Shareholders

Question 1

Close Corps
-few shareholders
-not publicly traded

Answer 1

Shareholders in close corporations can manage the corporation directly. They are not liable for corporate debts unless the court pierces the corporate veil.

Question 2

Piercing the Veil

Answer 2

A court may pierce the veil if shareholders have ignored corporate formalities (such that the corporation can be considered the alter ego of the corporation) and some injustice has resulted.
-treating corp assets as their own
-commingling moneys

A court may also pierce the veil if the corporation was underfunded at the time of formation or as necessary to prevent fraud or evasion of other obligations.

Question 3

Controlling Shareholders

Answer 3

Controlling shareholders cannot use their power to their own benefit at the expense of minority shareholders. If minority shareholders are oppressed, they can sue controlling shareholders.

Question 4

Meetings

Answer 4

Annual: Notice required

Special: Notice required (including purpose)

Failure to provide notice renders anything done at the meeting voidable unless notice is waived.

Proxy voting allowed

Quorum = majority of outstanding shares entitled to vote (can’t be broken)

Voting: One outstanding share (issued but not reacquired) = one vote

Approval:
-elections of directors = whoever gets the most votes
-fundamental change or removal of director = traditionally a majority of shares entitled to vote; increasingly a majority of shares that actually vote
-other matters = majority of shares that actually vote

Question 5

Proxy Voting

Answer 5

Proxy voting is achieved by sending a signed writing to the secretary authorizing someone else to vote for your shares. It is revocable unless it states that it is irrevocable and is coupled with some other interest in the shares.

Question 6

Cumulative Voting

Answer 6

Multiply shareholder’s number of voting shares x the number of directors to be elected. Have one at-large election and the top finishers are elected to the board.

Question 7

Derivative Suits

Answer 7

Derivative suits are brought by a shareholder to enforce the rights of the corporation. The burden is on the shareholder to show that the challenged decision was not made in good faith after a reasonable inquiry, unless the majority of directors involved in the decision had an interest in it, in which case the burden shifts to the corporation.

Question 8

Standing for Derivative Suit

Answer 8

To bring a derivative suit, the shareholder must have been a shareholder at the time the claim arose or must have become a shareholder by transfer from someone who owned stock at the time the claim arose.

Question 9

Demand for Derivative Suit

Answer 9

Before filing a derivative suit, the shareholder must make a written demand on the corporation to take suitable action.

In some states, this requirement is waived if the demand would be futile.

In some states, she must wait 90 days after demand before bringing suit unless the board responds sooner or waiting could cause irreparable injury to the corporation.

Question 10

Dismissal of a Derivative Suit

Answer 10

Dismissal of a derivative suit must be based on an independent investigation that reasonably investigated and concluded that the suit is not in the corporation’s best interest.