hot topics Flashcards
What is a voting trust?
A written agreement by which shareholders transfer share ownership to a trustee who votes shares as agreed. Valid for up to 10 years but renewable.
What is a voting (pooling) agreement?
A written and signed agreement valid for up to 20 years but renewable.
What are shareholder management agreements?
Used in small corporations (corporation’s stock must not be traded on national exchange). Eliminates board and sets up management by shareholders, third party, or single person.
To set up: In articles/bylaws and approved by all shareholders OR By unanimous written shareholder agreement.
What are share transfer restrictions?
Ownership interests (shares) generally are freely transferable. Shares may conspicuously provide for restriction. Restrictions must be reasonable (not undue restraint on alienation).
What inspection rights do shareholders have?
Unqualified right to inspect items such as articles, bylaws, annual registration statements, names/addresses of current directors and officers, shareholder meeting minutes, etc. Demand in writing, 5 business days in advance.
Qualified right includes items such as corporate accounting records, shareholder list, minutes of directors’ meetings, records of committee actions, etc. Demand requires 5 business days’ notice and must state proper purpose.
What are preemptive rights?
Right to purchase shares to maintain proportionate ownership interest. Generally, shareholders do not have preemptive rights unless articles say so.
In statutory close corporations, preemptive rights exist unless articles say they don’t.
How do shareholders bring suit against the corporation?
Distinguish direct vs. derivative suits. Direct suit is to enforce right of shareholder; derivative suit is to enforce a right belonging to corporation. Must have owned shares at time of wrong and must fairly and adequately represent corporation’s interest.
Written demand on corporation to bring suit and wait 90 days after demand unless certain conditions apply.
How do shareholders get distributions?
Generally in the form of dividends or assets after dissolution. No right to receive unless/until declared by board.
Insolvency limitations apply.
What liabilities do shareholders have?
Shareholders are not fiduciaries and may act in self-interest, except in certain cases such as shareholder management agreements.
Professional corporations require licensed professionals and have specific liability rules.
How do directors vote?
Directors vote in meetings. Regular meetings require no notice; special meetings require at least 2 days’ written notice. Quorum is a majority of the board.
Action without meeting requires unanimous written consent.
What liabilities do directors have?
Directors owe fiduciary duties of care and loyalty to the corporation. The business judgment rule generally protects directors from personal liability.
Common scenarios include nonfeasance and misfeasance.
Can directors be indemnified?
Successful defense requires the corporation to indemnify for expenses. If unsuccessful, indemnification is at the corporation’s discretion.
Exceptions apply if the director is found liable or received an improper benefit.
What officers are required?
Georgia doesn’t require any particular officers but allows corporations to have officers described in bylaws or appointed by directors.
How are officers appointed and removed?
Officers are appointed by the board of directors and may be removed by the board. If removal breaches contract, the officer is entitled to damages.
What authority do officers have?
Officers are agents of the corporation, so agency law applies. They have actual authority as given by the board, articles, and bylaws.
What liabilities and indemnification rights apply to officers?
Officers owe duties similar to those owed by directors and have rights to indemnification similar to directors.
Identify types of fundamental corporate changes.
Amendments to articles, mergers, consolidations, share exchanges/transfer of all or substantially all assets, conversion, dissolution.
What is the general procedure for fundamental changes?
Board resolution, notice to shareholders, shareholder approval by a majority of all votes entitled to be cast, and filing articles of the change with the state.
What are the procedural nuances for mergers?
Merger is the blending of 1 or more corporations into another. Generally must be approved by directors and shareholders of both corporations.
Exceptions include short form mergers and no significant change to surviving corporation.
What are the consequences of dissolution?
Corporate existence continues, but the corporation can’t start any new business and must wind up (liquidate).
Winding up involves gathering assets, converting to cash, paying creditors, and distributing remaining cash to shareholders.
What is the dissenters’ appraisal remedy?
Shareholders in close corporations who dislike certain fundamental changes may force the corporation to purchase their shares at a fair price if they notify the corporation before the vote and do not vote in favor of the change.
