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Corporations > Shareholders > Flashcards

Shareholders Flashcards

1
Q

Do shareholders generally get to manage the corp?

A

no b/c board of directors do

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2
Q

when do Ss get to run corp directly?

A

in close corp

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3
Q

characteristics of close corp

A

1) few shareholders

2) stock not publicly traded (not traded on national exchange)

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4
Q

if want to eliminate board and have shareholder management in close corp, how to do it? either

A

1) in articles AND approved by all shareholders OR

2) by unanimous written shareholder agreement

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5
Q

if shareholders eliminate board, who owes duties of care and loyalty to corp?

A

managing shareholders

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6
Q

can SHs generally be held liable for the acts or debts of the corp?

A

no b/c corp liable for what it does

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7
Q

how can SHs be held personally liable for what corp did?

A

if court “PIERCES THE CORPORATE VEIL”

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8
Q

in what kind of corps can court “pierce the corp veil”?

A

ONLY close corp

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9
Q

to PCV and hold shareholders personally liable…

A

1) they must have abused the PRIVILEGE of incorporating and
2) FAIRNESS must require holding them liable

e.g. to avoid fraud or unfairness by SH

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10
Q

classic fact patterns where court PCV

A

alter ego- treat corporate assets as his own, creditors not being paid

undercapitalization- SHs failed to invest enough to cover prospective liabilities

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11
Q

court may be willing to PCV for a ____ victim than a _____ victim

A

tort victim than for a K claimant

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12
Q

PCV: shareholder being reached can be another corp

A

parent corp forms subsidiary so pierce through subsidiary to get to parent corp

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13
Q

in SH derivative suit, who is P?

A

SH

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14
Q

In derivative suit, SH is suing to…

A

enforce corporation’s claim, not own personal claim

SH step in b/c corp not pursuing own claim

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15
Q

How to tell if suit is derivative

A

if corp could bring suit, it’s derivative

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16
Q

What suit is ALWAYS derivative

A

SH suing board of directors for breaching duty of care or loyalty

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17
Q

What’s NOT derivative

A

suing for issuing new stock w/o honoring preemptive rights

suing to force co to declare dividends (recover money for self)

suing SH for oppression in close corp

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18
Q

if SH P wins derivative suit who gets money?

A

corp

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19
Q

if SH P wins derivative suit, what does P receive?

A

costs and attys’ fees

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20
Q

if SH P loses derivative suit, can SH still recover costs and attys’ fees?

A

no

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21
Q

if SH P loses derivative suit, is he liable to D he sued for their costs and attys’ fees?

A

yes IF sued w/o reasonable cause

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22
Q

requirements for bringing SH derivative suit (4)

A

1) OWNED STOCK or got via operation of law (inheritance, divorce decree) when claim arose and throughout suit
2) ADEQUATE REP of corp’s interest
3) make WRITTEN DEMAND on corp (usually board) that corp bring suit. in many states, must always make this demand and cannot sue until 90 days after making demand. but other states, don’t have to make demand if futile (e.g. directors would be Ds)
4) corp joined AS D (even though suit asserts corp’s claim, the corp did not do so, so it is joined as D)

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23
Q

can parties to SH derivative suit settle or dismiss?

A

only w/ court approval

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24
Q

corp can move to dismiss SH derivative suit upon showing that…

A

independent investigation by ind directors or court appointed panel of 1 or more ind persons showed suit not in corp’s best interest (low chance of success or expense would exceed recover)

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25
Q

SH voting- general rule on who has the right to vote

A

“record SH” as of the “record date”

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26
Q

SH voting: who is record SH?

A

person shown as owner in corp records

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27
Q

exceptions to gen rule that record owner on record date votes: corp re-acquires stock before record date, so it is the owner of this “treasury stock” as of the record date. does it vote this stock?

A

no

28
Q

exceptions to gen rule that record owner on record date votes: death of shareholder

A

S’s EXECUTOR can vote the shares

29
Q

exceptions to gen rule that record owner on record date votes: PROXIES: what is a proxy? (4)

A

1) writing (fax and email OK)
2) signed by record SH (email OK if can ID sender)
3) directed to secretary of corp
4) authorizing another to vote the shares

30
Q

exceptions to gen rule that record owner on record date votes: PROXIES: how long is proxy good for?

A

11 months

31
Q

exceptions to gen rule that record owner on record date votes: PROXIES: how can SH revoke proxy?

A

in writing or by attending meeting and voting

32
Q

exceptions to gen rule that record owner on record date votes: PROXIES: can S revoke proxy even though states it’s irrevocable?

