Shareholders

Question 1

How many shareholder meetings must a corporation hold per year?

Answer 1

At least one annual meeting where the primary purpose is to elect directors

Question 2

What are the basic rights of a shareholder?

Answer 2

1) Right Inspect Corporate Records
2) Right to Vote to select board of directors and approve fundamental corporate changes
3) Power to Amend Corporate Bylaws
4) Right to Sue the Corporation

Question 3

What are the limits on a shareholder’s right to inspect corporate records?

Answer 3

Must be conducted during normal business hours with 5 days notice and must state a proper purpose

Question 4

What are examples of fundamental corporate changes?

Answer 4

Merger, Sale of Corporation

Question 5

What is proxy voting?

Answer 5

A proxy is a written agreement to allow a person to vote on behalf of a shareholder

Question 6

Are proxies generally revocable?

Answer 6

Yes, but they can be irrevocable

Question 7

What does a shareholder’s power to amend corporate bylaws consist of?

Answer 7

Shareholders can amend or repeal existing bylaws, pass new bylaws, and can limit the BOD’s ability to change bylaws

Question 8

Can shareholders enter into agreements to vote their shares together?

Answer 8

Yes

Question 9

What is a direct action?

Answer 9

When a shareholder sues the corporation for their own benefit (i.e. the wrong is personal to the shareholder). Can arise when the SH is denied voting rights, the board failed to declare a dividend, or when the board failed to approve or deny a merger.

Question 10

What is a derivative action?

Answer 10

A derivative action is when the SH sues the corporation on behalf of the corporation for board or officer misconduct. All recovery will go to the corporation.

Question 11

Who has standing to bring a derivative suit?

Answer 11

Shareholders who were shareholders at the time of the bad act or omission AND at the time action was filed

Question 12

What must a shareholder do before filing a derivative suit?

Answer 12

The SH must make a demand on the board

Question 13

How long does the board have to respond to a SH demand?

Answer 13

90 days to act before the SH can file a derivative action

Question 14

What is demand futility?

Answer 14

The SH need not make a demand on the board if the SH can prove that demand would be futile (e.g. if SH is accusing board of wrongdoing)

Question 15

What is a board dismissal in response to a derivative suit?

Answer 15

The board can bring a MTD if the action is not in the corporation’s best interest, but the SH can rebut with evidence that the board is not disinterested or not acting in good faith

Question 16

Are shareholders ordinarily personally liable for corporate acts?

Answer 16

No, corporations have limited liability protection, so SHs can only lose what they invest

Question 17

When can SHs be held personally liable for corporate acts?

Answer 17

When a court pierces the corporate veil

Question 18

What is the test for when a court may pierce the corporate veil?

Answer 18

Based on the totality of the circumstances, the court will look to whether the corporation:

(1) Was the “alter ego” of its SH(s),
(2) Whether the corporation is undercapitalized,
(3) Whether the corporation disregards corporate formalities (e.g. holding annual SH meetings, holding votes),
(4) Intermingling corporate assets with personal assets,
(5) Siphoning corporate funds or stripping assets,
(6) Self dealing with corporation

Question 19

When do SHs have a fiduciary duty to other shareholders?

Answer 19

Controlling SHs have a fiduciary duty not to abuse their power to disadvantage minority SHs

Question 20

When must a corporation hold SH meetings?

Answer 20

At least once annually where the primary purpose is to elect directors. Special meetings must be held to vote on fundamental changes.

Question 21

How do SHs waive the meeting requirement?

Answer 21

Waiver. Waiver occurs when SHs take action by unanimous written consent without meeting.

Question 22

What are the notice requirements for SH meetings (annual and special)?

Answer 22

SHs must be given notice for both meetings. Special meetings must state the purpose of the meeting.

Question 23

What happens if SHs are given insufficient notice?

Answer 23

SHs can challenge any actions taken at the meeting if they didn’t attend

Question 24

What are the 3 requirements for a proxy?

Answer 24

A proxy is effective if (1) the writing was signed by SH as of record date; (2) delivered to corporation; and (3) states that it authorizes 3rd party to vote SH’s shares

Question 25

How long is a proxy valid?

Answer 25

11 months

Question 26

What is a record date?

Answer 26

A record date refers to the last date before a SH meeting when SHs who owned shares on that date are eligible to vote

Question 27

Who sets the record date and how far in advance of a SH meeting can it be?

Answer 27

The board sets the record date. It cannot be more than 70 days in advance of the SH meeting.

Question 28

When is a SH vote valid?

Answer 28

Unless otherwise specified in the AOI or bylaws, a SH vote is effective when there is a quorum and majority of quorum votes to approve