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MEE Corporations > Shareholders > Flashcards

Shareholders Flashcards

1
Q

closed corporations

A
  • Few shareholders, stock not publicly traded
  • Shareholders can manage the corporaiton in a close corporation
  • Shareholders may be held liable thru piercing corporate veil
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2
Q

shareholder management agreement

A

MBCA allows shareholders to enter in agreement to dispsne with board and vest management powers in sharehodlers

Can be set up…
* in articles and approved by shareholders
* By unanimous written shareholder agreement

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3
Q

Fiduciary Duties in Closed Corp.

A
  • Fiduciary duties b/w shareholders
  • Duty to dislcose info to minority shareholders
  • Cannot oppress mintory shareholders (thwards goals, no way out)
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4
Q

professional corporation

A
  • Shareholders are professional practioners (lawyers, doctors, CPAs, etc.)
  • Can hire non-professionals for non-professoinal jobs
  • Personally liable for malpractice (tort)
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5
Q

piercing the corporate veil

A

Shareholders of closed corp may be held personally liable if
* shareholder abused privilige of incorporaiton
* Faireness requires

Common Scenarios
* Alter ego (indentity of interest)
* Undercapitalization
* Fraud, avoidance of existing obligations, or evasion of statutory privisions

Only available in closed corporations
Most easily pierced in tort cases

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6
Q

alter ego

A
  • Ignore corporate formalities such that corporation may be seen as mere instrumentality of shareholder
  • Some basic injustice results
  • Particularly common when shareholders treat corproate assets as own, comingle assets, etc.
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7
Q

undecapitalization

A

Corporation is inadequately capitalizaed at the time of formation so as not to reasonably cover prospective liabilities

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8
Q

Who may be liable under piercing the corporate veil?

A
  • Only shareholders who are active in operation of the business
  • Joint and several liability
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9
Q

derivative suit

A
  • Suit in which a shareholder is suing to enforce the corporation’s interest, not the shareholder’s own interests
  • Ask: could the corporation have brought this suit?
  • Remedy goes to corporation
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10
Q

Can a suing shareholder recovery anything in a deritvative suit?

A

If shareholder-plaintiff wins the derivative suit, may recover costs and attorney’s fees

If shareholder-plaintiff loses the derivative suit, she cannot recover costs and attorney fees

If court determines no reasonable cause or if improper purpose, may order shareholder-plaintiff to pay reasonable expenses of defendant

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11
Q

Requirements for Derivative Suit

A

Standing
* Shareholder at time claim arose
* Adequate representation

Demand Requirements
* Written demand to board
* Generally must wait 90 days unless (1) board rejects demand, (2) irreparable injury would occur
* Demand req. may be waived if would be futile

Corporation Joined as Defendant
* Can only be dismissed or settled with court approval
* Dismissal if based on reasonable investigation by indpt directors or panel, suit is not in corporation’s best interest

Burden after dismissal
* Shareholders must prove that dismissal decision not based on good faith after reasonable inquiry
* If maj of directors interested, corproation will have burden of dmeonstrating made in good faith after reasonable inquiry

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12
Q

record shareholder and record date

A
  • Shareholders of record on the record date may vote at meeting
  • Record date can be no more than 70 days before meeting
  • Unless otherwise in articles, each outstanding share = 1 vote

Exceptions
* Treasury stock: no one votes it
* Death: estate may vote stock
* Proxy can vote in place of shareholder

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13
Q

voting by proxy

A

Proxy is (1) a writing (2) signed by the record shareholder (3) directed to the secretary of the corp. (4) authorizing another to vote the shares

Proxy is good for 11 months unless stated otherwise

Proxy can be revoked by (1) shareholder attending meeting, (2) in writing to corporate secretary, (3) subsequent appointment of another proxy

Proxy irrevocable if coupled with interest or given as security

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14
Q

statutory proxy control

A
  1. Full and fair disclosure of all material facts with regard to any management-submitted proposal to vote upon
  2. material miststaements, omissions, and fraud in solicitation are prohibited
  3. Management must include certain shareholders proposals on issues, allow explaination
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15
Q

voting trust

A
  • Written agreement of sharehodlers under which all shares owned by party are transferred to trustee, who votes shares and distributes dividends in accordance with provisions
  • Not valid for more than 10 years unless extended
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16
Q

