Misc

Question 1

Derivative Claim

Answer 1

A lawsuit brought by a shareholder on behalf of the corporation. The shareholder is suing to enforce the corporation’s rights when the corporation has a valid cause of action, but has failed to pursue it. This often occurs when the defendant in the suit is someone close to the corporation (e.g., a director or officer).
Requirements: contemporaneous stock ownership when claim arose and throughout litigation and demand.

Question 2

Demand

Answer 2

A demand that the Board pursue litigation. The demand must describe the claims and ask the Board to pursue them.

Generally, a shareholder must make a written demand on the board before commencing a derivative action. After submitting the written demand, the shareholder must wait 90 days to file the derivative action, UNLESS the board rejects the demand during the 90-day period.
However, under the CL and in some jurisdictions today, the plaintiff shareholder does NOT have to make a demand on the board if it would be futile to do so (e.g., the board is interested in the transaction being challenged).

Question 3

Damages

Answer 3

If a derivative claim is successful, the proceeds go to the corporation, not the shareholder who brought the action. However, if the award to the corporation benefits the defendants, the court may order that damages be paid directly to the shareholder.

Question 4

Direct Claim

Answer 4

A lawsuit brought by a shareholder to enforce his OWN rights. The shareholder must prove actual injury that is NOT solely the result of an injury suffered by the corporation. If a direct claim is successful, the proceeds go to the shareholder.
Direct Action: Directors breached their fiduciary duty owed to individual as SH.

Question 5

Voting

Answer 5

In order for a resolution to pass, there needs to be a quorum present, and more votes must
be cast in favor of the resolution than against it.

Who votes? The record owner on the record date. The record date determines who is entitled to
vote at a particular meeting—namely, those persons who were registered as shareholders “of record” on that date. Exceptions are if the shareholder died (then the shareholder’s executor may vote) or executed a valid proxy (then the proxy may vote). Unless the articles of incorporation provide otherwise, each outstanding share (regardless of class) is entitled to one vote on each matter voted on at a shareholders’ meeting.

Question 6

Voting by proxy

Answer 6

A shareholder may vote by proxy. A shareholder can appoint a proxy by signing an appointment form or making a verifiable electronic transmission. A shareholder may not orally ask someone to serve as a proxy. A proxy is generally revocable (even if it states it is irrevocable), and any action inconsistent with the grant of a proxy works to revoke it. Thus, when two or more revocable proxies are given, the last given proxy revokes all previous proxies.
Exception: A proxy is not revocable if it explicitly states it is irrevocable and is coupled with an interest (e.g., a sale of shares). Many states say that a proxy is valid for 11 months unless otherwise stated.

Question 7

Ultra Vires

Answer 7

When a corporation that has stated a narrow business purpose in its articles of incorporation subsequently engages in activities outside that stated purpose, the corporation has engaged in an ultra vires act. When a third party enters into a transaction with the corporation that constitutes an ultra vires act for the corporation, the third party generally cannot assert that the corporation has acted outside those powers in order to escape liability.