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Corporations > Part Four: Shareholders > Flashcards

Part Four: Shareholders Flashcards

1
Q

What are the two types of SHAREHOLDER MEETINGS?

A
  1. Annual Meetings; and

2. Special Meetings

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2
Q

What is a corporation’s requirement with regards to ANNUAL SHAREHOLDER MEETINGS?

A

Corporations must hold annual shareholder’s meetings

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3
Q

When can the court order a corporation to hold an ANNUAL SHAREHOLDER MEETING?

A

A court may order the corporation to hold an annual SH meeting IF:

  • the annual meeting is not held within the earlier of 6 months after end of corp’s fiscal year OR 15 months after last annual meeting
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4
Q

Who may call a SPECIAL Shareholder meeting?

A

A special SH meeting may be called by:

  1. the board of directors; OR
  2. the holders of 1/10 or more of all shares entitled to be cast at the meeting; OR
  3. other persons authorized in articles or bylaws
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5
Q

Where may annual or special SH meetings be held?

A

Any SH meeting may be held inside or outside of the state

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6
Q

What is the rule regarding NOTICE of SH meetings?

A

For both types of SH meetings, SH’s must be notified not less than 10 or more than 60 days before the meeting.

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7
Q

What must the notice of a SH meeting contain?

A

Notice must state:

  1. date
  2. time
  3. place

For “Special SH meetings” notice must also contain the purpose.

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8
Q

What is the rule regarding waiver of notice of SH meetings?

A

Notice may be waived in writing or by attendance.

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9
Q

Who is eligible to vote at the SH meeting?

A
  • SH’s may vote if they are the shareholders of record on the “record date”
  • Unless the articles provide otherwise, each share gets one vote
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10
Q

What is the “record date” with regards to a SH meeting?

A

The “record date” is fixed by the board, but may not be more than 70 days before the meeting.

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11
Q

What happens if the directors do not set a record date with regards to a SH meeting?

A

If the directors do not set a record date, it is deemed to be the day the notice of the meeting is mailed to SH’s

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12
Q

What is the general rule regarding SH voting by proxy ?

A

A SH may vote her shares in person, or by proxy executed in writing.

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13
Q

How long are SH proxies valid?

A

Proxies are valid for 11 months, unless they provide otherwise.

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14
Q

What is the rule regarding revocability of SH proxies?

A

A proxy Is generally REVOCABLE, and can be revoked by:

  1. The SH attending and voting in person; OR
  2. appointment of another proxy
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15
Q

When is a SH proxy IRREVOCABLE?

A

A SH proxy is IRREVOCABLE ONLY IF:

  1. it says it’s irrevocable, AND
  2. it’s coupled with an interest or given as security
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16
Q

What are the rules governing proxy solicitation?

A
  1. There must be full and fair disclosure of all material facts with regards to any management submitted proposal upon which SH’s are to vote; AND
  2. material misstatements, omissions and fraud is prohibited; AND
  3. management must include certain SH proposals on issues other than election of directors, and allow proponents to explain their positions.
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17
Q

What QUORUM is required for a SH vote?

A

A quorum is usually a majority of outstanding shares entitled to vote, UNLESS the bylaws or articles require a GREATER number.

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18
Q

Once a QUORUM is present, what happens if SH’s leave?

A

For SH actions, a quorum cannot be broken once it is met.

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19
Q

What is required for a valid SH approval of a matter by voting?

A

Once a QUORUM is present, a matter is deemed approved if the votes cast in favor exceed the votes cast against, UNLESS the articles or bylaws require a greater proportion.

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20
Q

How many votes are required for director elections by SH’s?

A

Unless the articles provide otherwise, directors are elected by a plurality of votes cast.

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21
Q

What is “cumulative voting” ?

A

If the articles provide for cumulative voting, each SH is entitled to a number of votes equal to the number of voting shares X number of directors to be elected. The total number may be divided among the candidate in any manner, including casting all for one director.

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22
Q

What is the rule regarding class voting on article amendments?

A

Whenever an amendment to the articles of incorporation will affect only a particular class of stock, that class has a right to vote even if the class does not otherwise have voting rights.

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23
Q

Describe SH action by unanimous written consent.

A

SH’s may take action without a meeting by the unanimous written consent of all SH’s entitled to vote on that action..

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24
Q

What is a “Shareholder Voting Trust”?

