Intracorporate Groups Flashcards
Promoter
Promotes creation of corporation to get investors to invest to get the necessary capital
- persons like attorneys acting in a professional advisory capacity are NOT considered promoters
Promoter’s Fiduciary Duty
Must act in good faith & in the best interest of all investors
Promoter’s Liability
Remain personally liable on contract entered on behalf of the corp, even after the corp adopts the contract
- only way corporation may be liable is if the parties agree to a novation (a specific agmt by all parties that the promoter will be released and the corp substituted for the promoter)
Promoter’s Expenses and Compensation
Generally, have no right of action to recover expenses or salary
Shareholders
- generally do not have power to run day-to-day affairs
- elect the board of directors
- have the power to vote (determined by stock ownerships as of the record date, which may not be more than 70 days before the meeting)
Distribution to Shareholders
- only board of directors can authorize distribution: subject to the business judgment rule: won’t question board’s decision unless grossly negligent or uninformed (very hard standard to reach)
- as long as they can continue to pay ordinary debts, they can authorize distribution
Shareholders’ Voting Power
Vote on:
- who is the board of directors
- corp changes (amendments to articles & bylaws)
- mergers
*Quorum usually has to be met and consists of a majority of shares entitled to vote, unless otherwise provided
Shareholders Meetings
- Annual Meeting: must be held within any 15-month period
- Special Meeting
both require 10 days written notice, including the purpose of special meetings
- Quorum must be met
Proxies
Every shareholder entitled to vote, or express consent/dissent, may authorize another person to act for him by written proxy.
- proxy appointment is valid for term stated or if not default is 11 months.
Election of Directors
Elected by a PLURALITY vote (who gets the most votes, not majority)
Cumulative Voting
Intended to aid minority shareholders
of shares / votes you have times amount of vacancies on the board
Shareholder Rights to Dividends
Shareholders cannot compel directors to declare dividends
Shareholder Pooling Agreements
An agreement where you keep your shares but you agree on how to vote
- runs with the shares so if you sell your shares, the buyer is bound to the agreement as long as there is notice of the agreement
- must be in writing and signed
Closely Held Corporation
Corporation with 100 or fewer shareholders
- can do anything that want to change their corporate structure
- can agree to get rid / dispose of their board of directors
Liability for Improper Dividends
Directors who willfully or negligently vote to declare dividends are liable to the corporation for the amount paid improperly
Shareholders are liable to corporate credits for the amount of dividends received, whether or not the knew the corporation was insolvent
Right to Inspect Books and Records - Absolute Right
Every shareholder has an absolute right to inspect, during regular business hours at the corp’s principal office the corporation’s items
- on 5 days’ written notice, a shareholder who resides in FL is entitled to inspect the bylaws and/or a list of the names and business addresses of the current directors and officers at a reasonable location in FL specified by the corporation
Inspection for Proper Purpose
shareholder can inspect the minutes of a meeting or records of action w/o a meeting, and financial docs if: (1) the demand is made in good faith and for a proper purpose; (2) the shareholder describes with reasonable particularity his purpose and the records he desires to inspect; and (3) the records are directly connected to his purpose
5 days’ before day of inspection = written demand has to be made
Inspection for Proper Purpose - Ground for Refusal
if the shareholder: (1) has within the past 2 years offered for sale a list of shareholders of any copr or aided and abetted another in doing so; (2) has improperly used any info secured through any prior examination of the books of any corp; (3) is not acting in good faith; or (4) does not have a proper purpose
proper purpose = a purpose reasonably related to such person’s interest as a shareholder (determining value of his stick or the availability of a proper fund for the payment of dividends)
Voting Trust
Shareholders transfer their stock into trust and get a Voting Trust Certificate (VTC) for each share
- VTCs are freely transferable, but the transferee is bound by the agreement
- Trustee instructed as to how to vote
- When the Trust receives dividend, has to distribute to beneficiaries and it is paid to each by VTC per VTC they put have
PRESUMED TO BE IRREVOCABLE
Fiduciary Duties of Shareholders
Generally don’t have fiduciary duties
- Controlling Shareholder: has a duty not to oppress other shareholders
- Closely Held Corporation: have a duty to treat every shareholder equally
Shareholder Derivative Suits
One brought by a shareholder to enforce a corporate cause of action when the board of directors for some reason has not sought to enforce the corporation’s rights
1. shareholder must make demand on the directors that they file suit
2. shareholder has to wait 90 days before bringing suit unless: (i) the shareholder is notified sooner that her demand has been rejected or (ii) the delay will cause irreparable injury
To be able to bring suit, the shareholder must have owned stock in the corp at the time the action commences and when the alleged wrong took place, or the shares must have devolved upon her by operation of law
Derivative Suits - Dismissal by Corporation
On motion by the corporation, the court may dismiss a derivative proceeding if the court finds that one of the following groups has made a good faith determination, after a reasonable investigation, that maintenance of the derivative suit is not in the best interests of the corp:
- majority vote of qualified/disinterested directors present;
- Majority vote of a committee of 2 or more qualified/disinterested directors appointed by majority vote of qualified directors; or
- A panel of one or more disinterested and independent individual persons appointed by the court
Shareholder Direct Actions
A shareholder may maintain a direction action against another shareholder, director, officer, or the corp, to protect the shareholder’s personal interests
Shareholder must plead and prove:
1. an actual or threatened injury to the shareholder personally; or
2. an actual or threatened injury resulting from a violation of a statutory or contractual duty owed by the wrongdoer
Directors Eligibility
must be 18 years of age or older
