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7. Corporations > Shareholders > Flashcards

Shareholders Flashcards

1
Q

Can shareholders manage a company?

A

Yes if it is closely held. Must have provision in certificate restricting or transferring board power to shareholders

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2
Q

Are shareholders personally liable for what the corporation does?

A

Generally no but may be found liable if the Court pierces the corporate veil.

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3
Q

When can the Court pierce the corporate veil?

A

Where the shareholders have abused the privilege of incorporating and fairness must hold them liable.

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4
Q

Why do we pierce the corporate veil?

A

To impose liability on a shareholder.

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5
Q

Can a shareholder be another corporation?

A

Yes it can.

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6
Q

Can the Court hold a parent/shareholder company liable and pierce the corporate veil?

A

Yes they can.

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7
Q

Is undercapitalisation enough to allow piercing of the corporate veil?

A

No, not enough in New York.

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8
Q

In a close corporation, can shareholders be personally liable for wages/benefits to employees?

A

Yes, the 10 largest shareholders are personally liable for wages/benefits.

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9
Q

What is a derivative suit?

A

A shareholder is suing to enforce the corporation’s claim, not their own personal claim.

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10
Q

What if a shareholder wins a derivative suit?

A

They get recovery not shareholder but the shareholder receives costs and attorney’s fees usually from the judgment won for corporation.

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11
Q

When may the shareholder be able to get damages?

A

If recovery by the bad guy would return money to bad guys.

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12
Q

What if a shareholder loses a derivative suit?

A

Obviously you are liable for costs.

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13
Q

What are the 6 requirements for bringing a derivative suit?

A

1) Stock ownership when claim arose through to entry of judgment.
2) Adequately represent interests of corporation and shareholders.
3) May have to post bond. Don’t have to if own more than 5% or $50k of stock.
4) Make a demand on directors that they must sue first.
5) You must plead with particularity efforts to get to sue or why it was futile.
6) Corporation is joined as defendant.

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14
Q

Can a corporation move to dismiss the suit?

A

Yes they can.

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15
Q

What is the motion to dismiss the suit based on?

A

On a finding by independent directors that the suit is not in the corporations best interests.

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16
Q

Can you settle a derivative suit?

A

Yes but need court approval for dismissal or settlement.

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17
Q

What can a D or O do?

A

They can bring a suit against another D or O to compel them to account for violation of duties or misappropriation of assets. Here they don’t have to meet the requirements of a derivative suit but recovery is still for corporation.

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18
Q

What shareholders have a right to vote?

A

Record owner as of record date have the right to vote.

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19
Q

Who is the record owner?

A

The person shown as the owner in the corporate records

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20
Q

When is the record date?

A

It is the voter eligibility cut off date set no fewer than 10 and no more than 60 days before a meeting.

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21
Q

What are the two exceptions to the record date rules?

A

1) Corporation reacquires stock before record date. Corporation doesn’t get a vote in treasury stock because it is not outstanding; and
2) Death of a shareholder, executor can vote.

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22
Q

Are proxies for shareholder voting ok?

A

Yes, if in writing, signed by record owner or authorized agent, directed to secretary of corporation and authorising another to vote the shares.

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23
Q

How long is a proxy good for?

A

11 months unless stated otherwise.

24
Q

Can a proxy be revoked?

A

Yes it can, even if it says its irrevocable.

25
Q

How do you make a voting trust?

A

Requires a written trust agreement controlling how shares will be voted, copy to corporation, transfer legal title of shares to voting trustee, and original shareholders receive voting trust certificates and retain all shareholder votes except for voting.

26
Q

Whats the maximum time that a voting trust can last?

A

10 years but within 6 months before end you can get an extra 10 years.

27
Q

Can you have a voting agreement?

A

You can if it is in writing and signed.

28
Q

Are voting agreements specifically enforceable?

A

No.

29
Q

Are proxies given subject to voting agreements irrevocable?

A

Yes, if they say so.

30
Q

Can shareholders agree to elect each other as directors?

A

Yes.

31
Q

Can shareholders agree what actions they will take as directors when elected?

A

No.

32
Q

What are the two ways a shareholder can take a valid act?

A

They can give written consent to holders of all voting shares or have a meeting.

33
Q

What are the two kinds of shareholder meeting?

A

Annual and special.

34
Q

At what meeting are directors elected?

A

Annual meeting.

35
Q

Do Directors need a majority to win a seat?

A

No, they just need plurality (most votes wins)

36
Q

Who can call a special meeting?

A

The board or anyone provided in certificate or bylaws

37
Q

Who needs written notice of the meeting?

A

Every shareholder entitled to vote for every meeting, 10 to 60 days before the meeting.

38
Q

What must the notice of meeting contain?

A

Time and place of meeting and if meeting on something where shareholders will have appraisal rights, the notice must say that and state why.

39
Q

What must the notice of a special meeting contain in addition to requirements?

A

Notice of special meeting must state who called it and the purpose.

40
Q

What if notice is not given to everyone?

A

An action at the meeting will be void unless those not given notice waive it expressly or impliedly.

41
Q

Does a quorum of shareholders have to be present?

A

Yes. Majority of outstanding shares.

42
Q

What does the quorum focus on?

A

Number of shares represented, not number of shareholders.

43
Q

Can the certificate or bylaws reduce the quorum?

A

Yes, to less than majority but not less than 1/3.

44
Q

Can we require a supermajority of shares entitled to vote?

A

Yes, by the certificate. Require that resolutions at meeting must be approved by a 2/3 supermajority.

45
Q

Once a quorum is established can it be lost?

A

No.

46
Q

Can a shareholder sell stock at less than par?

A

Yes. Only the corporation needs to meet par issuance rule when selling stock.

47
Q

Can we impose restrictions on transfer?

A

Even if there are restrictions on transfer it cannot be invoked against transferee unless either it is conspicuously noted on the stock certificate or the transferee had actual knowledge.

48
Q

Can a shareholder get minutes of any shareholder proceedings and record of shareholders?

A

Yes it can, within 5 days written demand.

49
Q

What may the corporation demand if a request for minutes or other information is made?

A

Corporation can demand an affidavit that his purpose is not other than in the interest of the corporation and he has not within 5 years tried to sell any list of shareholders.

50
Q

Can a shareholder get a list of current directors and officers?

A

Yes it can, within 2 days of written demand.

51
Q

What else can the shareholder obtain?

A

Copies of the latest balance sheet, profit and loss statement and interim statements distributed to the public.

52
Q

What is a distribution?

A

Payments by a corporation to shareholders, a dividend, payment to repurchase shares or to redeem shares.

53
Q

Who declares distributions?

A

The board and they are at its discretion.

54
Q

When can and can’t the board make distributions?

A

They can make them even if they have lost money but cannot if they are insolvent or the distribution would render the corporation insolvent.

55
Q

Who is personally liable for distributions?

A

Directors are and shareholders who knew the distribution was unlawful when they received it.

7. Corporations (7 decks)

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