A

“SH voting trust” = a written agreement of SH’s under which all of the shares owned by the parties to the agreement are transferred to a trustee, who votes the shares and distributes the dividends in accordance with the provisions of the voting trust agreement

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25
Q

What are the requirements of a “Shareholder Voting Trust”?

A

A copy of the agreement and names and addresses of the beneficial owners of the trust must be filed with the corporation.

26
Q

For how long is a “Shareholder voting trust” valid?

A

The trust is not valid for more than 10 years, unless it is extended by the agreement of the parties.

27
Q

What is a “Shareholder Voting Agreement”?

A

A “Shareholder voting agreement” is a written and signed agreement providing for the manner in which they will vote their shares.

  • It need not be filed with the corporations
  • it is not subject to any time limit
28
Q

What is a “Shareholder Management Agreement”?

A

SH’s may enter into agreements among themselves regarding almost any aspect of the exercise of corporate power

Example –> agreement eliminating board and vesting board power in one or more persons, establishing who will be D&O, requiring distributions on certain conditions

29
Q

What are the requirements for a “Shareholder Management Agreement” to be valid?

A

To be valid, the agreement must:

be set forth in the articles, bylaws, or a written agreement approved by all persons who are SH’s at the time of its adoption.

30
Q

How long is a “Shareholder Management Agreement” valid?

A

10 years, unless they provide otherwise, but will terminate if listed on national exchange.

31
Q

What are the two types of shareholder inspection rights under the RMBCA?

A
  1. Qualified; and

2. Unqualified

32
Q

What are SH’s “Qualified” inspection rights?

A

SH may inspect the corporation’s books, papers, accounting records, SH records upon FIVE DAYS written notice stating a PROPER PURPOSE.

33
Q

What is considered a “proper purpose” with regards to a SH’s qualified inspection rights?

A

proper purpose = any purpose reasonably related to person’s interest as SH

34
Q

What are SH’s “unqualified” inspection rights?

A

A SH may inspect the following records REGARDLESS OF PURPOSE:

  1. articles and bylaws;
  2. board resolutions re: classification of shares;
  3. minutes of SH meetings from past 3 years
  4. communications sent by corp to SH for past 3 years;
  5. list of names and business addresses of corp’s current D&O.
  6. copy of corp’s most recent annual report
35
Q

When do SH’s have “preemptive rights”?

A

Under RMBCA, SH’s do not have “preemptive rights to purchase newly issued shares in order to maintain their proportional ownership interest UNLESS the articles of incorporation specifically provide that right.

36
Q

If SH’s have preemptive rights, what are the limitations?

A

Even if articles provide for preemptive rights, SH’s generally have no preemptive rights in shares issued:

  1. for consideration other than cash;
  2. within 6 months after incorporation;
  3. without voting rights but having a distribution preference
37
Q

What are the two types of SH suits?

A
  1. direct;

2. derivative

38
Q

What is a “direct” suit?

A

A “direct” action is brought for breach of fiduciary duty owed to the SHAREHOLDER by an officer or director.

-any recovery is for the benefit of the SH

39
Q

How do you know to whom a duty is owed (for purposes of direct versus derivative suit)?

A

Ask:

  1. who suffers the most immediate/direct damage; and
  2. to whom did the defendant’s duty tun?
40
Q

What is a “derivative” suit?

A

In a “derivative” action, the SH is asserting the corporation’s rights rather than her own rights

  • recovery goes to the corporation
  • corporation is named as defendant
41
Q

What are the major issues that arise with regards to derivative suits?

A
  1. Standing (ownership of shares requirement)
  2. Demand requirement
  3. Dismissal if not in corporation’s best interest
42
Q

Describe the “standing” requirement with regards to a derivative suit.

A
  1. SH must have been a SH at the time of the act or omission complained of (or must have become a SH by operation of law from someone who was); AND
  2. SH must fairly and adequately represent the interests of the corporation.
43
Q

Describe the “demand” requirement with regards to a derivative suit.

A
  1. SH must make a WRITTEN DEMAND on the corporation to take suitable action;
  2. A derivative proceeding may NOT be commenced until 90 days have elapsed from date of demand, UNLESS:
    (i) SH is earlier notified that corp has rejected demand; OR
    (ii) irreparable injury to the corporation would result by waiting for the 90 days to pass.
44
Q

What is the rule re: dismissal of action if not in corporation’s best interest?

