Shareholders Flashcards
How many shareholder meetings must a corporation hold per year?
At least one annual meeting where the primary purpose is to elect directors
What are the basic rights of a shareholder?
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
What are the limits on a shareholder’s right to inspect corporate records?
Must be conducted during normal business hours with 5 days notice and must state a proper purpose
What are examples of fundamental corporate changes?
Merger, Sale of Corporation
What is proxy voting?
A proxy is a written agreement to allow a person to vote on behalf of a shareholder
Are proxies generally revocable?
Yes, but they can be irrevocable
What does a shareholder’s power to amend corporate bylaws consist of?
Shareholders can amend or repeal existing bylaws, pass new bylaws, and can limit the BOD’s ability to change bylaws
Can shareholders enter into agreements to vote their shares together?
Yes
What is a direct action?
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.
What is a derivative action?
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.
Who has standing to bring a derivative suit?
Shareholders who were shareholders at the time of the bad act or omission AND at the time action was filed
What must a shareholder do before filing a derivative suit?
The SH must make a demand on the board
How long does the board have to respond to a SH demand?
90 days to act before the SH can file a derivative action
What is demand futility?
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)
What is a board dismissal in response to a derivative suit?
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
Are shareholders ordinarily personally liable for corporate acts?
No, corporations have limited liability protection, so SHs can only lose what they invest
When can SHs be held personally liable for corporate acts?
When a court pierces the corporate veil
What is the test for when a court may pierce the corporate veil?
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
When do SHs have a fiduciary duty to other shareholders?
Controlling SHs have a fiduciary duty not to abuse their power to disadvantage minority SHs
When must a corporation hold SH meetings?
At least once annually where the primary purpose is to elect directors. Special meetings must be held to vote on fundamental changes.
How do SHs waive the meeting requirement?
Waiver. Waiver occurs when SHs take action by unanimous written consent without meeting.
What are the notice requirements for SH meetings (annual and special)?
SHs must be given notice for both meetings. Special meetings must state the purpose of the meeting.
What happens if SHs are given insufficient notice?
SHs can challenge any actions taken at the meeting if they didn’t attend
What are the 3 requirements for a proxy?
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
How long is a proxy valid?
11 months
What is a record date?
A record date refers to the last date before a SH meeting when SHs who owned shares on that date are eligible to vote
Who sets the record date and how far in advance of a SH meeting can it be?
The board sets the record date. It cannot be more than 70 days in advance of the SH meeting.
When is a SH vote valid?
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
