Shareholders

Question 1

Shareholder Decisions

Answer 1

Responsibilities: Generally to elect directors, amend by-laws, and make fundamental changes at:

1. At Annual Meeting (required meeting to elect directors)
2. At Special Meeting (called by 10% of voting shares or as authorized in bylaws with notice of purpose delivered 10-60 earlier)
3. Unanimous Written Consent

Question 2

Voting of shareholders

Answer 2

Right to Vote: Held by Record Shareholder on the set recorded date

Voting By Proxy Allowed: writing signed by shareholder authorization someone else to vote is good for 11 months and can always be revoked unless proxy has interest
-revocable by later appointment or attendance of shareholder
-proxy solicitations must fairly disclose material facts

Quorum: Majority of Shares Required at beginning of meeting only

Voting Requirement Passage if yes votes (by share) > no votes

Cumulative Voting: automatic in some states but MBCA allows for shareholders to vote shares for one director or split

Question 2

Right to Inspection

Answer 2

Qualified Right: books, papers or accounting records with 5 days written notice and proper purpose related to rights

Unqualified Right: inspection of articles, bylaws, minutes of meetings, names/addresses of current directors, and recent annual reports

Question 3

Right to Dividends

Answer 3

Subject to Board’s discretion and subject only to abuse of discretion claim

Question 4

Shareholder Agreements

Answer 4

Types:
1. Voting Trust
2. Voting Agreement
3. Management Agreements = agreeing to manage corporation in any way
4. Restrictions on Share Transfer

Question 5

Voting Trusts

Answer 5

1. 10 year max (Renewable)
2. Written agreement
3. Copy of Agreement filed with Corp.
4. Transfer Legal Title of Shares to Trustee who is instructed to vote a certain way
5. Original Shareholders retain all other rights of shareholders except voting rights

Question 6

Voting (pooling) Agreement)

Answer 6

Contract in writing and signed agreeing to vote a certain way

Question 7

Restrictions on Stock Transfer

Answer 7

DEFAULT: Stock freely transferrable
Restrictions are allowed so long as it is not an absolute restriction

Question 8

Direct Suit

Answer 8

Lawsuit a shareholder brings on own behalf against director/corp

Question 9

Deriviative Suit

Answer 9

Suit by SH on Corporation’s behalf against Director to enforce Corp.s claim allowed if:
1. SH owned stock when claim arose AND throught suit
2. SH adequately represents corporation’s interests
3. Written demand made on Corp to bring suit unless futile (almost always is futile becasue you are suing board members)
4. Wait 90 days until after demand unless notified earlier of no action or irreparable injury
4. Join Corporation as a DEFENDANT

Question 10

Conclusion of Derivative Suit

Answer 10

**If SH wins: **Judgment goes to Corporation and SH receives cost and attorney’s fees from the judgment

**IF SH Loses: **SH liable for attorney’s fees/costs if no good faith basis for suit

Settlement: Must be approved by Court

Preclusion: Another shareholder may not bring same clam later

Question 11

Shareholder Duties

Answer 11

Traditional: No fiduciary duties
Modern: Controlling shareholders owe a duty of loyalty and care

Question 12

Preemptive Rights

Answer 12

Right to purcahse shares to maintain proportionate ownership only if provided for

Question 13

Exception to Preemptive Rights

Answer 13

1. Shares issued as compensation
2. Shares issued within 6 months of incorporation
3. Shares issued for consideration other than money
4. Nonvoting shares with a distribution preference

Question 14

Futility of Written Demand in Derivative Suit

Answer 14

-If damages against entire board is sought
-NOT if a majority (at least two) of disinterested directors find in good faith the suit is not in the corporation’s best interest –> no suit