Mgmt and Control

Question 1

Annual and Special Meetings requirements

Answer 1

A corporation must hold an annual meeting of shareholders at a time that is stated or fixed in accordance with the bylaws.

Question 2

Special meetings can generally be called by:

Answer 2

1. Persons authorized under the articles of incorporation;
2. A demand from shareholders that accounts for at least 10% of the votes entitled to be cast at the meeting; OR
3. The board of directors for limited purposes (e.g., dissolution of the corporation).

Question 3

Notice requirements for shareholder annual meetings

Answer 3

Notice. Generally, shareholders who are entitled to vote must be provided with notice of all annual and special meetings.

Question 4

Notice requirements for SH special meetings

Answer 4

For special meetings, the notice must:
1. State the purpose of the meeting; AND
2. Be provided 10-60 days before the meeting commences (in most states).

Question 5

Quorum requirements.

Answer 5

A quorum must be present in order for the shareholders to take action at a meeting. Unless otherwise set forth in the articles of incorporation, a quorum exists when at least a majority of the shares entitled to vote are present.

Question 6

What are Non-Voting Shares?

Answer 6

The articles of incorporation may provide that holders of certain types of shares cannot vote unless specific conditions are satisfied. However, such shareholders are still entitled to receive notice even though their shares have non- voting status.

Question 7

What is the weight of each SH vote? Does stock class matter?

Answer 7

Unless otherwise provided by law or the articles of incorporation, all shareholders’ votes are counted equally, regardless of class.

Question 8

As to voting rights, what is the record date requirement?

Answer 8

Record Date. A shareholder is only entitled to vote if she acquired voting shares before a designated record date. Generally, the record date may be designated in the bylaws no more than 70 days prior to the shareholder meeting.

Question 9

How can SH’s elect directors?

Answer 9

Shareholders elect directors either directly (each share equals one vote) or cumulatively.

Question 10

Cumulative voting is…

Answer 10

… usually a more favorable method to represent the interests of minority shareholders.
In cumulative voting, voters cast as many votes as there are seats, but voters are not limited to giving only one vote to a candidate. Instead, they can put multiple votes on one or more candidates.

Question 11

What is a vote by proxy?

Answer 11

A vote by proxy allows a shareholder to vote without physically attending the shareholder’s meeting by authorizing another person to vote her shares on her behalf.

Question 12

How does one issue a valid proxy?

Answer 12

A valid proxy must exist in the form of a verifiable electronic transmission or a signed written appointment form.

Question 13

Are proxies revocable?

Answer 13

A proxy is freely revocable by the shareholder UNLESS the recipient of the proxy has an economic interest in the shares.

Question 14

As to corp books and reocrds, A shareholder possesses the right…

Answer 14

… to inspect corporate books and records so long as the purpose for the inspection is proper.
In order to be proper, the purpose for the inspection must be reasonably related to a person’s interest as a shareholder.

eg, , “such as a desire . . . to determine whether improper transactions have occurred.” or “economic risks” to the company

Question 15

Does a SH need a proper purpose to inspect AOI and bylaws?

Answer 15

No, a shareholder may inspect the articles of incorporation and bylaws without providing a proper purpose.

Question 16

What are the procedural req’s for a SH to inspect books/records?

Answer 16

Procedural Requirements. Generally, a shareholder must:

1. Make a written demand to inspect corporate books and records and allow the corporation a reasonable amount of time to respond (usually 5 days); AND
2. Conduct the inspection during regular business hours at the corporation’s principal office.

Question 17

What authority does the BOD have over the affairs of the corporation?

Answer 17

Subject to any limitation imposed by law or the articles of incorporation, the board of directors has full control over the affairs of the corporation.

Question 18

As to the authority of directs, a quorum must be present…

Answer 18

A quorum must be present in order for the directors to take action or vote.
Unless otherwise set forth in the articles of incorporation, a quorum exists when at least a majority of the directors are present.
Directors are considered present so long as all of the directors participating can simultaneously hear each other (e.g., conference calls).

Question 19

Is a quorom of BOD’s required for informal actions?

Answer 19

No, Informal action by the board may be taken without a quorum present so long as the board has unanimously consented to the action in writing.
So don’t have to be present.

Question 20

What is the notice requirement for BOD regular meetings? Special meetings?

Answer 20

It is presumed that directors have notice of regular meetings. However, for special meetings, directors must be given 2 days notice, which includes information about the time, location, and date of the meeting. However, such notice is NOT required to provide the purpose of the special meeting.

Question 21

Who has the authority to conduct the day-to-day affairs of corporation?

Answer 21

The board of directors generally delegates day-to-day management of the corporation’s business to officers elected by the board (CEO, CFO, president, etc.).

Question 22

The board may remove officers…

Answer 22

… at any time with or without cause. However, such removal may result in a breach of contract action if the board is violating an employment agreement.

Question 23

A shareholder seeking inspection of corporate documents must offer credible evidence that…

Answer 23

… there was mismanagement or other improper conduct.

Burden on SH to show this.
a news story by a leading publication would likely be enough of a showing to warrant inspection (see MEE Feburary 2017)

Question 24

What limiations are placed on SH’s right to inspect docs?

Answer 24

The MBCA allows a shareholder to inspect “only relevant excerpts of [board] minutes . . . directly connected with the shareholder’s purpose.”
The MBCA also allows inspection of
“accounting records,” although this category is not as broad as the “books and records” category found in other corporate statutes. According to the Official Comment, accounting records are “records that permit financial statements to be prepared which fairly present the financial position and transactions of the corporation.”

Question 25

Does a SH need a proper purpose to inspect shareholder minutes?

Answer 25

No, a shareholder may inspect the SH minutes without providing a proper purpose.