effective if the votes cast in favor of the proposal exceed the votes cast against the proposal (exclude abstentions)