Shareholders

Question 1

What is the most important duty at a shareholder meeting?

Answer 1

Elect the board of directors.

Question 2

What is the difference between an annual and a special meeting?

Answer 2

Annual: Must hold, elect directors.

Special: may be called to vote upon fundamental issues. State law specifies who may call.

Question 3

What is the rule of notice and record date for shareholder meetings?

Answer 3

Notice: Shareholders must be given notice of special or annual meeting no fewer than 10 days, but no more than 60 days before the meeting. Must include time, date, and location. (for special meeting) must include purpose.
- Insufficient notice = shareholder challenge of actions. Unless waived by attending.

Record Date

• Used to determine which shareholders are eligible to vote
• Directors must fix record date.
• Must be no more than 70 days before meeting.
• Only shareholder who actually own shares on record date are entitled to vote.

Question 4

What is veil piercing?

Answer 4

General Rule: Shareholders are not personally liable for the debts of a corporation, but only liable for the amount invested, except when court pierces the view to avoid fraud or unfairness.

3 Factors

• Alter ego (treated like company)
• Fraud
• Undercapitalization

More likely to pierce the veil in tort rather than contract.

Question 5

When may shareholders take action without a meeting?

Answer 5

Unanimous written consent.

Question 6

What is the rule for proxy voting at shareholder meetings?

Answer 6

Must be;

• in writing, signed by shareholder of record date
• sent to secretary of the corporation
• state it authorizes another to vote the shareholder’s shares
• cannot be valid for more than 11 months unless otherwise specified.

Question 7

What do shareholders vote on?

Answer 7

Election of Directors
Mergers
Share Exchanges
Amendments to Articles
Sales of all or substantially all its assets
Dissolution

Question 8

What is the rule for quorum and necessary vote for shareholder meetings?

Answer 8

Quorum = majority of outstanding shares represented at start of meeting.

Necessary vote = votes in favor exceed votes against.

Question 9

What is cumulative voting?

Answer 9

Applies only to election of directors.

Corporations can chose whether to permit this in articles.

Shareholders are given a number of votes equal to the number of shares, multiplied by the number of director positions being voted on. Can be spread out or all on one director.

Question 10

What are shareholder inspection rights

Answer 10

May inspect records in person or through agent so long as there is a proper purpose. (relates to shareholder’s financial interest)

Improper purpose = designed to harass.

Question 11

What are direct shareholder lawsuits?

Answer 11

Shareholder sues in own name and gets recovery to himself. When harmed directly, such as interference in voting rights or dividends, misinformation bout important issues, and tort.

Question 12

What are derivative shareholder lawsuits?

Answer 12

Shareholder sues on behalf of the corporation. Harm happens to business as whole, claim must be made in corporations name and recovery goes to corporation.

Standing
- Must have stock ownership, must be a shareholder at time of litigation, throughout the litigation, and must fairly and adequately represent the interests of corporation.

Demand
- Required to make a demand first of the bard of directors. Unless demand futility (not recognize din states that recognized the RMBCA).

Question 13

What are the duties of a controlling shareholder?

Answer 13

May owe a duty to minority shareholders when sale of stock to an outsider/looter (who has intent to destroy company) or when transacts with the corporation (special distribution)

Question 14

Who is a controlling shareholder?

Answer 14

50% plus 1.

OR

Less than 50% but look to nature of ownership. (15% in Disney, 25% in Apple, may be a controlling shareholder, etc.)