Shareholders Flashcards
What is the impact on C if there is a failure to hold required SH meetings?
Does not affect C’s existence or invalidate C’s business
What is the primary purpose of the annual meeting?
Who can call a special meeting?
Primary purpose is to elect Ds
May be called by BD or SHs who own at least 10% of voting shares
How is the notice requirement met for meetings?
How can a SH waive the notice requirement?
Voting SHs must be notified of time/date/place in a timely manner no less than 10 days and no more than 60 days before the meeting
SH can waive notice either
-> in writing
OR
-> by attending the meeting
What is “unanimous written consent”?
SHs can take any action that could have been taken at a meeting by unanimous written consent.
How do shareholder resolutions work?
What can’t shareholder resolutions do? Is there an exception?
Can shareholder resolutions regulate political expenditures?
Shareholder resolutions are submitted for SH action at SH meeting
-> cannot bind C or BD UNLESS amending bylaws
-> can regulate political expenditures
Which shareholders are eligible to vote?
Is C able to vote?
Generally, only record owners of voting stock are permitted to vote
-> an owner of voting stock at the close of business on the record date has the right to vote
-> C generally cannot vote its own stock
What is the quorum requirements?
A majority of the votes entitled to be cast on a matter.
What is cumulative voting for Ds?
When more than one director is to be elected, corporations can allow shareholders to cumulate their votes and cast all those votes for only one (or more than one) of the candidates.
The effect of cumulative voting is to allow minority SHs to elect representatives to the board.
When is a proxy vote valid?
The proxy vote must be in writing and delivered to the C or its agent.
What are three ways to vote with other SHs?
How does each work? Are there requirements?
Voting pool
-> a binding voting agreement under which SHs retain legal ownership
-> does not need to be filed with the C
-> no time limit
Voting trust
-> a trust to which legal ownership of SH’s stock is transferred to the trust
-> the trustee votes the shares and distributes the dividends in accord with trust
-> must be in writing, limited to 10 years, and filed with the C
Management agreement
-> allows SHs to alter the way the C is managed even if the agreement is inconsistent with statutory provisions
What is a SH’s right to inspection of records?
A SH with a proper purpose (relates to SH’s interest) has the right to inspect and copy corporate records upon five days’ written notice.
What are the two types of shareholder suits?
Direct actions
Derivative actions
What is a direct action?
An action to enforce SH rights for breach of fiduciary duty by D or O,
OR
an action based on ground related to SH’s status
What is a derivative suit?
How does SH have standing in a derivative action?
SH sues on behalf of C for harm suffered by C.
Plaintiff
-> must have been a SH at the time of the wrong and at the time the action is filed,
-> must continue to be a SH during the litigation,
AND
-> must fairly and adequately represent Ce’s interests.
What is required by a shareholder for them to take action under a derivative action?
Is the exception recognized everywhere?
Under what standard is a rejection of a demand tested?
Written demand upon BD must be made UNLESS it would be futile.
-> no response within 90 days of demand grants SH right to derivative action
The futiliy exception is not recognized under the RMBCA
Rejection of a demand is tested against the business judgment rule.
Can a SH seek litigation expenses reimbursement under a derivative action?
Plaintiff can seek reimbursement from the C for reasonable litigation expenses.
Can the board dismiss a derivative action?
A board can dismiss a derivative action
-> only if a majority of qualified directors decide in good faith after reasonable inquiry that the action is not in the corporation’s best interest
What does piercing the corporate veil mean?
Piercing the corporate veil describes, in figurative language, the removal of the shield that protects a shareholder from full personal liability for corporate conduct.
How does totality of the circumstances work under the piercing of the corporate veil?
What factors are considered?
Look to whether C is being used as a facade for a dominant SH’s personal dealings (i.e., whether C is “alter ego” or “mere instrumentality” of SH), and whether there is unity of interest and ownership between C and its members.
The following factors are considered
-> undercapitalization
-> disregard of corporate formalities
-> using C’s assets as SH’s own assets
-> self-dealing with C
-> siphoning of C’s funds
-> using corporate form to avoid statutory requirements
-> SH’s domination over C
AND
-> fraudulent dealings with a corporate creditor
Who is a controlling SH?
A controlling SH is a SH (or a group of SHs acting in concert) who holds a high enough percentage of ownership in a company to enact changes at the highest level
-> a SH owning 50% plus one of a C’s shares is automatically a controlling SH
When does a controlling SH have a fiduciary duty to minority SHs?
What are the duties they owe?
The duty arises if the controlling SH is
-> selling interest to an outsider,
-> seeking to eliminate other SHs from the C
OR
-> receiving a distribution denied to other SHs
Duty to disclose information that reasonable person would consider important in deciding how to vote on a transaction.
AND
Duty of fair dealing when purchasing a minority SH’s interest.
