Shareholders Flashcards
Can shareholders run business?
Generally no (board does). But if close corporation can run directly: (1) few shareholders; (2) stock is not publically traded
Can eliminate board and run corp directly if corp stock not traded on national exchange (must do so either in articles and approved by all shareholders OR by unanimous written shareholder agreement)
Duties of shareholders in close corporations to each other
Fidcuiary duty. Must treat each other with utmost good faith. If oppression of minority shareholdres, can sue controlling shareholders who oppress them for breach of fiduciary duty.
Can licensed pofessionals incorporate as professional corp or professional association?
Yeah -P.C. or P.A. Articles must state that purpose is to practice in a particular profession. Professionals personally liable for own malpractice, but shareholdres generally not liable for corporate obligations or for other prof’s malpractice.
Can shareholders be held liable for acts or debts of corp?
Generally no b/c corp itself liable. But may be personally liable if corp “pierces corporate veil” in close corporations only: (1) abused privilege of incorporating and (2) fairness must require holding liable
X and Y are only shareholdres of C Corp. X comingles personal and corporate funds, uses corporate car as his own, and uses corporate credit card to pay for personal purchases. C Corp fails to pay its bills
I: can creditor of corp unable to collect claim from corp collect from either X or Y?
Generally, shareholdres not liable for acts or deeds of corp. However, if in closed corporation and pierces the corporate veil, indivdiual shareholdres may be liable. PCV when (1) abuse privilege of incorporating and (2) fairness requies holding them liable.
Here, this is a closed corporation because there are only two shareholdres and the stocks are not publically traded. X abused the corporation by treating corporate assets as his own and it is arguably unfair to have lim liability b/c creditors not getting paid. Thus, if PCV, only X, not Y, would be liable
S is shareholder of G, Inc. which does not carry insurance. G Inc has initial capitalization of $1000. V is injured when one of G INc’s trucks melt down. Can V sue S?
Generally shareholders not liable for corporate obligations. PCV standard. Here, Court might PCV b.c corporation was undercapitalized when formed. This is because shareholders failed to invest enought to cover prosective liabliities. Courts may be more willign to PCV for tort victim than K complainant.
Shareholder derivative suits
Shareholder suing to enforce corp’s claim. If corp could have brought this suit, then derivative. If shareholder wins, corp gets money from judgment but can recover costs and attny’s fees. If shareholder loses, cannot recover costs and attorney fees. S may be liable to D if loses if sued w/out reasonable cause
Requirements for bringing shareholder derivative suit
(1) Stock ownership when claim arose and throughout suit (either own stock or gotten it by operation of law by someone who did own -aka inheritance and divorce decree)
(2) Adequate representation of corporation’s interest
(3) Must make written demand on corporation that corp bring suit (many states must always make demand and cannot sue until 90 days after demand)
(4) Corp must be joined as D
(5) Can only settle or dismiss with court approval
When can dismiss derivative suit
Corp can move to dismiss upon showing that indept investigation showed suit not in corp’s best interest. INvestigation done by independent directors or court approved panel of one or more indept persons
Shareholder voting
Record shareholder as of record date has right to vote.
Exceptions:
(1) nobody owns treasury stock -reacquired stock by corp
(2) death of shareholder (executor can vote)
(3) Proxies (i) writing (ii) signed by record shareholder; (iii) directed to secretary of corp; (iv) authorizing proxy (good for 11 months unless said otherwise, can revoke by writing or attending & voting, can revoke even if says irrevocable unless proxy coupled with interest -(i) proxy says irrevocable (ii) and proxy holder has some interest other than voting (e.g. option to buy shares)
Record shareholders and record date
Person shown as owner in corporate records; voter eligibility cut -off
Requirement for voting trust
10 year max
(1) written trust agremeent, controlling how shares will be voted
(2) copy to corp
(3) transfer legal title to voting trustee
(4) original shareholders receive trust certificates and retain all shareholder rights except for voting
Requirements for voting (“pooling”) agreement
Must be in writing and signed. Shareholdres can enter into voting agreements. Split whether specifically enforceable.
Shareholders meetings
(1) Annual meeting: required, if no meeting held within 15 months can petition court to order one, elect directors
(2) Special meeting: can be called by board, president, or holders of at least 10% of voting shares, or anyone else bylaws authorized.
Notice requirement for shareholder meetings
Must given written notice to every shareholder entitled to vote, deliver it 10-60 days before meeting. Must state time & place of meeting. For special meetings also state purpose of meeting.
If failrue to give proper notice, action taken void unless those not sent notice waive defect (express -in writing and signed- or implied -attend meeting without objection)
