Shareholder Rights--Derivative Suits, Voting Rights, and Proxies

Question 1

What is a shareholder derivative suit?

Answer 1

One brought by a shareholder to enforce a corporate cause of action where the corporation has not sued to protect its own rights
* ALWAYS ASK whether the corporation could have brought this suit (and if so, it’s derivative)

Question 2

What are the requirements for a derivative suit to be brought?

Answer 2

(1) Contemporaneous stock ownership
* Must have owned stock at the time the act or omission complained of occurred and remain a shareholder throughout the proceedings

(2) SH must fairly and adequately represent C’s interests
(3) SH must have made a written demand on C to take suitable action
* Must wait 90 days after demand to commence action, unless notified that demand is rejected or C will suffer irreparable injury as a result of waiting 90 days

Question 3

How may a derivative action be dismissed?

Answer 3

When the demand was properly rejected by a disinterested decisionmaker
* Either: (a) a court-appointed panel or (b) a majority vote of disinterested directors (committee of 2 or more directors OK) determines in good faith after review and evaluation that maintenance of the action is not in C’s best interests

Question 4

What are the consequences of a successful suit?

Answer 4

Recovery flows only to the corporation (SH gets costs and attorney’s fees)
* Recovery against an individual director is capped at $100,000 or the past 12 months’ cash compensation, whichever is greater

Question 5

Which shareholders have a right to vote at a meeting where voting will take place?

Answer 5

Only the record date owner

Question 6

What is the record date?

Answer 6

A voter eligibility cut-off date
* May not be set more than 70 days prior to the meeting
* Set by BOD if not fixed by bylaws

Question 7

What makes a valid proxy in VA?

Answer 7

1. In writing
2. Authorized by record date owner
3. Sent to C secretary
4. Authorizes someone else to vote the shares

Valid for up to 11 months after issuance

Question 8

Once you have given proxy to someone else, may you withdraw it?

Answer 8

Revoable UNLESS: (1) appointment form so states (“labelled irrevocable”) and (2) appointment is coupled with an interest

Question 9

What does it mean for a proxy appointment to be coupled with an interest?

Answer 9

Example is giving someone a proxy along with selling them the shares (i.e., some interest independent of the proxy)