Rights of Shareholders

Question 1

Shareholder Action for Involuntary Dissolution

Answer 1

Ask court for liquidation if Ds are deadlocked & corp is threatened w/ irreparable injury, or oppression, or waste is occurring.

Question 2

Right to Review Records Books

Answer 2

Demand upon notice / proper time.

Question 3

Dividends

Answer 3

Declared solely at BOD discretion, limited only if corp is insolvent.

BOD personally liable for unlawful distributions, unless good faith reliance on financial officer’s report re: solvency.

Paid out of earned surplus, not stated capital

Question 4

Dividends – Payout Priority

Answer 4

Preferred share ($ dividend preference payable at $ amount stated;

Participating preferred paid as preferred and common share;

Cumulative preferred paid at rate of preferred each year).

Common paid last and equally.

Question 5

Repurchase and Redemption

Answer 5

Decision lies solely with BOD. SH can’t force corp to repurchase.

CL: only from earned surplus/retained earnings. Mod: not allowed if corp is insolvent.

Question 6

Closely Held Corporations

Answer 6

Agreement amongst SHs to eliminate corporate formalities.

Req’ts: unanimous SH agreement in Articles, By- Laws or filed, written agreement.

Must be reasonable share transfer restriction.

Result: No piercing. May be S-Corp: P tax treatment if < 100 SHs who are individuals, U.S. residents and only one class of stock.

Question 7

Professional Corporations

Answer 7

Licensed professionals.

Req’ts: Organizers file w/ name as PC; SHs must be licensed pros; only practice one designated profession; Pro liable personally for own malpractice, but not for other malpractice or obligations.

Question 8

Duty to Other Shareholders

Answer 8

Generally none.

Controlling SHs: duty not to unfairly prejudice minority.
If selling to looter, corp will be liable for damages unless reasonable measures taken to investigate buyer.
Liability also for selling shares at premium in exchange for corporate office.