IV. Shareholders Flashcards
1
Q
Close Corporation: Management
A
- IN A CLOSE CORPORATION–shareholders can run the corporation
- few shareholders and stock not publicly traded
- In GA ,if not traded on national exchange, than can authorize eliminate the board and shareholders can run corp
- To authorize elimination must come through either 1) the articles or bylaws approved by all shareholdrs OR 2) uninmous written sharehodlers agreement;
- it should be conspiculously noted on front and back of stock certifications
- agreements have a 20 year limit
2
Q
Close Corporation: LIability & Duties
A
- Managing shareholders will owe duty of care and loyalty to corporation
- Shareholdres may owe each other fiduciary duties
- especially pertains to controlling shareholders who are obligated not to OPPRESS minority shareholders (selling to corporate looters)
- can sue the majority
*
- can sue the majority
- especially pertains to controlling shareholders who are obligated not to OPPRESS minority shareholders (selling to corporate looters)
3
Q
Statutory Close Corporation
A
- says close corporation in its articles
- 50 or frewr shareholders and shares are not publicly traded
- No Board required
- Managing shareholders owe duties of care and loyalty and likely carry preemptive rights
4
Q
Professional Corporations
A
- Licensed professionals (lawyers, doctors, CPAS) may incorpoated
- Must include associated, professional association, professional corp or an abrevation
- Articles msut state that the purpose is to practice in the profession and governed by Georgia Profesional Corporat Act
- Shareholders msut be licensed professionals and generally may practice only one profession
- at least one director and president must be licensed professional
- Professional personally liable for own malpractice, but generally , not for thothers liabilities
- Same rules
- when shareholder of P.C. dies or retires, usually the professional corp must buy it withing 6 montsh
5
Q
Shareholder Liability
A
- Usually not liable–corporation is only one pliable
- UNLESS the court PIERCES THE CORPORATE VEIL (applies only to close corporations)
6
Q
Piercing the Corporate Viel
A
To PCV & hold shareholders liable, must have:
- ABUSED the privilege of incorporating AND
- FAIRNESS must require holding them liable (usually involves somehting like fraud or evasion–not sloppy adminisration)
Common Scenarios
- ALTER EGO (IDENTITY OF INTERESTS)–shareholder/officer uses corporate assets as his own (company car, corporate credit card etc.) Should creditor of corp be able to reach his PERSONAL assets? yes, likely to happen but only to sahreholder who is using it as alter ego–does not implicate all of them
- CLASSIC FACT PATTER: UNDERCAPITALIZATION: Pierce where the shareholders failed to capitalize enough money into the company to avoid obligations (e.g. trucking company keeps little cash assets in company in case they’re sued for reckless driving)
More likely to occur in tort cases.
Can also hold corporation shareholder liable
7
Q
General mechanics of shareholder derivative suit
A
- shaeholder suing to enforce the CORPORATION’S CLAIM, not their own personal one–could the corporation brougt the claim itself?
- YES: duty of loyalty, care, etc. NO: not honoring preemptive rights
8
Q
If shareholder wins derivative suit
A
- money from the judgment goes to the corporation
- shareholder generally receives costs, attorney’s fees etc paid by the corp
9
Q
if shareholder loses the desrivative suit
A
- shareholder can still recover costs and attorney’s fees if sued in good faith
- May have to pay costs and attorney’s fees to the defenant if suit was brought without reasonable care
- Once one shareholder loses on claim against defendant, other shareholdres are barred from bringing same claim agianst d
10
Q
Requirements for bringning a derivative suit
A
- STOCK OWNERSHIP when the claim arose & throughtout the litigation. Can also have received it from somone through operation of law who did own it (inheritance/divorce)
- ADEQUATE REPRESENTATION of the corporation’s interest (keep owning stock is part of this)
- WRITTEN DEMAND on corporationg (usually the board) that they bring suit
- cannot sue until 90 days after this demand unless directors reject the demand OR waiting 90 days would irreparably damage corp
- JOIN THE CORP as a defendant since they are not the one bringing it
- SETTLEMENT OR DISMISSAL may only come through court approval
11
Q
Moving to dismiss
A
- corp can move to dismiss upon showing that ind investigation showed the suit was not in corp’s best interest
- must be made by independent directors or a court appointed panel of one or more independent persons
12
Q
Voting: who votes
A
Generally, the RECORD shareholder as of the record date has the right to vote
- RECORD SHAREHOLDER is the person show as the owner of the stock in the corporate records
- RECORD DATE is a voter exligibility cut off date
13
Q
Exceptions to record owner/date rule
A
- REACQUISITION: if copr re-acquires stock before the record date, they do not vote treasury stock
- DEATH OF SHAREHOLDER: executor can vote the shares
- PROXIES: see note card
14
Q
Voting Proxies
A
- Proxy is 1) writing (fax and email okay); 2) signed by record shareholder (Email ok if can id ssender); 3) directed to secretary of corp; 4) authorizing another to vote the shares
- Proxy is valid for 11 months unless otherwise stated
- Proxy can be revoked even if it says irrevocable
- Only irrevocable is if it is “coupled with interest” which rquires that it 1) says it’s irrevocable; AND 2) proxyholder has some interest in the shares other than voting
15
Q
Voting Trusts and Voting Agreements
A
Pooling voting interests among shareholders okay if done for proper purpose (e.g. prevent others from control; not okay for guaranteeing high salary for yourself)