Requirements for Voting Trust

A
  • Written trust agreement, controlling how shares will be voted
  • Copy of agreement given to corp.
  • Legal title to shares transferred to trustee
  • Original shareholders recieve trust certs and retain all rights except voting
17
Q

Requirements for Voting Agreement

A
  • In writing and signed
  • Need not be filed with corporation
  • Not subject to time limits
  • Increasingly specifically enforceable (taking over voting trusts)
18
Q

Methods of Exercising Shareholder Action

A
  • At meeting
  • Unanimous signed writing
19
Q

shareholder meetings

A

Annual meeting
* Mandatory
* Elect directors

Special meetings
* Called by board, president, at least 10% of shareholders, anyone else authorized to do so in articles or bylaws

20
Q

Notice for Shareholder Meetings

A
  • Not fewer than 10 days or more than 50 days
  • Must be in writing
  • May be waived in writing or by attendance
  • Contents: time, place, date, purpose (special meetings, can’t do anything else)
  • Consequences of failure: actions are voidable
21
Q

Numbers for Shareholder Meetings

A

Quorum: majority of outstanding shares (articles may req. higher number), cannot be lost

Approval: majority of outstanding shares

Special Matters Numbers
* Elect director: plurality
* Fundamental changee: majority entitled to vote
* Remove director: majority entitled to vote
* Other matters: majority to actually vote

22
Q

cumulative voting

A
  • One at-large elction to determine board
  • No. of voting shares x No. of directors to be elected

Only allowed in closed corporations

23
Q

stock transfer restriction

A

Restrictions must be reasonable

Can be enforced if
1. Conspicusouly noted on stock certificate
2. Transferee has actual knowledge of restriction at time of purchase

24
Q

inspection rights

A

Right, personally or by agent, to inspect and copy books and records of corporaiton

25
Q

Unqualified Right for Noncontroversial Matters

A

No purpose required
Requires 5 days notice

Documents subject to inspection
1. Articles and bylaws
2. Board resolutions re: shares
3. Minutes of shareholder meetings from past three years
4. Communicaitons sent by corporation to shareholders inpast three years
5. Contact info for directors and officers
6. Most recent annyal report

26
Q

Qualified Right for Controversial Matters

A

Must state a proper purpose (reasonably related to interest as shareholder)
Requires 5 days notice

Documents subject to inspection
1. Excerpts oft he minutes of board meeting
2. Corporation’s books, papers, and accouting records
3. Shareholder records

27
Q

Types of Distributions

A
  • Dividends
  • Redemptions (forced sale)
  • Repurchases
  • Distribution of assets upon liquidation
  • Etc.

Does NOT include distribution of own shares to shareholders

28
Q

Right to Distributions

A
  • At least one class of stock must have right to recieve distributions
  • Decision to distribute solely iwthin director’s discretion, subj. only to solvency limitations and agreements/articles
  • Compelling distributions requires very strong evidence of abuse of discretion
29
Q

Contractural Rights re: Distributions

A
  • Shares may be divided in classes with varying rights (ex: preferred stock)
  • Shareholders treated as unsecured creditor
30
Q

share dividends

A

Shares of one class or series issued as divided re: another share only if
* Articles so authorize
* Majority of votes entitled to be cast by class or series to be issued approves the issue
* No outstanding shares of the class or series ot be issued

31
Q

What funds can be used to issue distributions?

A

Corproation cannot make distribution if insolvent or distribution would render it insolvent

Insolvency
* Not able to pay debts as they become due in usual course of business
* Total assets would be less than sum of total liabilities

32
Q

Liability for Unlawful Distributions

A

Directors
* Jointly and severally liable
* Personally liable for amount that exceeds what could have been properly distributed
* Entitled to contribution from other liable directors, liable shareholders
* May assert good faith defense

Shareholders
* Personally liable only if knew the distribution was improper when they recieved it

MEE Corporations (6 decks)

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