A

YES

33
Q

exceptions to gen rule that record owner on record date votes: PROXIES: only way to have irrevocable proxy: if it is a

A

“proxy coupled w/ an interest”

34
Q

exceptions to gen rule that record owner on record date votes: PROXIES: only way to have irrevocable proxy: if it is a “proxy coupled w/ an interest”- what does this require? (2)

A

1) proxy says it’s irrevocable
2) proxy-holder has some INTEREST IN THE SHARES OTHER THAN VOTING

e.g. A gives B an option to buy A’s stock. A gives B an “irrevocable proxy” to vote that stock at a meeting. A can’t revoke

35
Q

2 options for SHs who have few shares in corp and want to pool voting power

A

voting trust

voting agreement

36
Q

requirements for voting trust (4)

A

1) written trust, controlling how shares will be voted
2) copy to corp
3) transfer legal title to voting trustee
4) original SHs receive trust certificates and retain all SH rights except for voting

37
Q

requirements for voting (“pooling”) agreement

A

signed writing

38
Q

where do SHs vote?

A

at meeting OR unanimous written consent signed by holders of all voting shares

39
Q

2 kinds of SH meetings

A

annual meeting

special meeting

40
Q

what are annual meetings for?

A

elect directors

41
Q

if no annual meeting held in ___ months, SH can….

A

15

petition court to order one

42
Q

special meeting can be called by..

A

1) board of directors
2) president
3) holders of at least 10 % of voting shares
4) anyone else authorized in bylaws

43
Q

who can SHs remove?

A

directors, NOT officers

44
Q

notice requirement for meetings- what form? to whom? when? contents?

A

written notice

to every shareholder entitled to vote

10-60 days before meeting

contents: time and place; for special- purpose of meeting

45
Q

consequence of failure to give proper notice of meeting to all SHs

A

action taken at meetings void unless those not sent notice waive notice defect in either of 2 ways

1) express- in writing and signed anytime
2) implied- attend meeting w/o objection

46
Q

there must be a quorum represented at the meeting. what’s a quorum

A

majority of OUTSTANDING shares

47
Q

is SH quorum lost of ppl leave meeting?

A

no (diff from directors)

48
Q

if quorum req met, passing resolution requires…

A

majority VOTE

majority of votes ACTUALLY CAST, not necessarily majority of all shares PRESENT

49
Q

SH can sell or give stock away. when are stock transfer restrictions OK?

A

when reasonable- not an undue restraint on alienation

50
Q

when can stock transfer restrictions be enforced against transferee (person SH transferred stock to)?

A

1) restriction conspicuously noted on stock certificate OR

2) transferee had actual knowledge of restriction

51
Q

right of SH (personally or by agent) to inspect (and copy) books and records of corp: who has standing to demand access?

A

any SH on 5 days written notice

52
Q

right of SH (personally or by agent) to inspect (and copy) books and records of corp: procedure: Sh must make written demand stating:

A

1) docs desired

2) proper purpose for inspection- related to interest as SH (e.g. value of your stock)

53
Q

right of SH (personally or by agent) to inspect (and copy) books and records of corp: if corp fails to allow proper inspection, SH…

A

seeks court order

if win, recover costs and atty’s fees

54
Q

what are distributions?

A

payments by the corp to SH

55
Q

diff types of distributions (3)

A

1) dividends
2) repurchase SH’s stock
3) redemption (forced sale to corp at price set in articles)

56
Q

at whose discretion are distributions (payments by corp to SH)?

A

board of directors

57
Q

there is no right to distribution until it is…

A

declared

58
Q

is an action to compel declaration of a derivative?

A

no, direct

59
Q

how to win an action to compel declaration of a derivative?

A

STRONG showing of abuse of board discretion

60
Q

for any distribution (dividend, repurchase, redemption), which funds can be used? (3) (traditional view)

A

1) earned surplus
2) stated capital
3) capital surplus

61
Q

distributions: funds: earned surplus- how is it generated? what does it consist of? can board decide to use this fund for distributions?

A

generated by business activity

consists of all earnings - all losses - distributions previously paid

boar MAY decide to use this fund for distributions

62
Q

distributions: funds: stated capital- how is it generated? can it be used for distributions? par vs. no par issuances

A

by issuing stock (when corp issues stock, it allocates proceeds b/w stated capital and capital surplus)

no, stated capital can NEVER be used for distributions

on par issuance, par value goes to stated capital and any excess over par goes to capital surplus

on no- par issuances, board allocates b/w stated capital and capital surplus

63
Q

distributions: funds: capital- how generated? how computed? can it be used for distributions?

A

generated by issuing stock

computed by payments in excess of par plus amounts allocated in a no-par issuance

capital surplus CAN be used for distributions IF inform SHs

64
Q

for any distribution (dividend, repurchase, redemption), which funds can be used? (modern view)

A

modern view does not look at funds. it says corp can’t make distribution if INSOLVENT or dist would RENDER it insolvent

insolvent: corp unable to pay its debts as they come due OR total assets less than total liabilities (including preferential liquidation right)

65
Q

who is liable for improper distributions? when SHs personally liable?

A

directors, jointly and severally liable BUT good faith defense of reliance

SH personally liable ONLY if knew dist improper when received

Corporations (6 decks)

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