Governance and Shareholders

Question 1

Who can amend articles or incorporation?

Answer 1

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

Question 2

What are the bylaws?

Answer 2

lawful provisions for the management of Corp’s business and the regulations of its affairs, cannot be inconsistent with the articles

Question 3

What are easier to amend - bylaws or articles of incorp?

Answer 3

Bylaws

Question 4

if there is conflict between the bylaws and articles - which controls?

Answer 4

articles

Question 5

When are organizational meetings required?

Answer 5

1) appointment of owners
2) adoption of bylaws
3) approval of contracts

Question 6

Does failure to hold shareholder meetings affect corps’ existence or invalidate corp business?

Answer 6

NO

Question 7

What is the primary purpose of annual shareholder meetings?

Answer 7

election of directors

Question 8

Who can call a special meeting?

Answer 8

may be called by board of directors or Shareholders who own at least 10% of the voting shares

Question 9

What are the notice requirements for a shareholder meeting?

Answer 9

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

Question 10

Can shareholders take any action with unanimous written consent?

Answer 10

Yes - usually only works for smaller corps

Question 11

Who is eligibile to vote in shareholders?

Answer 11

record owners

Question 12

What is a record owner?

Answer 12

the shareholder who owns the stock at the time of the record date set

Question 13

What are the requirements of a quorum?

Answer 13

a majority of the votes entitled to be cast on a matter
- a majority of those who could vote must be there to vote

Question 14

What is cumulative voting?

Answer 14

• 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

Question 15

Can shareholders vote by proxy?

Answer 15

Yes, but it must be in writing and delivered to the Corp or its agent

Question 16

When can a shareholder request an inspection of records?

Answer 16

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

Question 17

Define

Direct Actions

Answer 17

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

Question 18

Define

Derivative Actions

Answer 18

SH sues on behalf of Corp for harm suffered by Corp

Question 19

Who has standing to bring a derivative action?

Answer 19

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

Question 20

Prior to filing a deriviative action - what must the shareholder do?

Answer 20

written demand upon board of directors

unless it would be futile - tested by BJR

Question 21

Under a derivative action - can the plaintiff seek litigation expenses?

Answer 21

plaintiff can seek reimbursement from the Corp for reasonable litigation expenses

Question 22

When can liability become personal liability?

Answer 22

1) piercing the veil
2) controlling SH’s fiduciary duty to minority SHs

Question 23

When can can the veil be pierced?

Answer 23

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

Question 24

What are factors for piercing the corporate veil?

Answer 24

• 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

Question 25

When is a shareholder a controlling shareholder?

Answer 25

• 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

Question 26

What duties does a controlling shareholder have in a transactioj?

Answer 26

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