Pg 19

Question 1

What is the rule for if a corporation is trying to sell a large chunk of his assets whether it needs shareholder approval?

Answer 1

Generally if the corporation is selling all or substantially all of its assets it needs shareholder approval. But if they keep at least 25% of their total assets, then they don’t because they have retained a significant continuing business activity

Question 2

Is shareholder approval required to do these things:
- mortgage or encumber any or all of its corporate assets
- transfer any or all of its corporate assets to other entities that are owned by the corporation
– distribute assets pro rata to holders of the corporation’s shares?

Answer 2

No

Question 3

Is shareholder approval required to voluntarily dissolve the corporation?

Answer 3

Yes

Question 4

Is shareholder approval required to enlarge corporate powers or change the number of capital stock?

Answer 4

Yes

Question 5

How can vacancies on the board happen?

Answer 5

By death, resignation, or removal of the director

Question 6

What is the process to remove a director for cause?

Answer 6

• serve him with specific charges
• give adequate notice
• give full opportunity to meet the accusations

Question 7

How can judicial removal of a director happen?

Answer 7

• if the director engaged in fraud or dishonest conduct
• gross abuse of authority, or
• removal is in the best interest of the corporation.

Question 8

What is a shareholder derivative action suit?

Answer 8

When the shareholders enforce the substantive rights of a corporation. This is an action against a third-party, usually a director or an officer, that is brought by a shareholder on behalf of the corporation because the corporation hasn’t taken proper actions

Question 9

Where does it state the type of voting for directors in a corporation?

Answer 9

In the articles of incorporation

Question 10

What is the rule in the type of voting in California for close corporations?

Answer 10

Cumulative voting

Question 11

What is a voting agreement or a shareholder agreement?

Answer 11

A contractual agreement where two or more shareholders agree to cast their votes for directors in a particular way. They all must sign a written agreement.

Question 12

What are the two basic forms of shareholder agreements or voting agreements?

Answer 12

– voting proxies

– voting trusts

Question 13

What is a proxy?

Answer 13

When you give other people control over how your shares are voted. The proxy holder has a fiduciary duty to the shareholder of the shares he is holding or voting, these usually only last one meeting, are readily revocable, and must be in writing.

Question 14

Modernly most state statutes say that proxies can’t last more than how long?

Answer 14

11 months, although the owner can say whatever time period that is less than that for duration.

Question 15

Who is the agent and who is the principal in a proxy situation?

Answer 15

– the proxy holder: agent

– principal: shareholder

Question 16

What is the rationale behind voting by proxy?

Answer 16

Generally only a tiny percentage of shareholders actually attend shareholder meetings so the idea is to protect shareholders voting rights