rights of shareholders

Question 1

shareholder derivative suits

Answer 1

shareholder is suing to enforce corporation’s cause of action

ask - could the corporation have brought the suit?

Question 2

requirements for shareholder derivative suit

Answer 2

contemporaneous stock ownership (when claim arose and maintain throughout)

adequacy - shareholder must fairly and adequately represent corp’s interest

demand - shareholder must make demand and wait 90 days. if demand is rejected, must allege director’s failed to review adequately

Question 3

dismissal of derivative suits

Answer 3

committee of 2+ independent directors can investigate and move for dismissal if it concludes that derivative suit is not in best interest of corporation

Question 4

outcome of successful derivative suit

Answer 4

recovery goes to corporation, shareholder gets fees, recovery against individual director capped at 100k or past 12 month’s cash compensation, whichever is greater

Question 5

which shareholders. have right to vote at meeting

Answer 5

record shareholder as of record date. record owner = person shown as owner in corporate records.

Question 6

record date

Answer 6

voter eligibility cut off set by board no more than 70 days before meeting

Question 7

proxies

Answer 7

writing or electronic transmission authorized by record shareholder directed to secretary of corp authorizing another to vote the shares. valid for only 11 months

Question 8

irrevocable proxes

Answer 8

labeled irrevocable and coupled with an interest (like giving proxy at same time as selling the share)

Question 9

annual shareholder meeting

Answer 9

must have one, at least 1 director slot is open for election. notice of meeting must contain where and when the meeting is. timing of notice must be 10-60 days before meeting, or if fundamental corporate change will be discussed, 25-60 days prior

Question 10

special shareholder meeting

Answer 10

special purpose - vote on proposal or fundamental corporate change. notice must say where and when of meeting and what the special purpose s. action must be limited to special purpose. timing of notice must be 10-60 days before meeting, or if fundamental corporate change will be discussed, 25-60 days prior

Question 11

failure to give proper notice

Answer 11

action taken at meeting is void unless those not getting notice waive objection in writing or attend

Question 12

voting trusts

Answer 12

formal written delegation of voting power to trustee for any duration stated in the agreement and deposited at the corporation’s principal office

Question 13

voting agreement

Answer 13

written agreement to all vote shares as majority direct. no time limit. enforceable on all signers

Question 14

cumulative voting

Answer 14

you own 1k shares and there 9 directorships. under traditional straight voting you can vote 1k times but under cumulative voting you can multiply shares by slots and have 9000 votes

only exist if the articles said it does

Question 15

unqualified right of shareholder to inspect and copy records

Answer 15

any shareholder upon a signed written request giving 10 days advance notice may inspect and. copy corporate records maintained in corporation’s principal office

Question 16

qualified right of shareholder to inspect and copy records

Answer 16

shareholder who has been a record holder for more than 6 months or who owns 5% or more of the stock or who obtains court approval may inspect additional corporate books and records upon 10 days written notice stating proper purpose

Question 17

unlawful dividends

Answer 17

directors are personally liable for unlawful dividends or distributions

Question 18

cumulative shares

Answer 18

if corp did not give dividends for 2 years, then in year 3 decides to, these shareholders must be given dividends for last 3 years

Question 19

preferred shares

Answer 19

paid first

Question 20

preferred and participating

Answer 20

paid first at preferred rate and again as common stock

Question 21

shareholder agreements eliminating formalities

Answer 21

in nonpublic corps, unanimous shareholder agreement in articles or bylaws are valid for 10 years unless otherwise indicated. court will not pierce veil, even for lack of formalities, and s-corp status if no more than 100 shareholders residing in US and only 1 class of stock