A

If the majority of directors (but at least two) who have no personal interest in the controversy find IN GOOD FAITH AFTER REASONABLE INQUIRY that the suit is not in the best interests of the corporation, the suit may be dismissed on the corporation’s motion

45
Q

What is the burden of proof on a SH in a derivative suit if Corp brings motion that suit is not in corporation’s best interest?

A

In most cases, the SH bringing the suit has the burden of proving that the decision was NOT made in good faith after reasonable inquiry.

HOWEVER, if a majority of the directors had a personal interest in the controversy, the CORPORATION will have the burden of showing that the decision was made in good faith after reasonable inquiry.

46
Q

What is the rule regarding discontinuance or settlement of a derivative action?

A

A derivative action may be discontinued or settled ONLY with the approval of the court.

47
Q

What is the rule regarding payment of expenses for a derivative action?

A

Upon termination of a derivative action:

  • If the court finds that the action has resulted to substantial benefit to corporation —> court may order corporation to pay P’s reasonable expenses
  • If court finds action was commenced or maintained without reasonable cause or for improper purpose —> court may order P to pay reasonable expenses of defendant.
48
Q

What are the types of distributions to SH’s?

A

dividends, redemption of shares, repurchases of shares, distribution of assets upon liquidation.

49
Q

What is the general rule regarding rights to distributions ?

A

At least one class of stock must have a right to receive the corporation’s net assets on dissolution.

Beyond this, distributions generally are discretionary

50
Q

Do SH’s have a right to compel distributions?

A

No.

The decision whether or not to declare distributions is generally solely within director’s discretion, subject to:

  1. solvency limitations; and
  2. any contrary provisions in articles and/or bylaws
51
Q

What are the solvency requirements for a distribution?

A

A distribution is NOT permitted if, after giving it effect, either:

  1. The company is insolvent such that it cannot meet its obligations as they become due; OR
  2. The corporation’s total assets would be less than the sum of it’s total liabilities plus (unless articles permit otherwise) the amount that would be needed to satisfy preferential rights in the event corporation were dissolved.
52
Q

Are “share dividends” considered distributions?

A

No.

53
Q

What are the limitations on “share dividends”?

A

Shares of once class or series may not be issued as a share dividend in respect of shares of another class or series, unless:

  1. the articles so authorize; OR
  2. a majority of votes entitled to be cast by class or series to be issued approves; OR
  3. there are no outstanding shares of the class or series to be issued.
54
Q

What is a SH’s rights after a distribution is declared?

A

After a distribution is declared, a SH is generally treated a as general creditor, and their claim is equal in priority to claims of other unsecured creditors.

HOWEVER, a distribution can be enjoined or revoked if it was declared in violation of solvency limitations, the articles, or a superior preference rights.

55
Q

Who will receive SH distribution?

A

A SH is entitled to a distribution if they are the SH on the record date. (not the date of declaration).

56
Q

What is a director’s liability for unlawful distributions?

A

A director who votes for or assents to a distribution that violates rules is PERSONALLY LIABLE to the corporation for the amount the distribution EXCEEDS what COULD HAVE BEEN PROPERLY DISTRIBUTED.

However –> a director is not liable for distributions when they reasonably rely on others.

57
Q

What is the rule re: contribution in the event that a director is held liable for an unlawful distribution?

A

If a director is held personally liable for an unlawful distribution, he is entitled to contribution from:

  1. every other director who could be held liable; AND
  2. every SH who accepted distribution knowing it was improper.
58
Q

What is the general rule regarding SH’s Fiduciary duty to the corporation and/or other SH’s?

A

In general, SH’s have no fiduciary duty to the corporation or other SH’s.

Exceptions:

  • liability pursuant to SH agreement
  • close corporations
  • duty of controlling SH’s to minority SH’s
59
Q

What liability may arise between SH’s pursuant to a Shareholder agreement?

A

If SH’s enter into an agreement that vests some or all rights to manage the corp in one or more SH’s, the managing SH’s have the liabilities that a director would ordinarily have with respect to that power.

60
Q

What liability may arise between SH’s in a close corporation?

A

SH’s in a close corporation are generally held to owe each other the same DUTY OF LOYALTY AND UTMOST GOOD FAITH that is owed by partners to each other.

61
Q

What liability may arise between controlling SHs and minority SH’s?

A
  • A controlling SH must refrain from using his control to cause the corporation to take action that unfairly prejudices minority SH’s.
  • This includes a duty to disclose all material information.

Corporations (9 decks)

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