incorporators and shareholders – corporations Flashcards
incorporators
what is the effect of entering into pre-incorporation contracts on incorporators
they are personally liable on the contract
incorporators
when can incorporators be relieved of liability for pre-incorporation contracts
if discharged by the corporation
incorporators
what are the other methods for an incorporator to be relieved of liability from a pre-incorporation contract
- de facto corporation doctrine
- corporation by estoppel
if they can show that they entered into the contract under the mistaken belief that the corporation was in existence at the time
shareholders
who do the shareholders owe a fiduciary duty to
no one –neither each other nor the corporation
shareholders
what are the shareholders liable for
no personal liability & only liable fo the debts of the corporation up to the amount of money they’ve invested in the corporation in the way of funds they paid for their shares of stock
shareholders
what is the general rule with respect to management for shareholders
they do not have the authority to make decisions on behalf of the corporation –no direct control in management
shareholders
when can shareholders have the authority to make decisions on behalf of the corporation
unanimous governance agreement
shareholders
what is a quorum and when is it required
a quorum is a majority of shares entitled to vote must be present to properly conduc tbusiness at a shareholders’ meeting; once it is present, bsuiness may be conducted
shareholders
what is the effect of a person who represents a share leaves the meeting early (and thus there is no longer a majority present)
once a share is represented at a meeting, it is deemed present for quorum purposes for the remainder of the meeting (regardless of whehter they leave or not)
shareholders
what type of vote is standard for director elections
straight voting; directors are elected by a plurality of votes cast at a meeting at which there’s a quorum (receive the most votes and you win)
shareholders
what is cumulative voting
each share may cast as many votes as there are board vacancies to be filled; the votes may be cast for a single candidate or they may be divided among the candidates in any manner the shareholder desires
shareholders
what is required for an amendment of the articles of incorporation
unless articles provide otherwise, approval of an amendment to the articles requires a majority of votes entitled to be cast on the amendment
shareholders
what is required if a class or series of shares is entitled to vote as a separate group on amendment
the approval of at least a majority of the votes entitled to eb cast on the amendment by each separate voting group is required
shareholders
what is a voting trust
ensures a group of shares will be voted a particular way in the future
shareholders
how is a voting trust created
- entering into a signed agreement setting forth the trust’s terms
- transferring legal ownership of their shares to the trustee
shareholders
what is required of the trustee in a voting trust
must vote the shares in accordance with the trust
shareholders
what must be given to the corporation in relation to a voting trust
copy of the trust agreement and names and addresses of the beneficial owners of the trust
shareholders
what is a voting agreement
written and signed agreement that provides for the manner in which they will vote their shares
shareholders
how is a voting agreement different from a voting trust
need not be filed with the corporation
shareholders
what is a unanimous governance agreement
shareholders can enter into an agreement among themselves regarding almost any aspect of the exercise of corporate powers or management
shareholders
what is required for a unanimous governance agreement
- agreement must not be set forth in the articles or bylaws
- be set forth in a written agreement signed by all persons who are shareholders at the time of the agreement
- state that it is a unanimous governance agreement
- be filed with the corporation
shareholders
how long is a unanimous governance agreement valid for
20 years (default)
shareholders
what is the derivative action
brought for harm caused to the corporation itself by the director; any recovery belongs to the corporation
shareholders
what are the procedural hurdles that a shareholder faces for a derivative action
- must be a shareholder at the time the act or omission giving rise to the suit occurred
- shareholder must fairly and adequately represent the corporation’s interest in proceeding with the litigation
- if the first 2 requirements are met, p must make demand on the corporation to take suitable action to correct or remedy the issue at least 90 days prior to filing suit, unless it can be shown that an earlier demand was rejected or that irreparable injury would result from waiting
- action can be dismissed by a majority of directors that have no personal interest in the dispute if they vote, in GF after reasonable inquiry, that the lawsuit is not in the best interest of the corporation
shareholders
how does one show whether a derivative suit is in the best interest of the corporation
depends on whether the shareholder is likely to prevail and whether the cost of litigation would outweigh the potential recovery to the corporation
shareholders
who does recovery belong to in a personal action brought against a corporation, officer, director, etc.
the shareholder
shareholders
what is an injunction for ultra vires action
the shareholder can file suit to seek an injunction to prevent the board from voting on a matter because the action is ultra vices
court can also set aside the act if doing so is equitable (if the act has already happened)
shareholders
how can the shareholder bring action for director breach of loyalty
- transaction was not approved by qualified shareholders or qualified directors
- harm to the corporation
- the harm was proximately caused by the director’s conduct
shareholders
what must shareholder bring in an action for director breach of care
- board suffered a sustained failure to devote attention to ongoing oversight of the business and affairs of the organization
- harm to the corporation
- failure was the proximate cause of harm
shareholders
what are preemptive rights
allows for corporate shareholder to purchase the same percentage of any newly issued stock as the shareholder currently holds of the current outstanding voting shares
these rights must be explicitly granted in the articles
shareholders
how are shareholders paid distributions
dividends can be paid to shareholders in the form of cash while the corporation is operating
shareholders
how are shares redeemed from shareholders
when there’s a redemption right or repurchased
shareholders
when can liquidating distributions be paid
when the corporation is dissolved
shareholders
what liability does a shareholder face if they receive a distribution in excess of what’s authorized
the shareholder is personally liable to the corporations or creditors (or both) for an amount equaling the excess amount received by that shareholder
shareholders
how can a shareholder withdraw
corporation’s actions considered as a whole, over a period of time, are incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the shareholder
oppression
shareholders
what is required of the corporation if a shareholder withdraws due to oppression
must buy shares back at fair value
shareholders
how are records request made by any shareholder
shareholder must give the corporation a signed notice of the demand at least 5 days before the date on which the shareholder wants to inspect and copy such records
shareholders
how are records requests made to inspect any and all of the corporation’s records
- shareholder or shareholders collectively must be and have been the holders of record of at least 5% of any class of the corporation’s stock for the last 6 months
- Must give the corporation at least 5 days notice
- demand must be made in good faith and proper purpose
- shareholder must describe with particularity the purpose and the records the shareholder desires to inspect
- records are directly connected with the shareholder’s purpose
shareholders
how can shareholders remove directors
can remove them before expiration of their terms with or without cause
