Governance and Shareholders Flashcards
Who can amend articles or incorporation?
board of directors can amend the articles if no stock has been issued.
If stock has been issued: Board must adopt amendments and then submit those to the Shareholders for majority approval
What are the bylaws?
lawful provisions for the management of Corp’s business and the regulations of its affairs, cannot be inconsistent with the articles
What are easier to amend - bylaws or articles of incorp?
Bylaws
if there is conflict between the bylaws and articles - which controls?
articles
When are organizational meetings required?
1) appointment of owners
2) adoption of bylaws
3) approval of contracts
Does failure to hold shareholder meetings affect corps’ existence or invalidate corp business?
NO
What is the primary purpose of annual shareholder meetings?
election of directors
Who can call a special meeting?
may be called by board of directors or Shareholders who own at least 10% of the voting shares
What are the notice requirements for a shareholder meeting?
1) voting shareholders must be notified of time, date and place
2) timely manner: no less than 10 days before meeting and no more than 60 days before
3) Shareholders may waive notice either in writing or by attendence
Can shareholders take any action with unanimous written consent?
Yes - usually only works for smaller corps
Who is eligibile to vote in shareholders?
record owners
What is a record owner?
the shareholder who owns the stock at the time of the record date set
What are the requirements of a quorum?
a majority of the votes entitled to be cast on a matter
- a majority of those who could vote must be there to vote
What is cumulative voting?
- applies only to election of directors
- shareholders are given a number of votes that is equal to the number of shares multiplied by the number of director positions being voted on
Can shareholders vote by proxy?
Yes, but it must be in writing and delivered to the Corp or its agent
When can a shareholder request an inspection of records?
When a SH has a proper purpose (relates to shareholders interest) they have the right to inspect and copy corporate records upon 5 days written notice
Define
Direct Actions
an action to enforce SH rights for breach of fiduciary dity by Director or Owner or an action ased on grounds unrelated to SH’s status
Define
Derivative Actions
SH sues on behalf of Corp for harm suffered by Corp
Who has standing to bring a derivative action?
plaintiff must
1) have been SH at the time of the wrong or time action was filed
2) continue to be a SH during litigation, and
3) must fairly and adequately represent Corp’s interest
Prior to filing a deriviative action - what must the shareholder do?
written demand upon board of directors
unless it would be futile - tested by BJR
Under a derivative action - can the plaintiff seek litigation expenses?
plaintiff can seek reimbursement from the Corp for reasonable litigation expenses
When can liability become personal liability?
1) piercing the veil
2) controlling SH’s fiduciary duty to minority SHs
When can can the veil be pierced?
1) when Corp is being used as a facade for dominant SH’s personal dealings, and
2) whether there is unity of interest and ownership between the corp and its members
What are factors for piercing the corporate veil?
- undercapitalization
- disregard of corporate formatilies
- using Corps assets as SH’s own assets
- self-dealing with Corp
- siphoning of C’s funds
- using corporate form to avoid statutory requirements
- SH’s domination over Corp
- fraudulent dealing with a corporate creditor
When is a shareholder a controlling shareholder?
- a shareholder who owns a high enough percentage of ownership in a company to enact changes
- SH owning 50% plus one shares is automatically a controlling SH
What duties does a controlling shareholder have in a transactioj?
Duty to disclose information that a reasonable person would consider important in deciding how to vote on a transaction and a duty of fair dealing when purchasing a minority of SH’s interest
