Shareholders Flashcards
Only type of corp where SH manage?
Closely held corp (few SH, not publicly traded)
Requirements for PA’ Statutory Close Corp.? (2)
No more than 30 SH
Stock not publicly traded
Can a close corp eliminate the need for a BOD?
Yes
In a close corp that has eliminated the BOD, who owes duties of care and loyalty to the corp?
Managing SHers
In a close corp, SHers owe a fiduciary duty to . . .
Each other.
Are the oppressive acts of controlling SHers in a close corp actionable? Why?
Yes, breach of fiduciary duty to minority holders.
When and only when can a SH be liable for corporate acts?
If the court pierces the corp. veil
A corporate veil will only be pierced for what type of corp?
Close
Is there a precise test to pierce the corp veil?
NO
A court might pierce the CV of a close corp if these two things are true:
SHers abused the privilege of incorporating; and
Fairness requires that they be held personally liable.
PA courts may pierce the the CV to avoid _____ or ______
Fraud or unfairness.
In answer a PCV question start with the general rule that . . . .
Then give the PCV standard, which is . . .
SHers are not liable for the acts or debts of a corporation.
Courts can pierce the CV if the SHers abused the privilege of incorporating AND fairness requires that they be held personally responsible.
Is undercapitalization grounds to PCV?
Yes
Courts are more willing to PCV for a ____ ____ than for a ____ ___
Tort victim
Contract claimant
In a ______ suit, the SH is suing to enforce the corporation’s claim.
Derivative suit
What happens in a SH derivative suit?
SH is suing to enforce the corporation’s claim.
What is a pre-req for a SH to bring a derivative suit?
Corp must be able to bring the suit itself.
SHer C sues the other 2 SH is a close corp. for oppessive behavior. Derivative suit? Explain
No. This is a breach of duty owed to the SH, not to the corp. This is a direct suit.
If SH wins derivative suit, who gets the judgment?
Corp.
If SH wins a deriv. suit, she gets . . .
Costs and fees
If SH LOSES a deriv. suit, can she recover costs and fees?
NO
If SH loses a deriv suit, is he liable to D for costs and fees
Yes
If SH loses a deriv. suit, can other SHer bring a claim later?
No. Collateral Estoppel.
Three reqs for bringing a SH deriv suit?
Stock ownership (at the time claim arose OR inherited from someone who did)
Must fairly and adequately represent the SHers’ interests
Must make a written demand on directors that the corp bring suit (unless demand would be futile OR would cause injury to the corp–i.e., directors would be defendants)
In a deriv. suit, P must plead with particularity . . .
Her efforts to get to corp to sue OR why the demand was futile.
Can parties to a SH deriv suit settle or dismiss?
Only with court approval.
How can a corp get involved in the SH deriv suit>
Can move to dismiss on grounds that the suit is not in the corp’s BI.
A ___ SH as of ___ date has right to vote
Record x2
C corp sets its annual SH meeting for 7/7, with record date of 6/6. S sells B her stock on 6/25. Who is entitled to vote?
S
What is a Proxy? (4)
Writing
Signed by a record SH
DIrected to secretary
Authorizing another to vote the shares.
A proxy must be in ____
Writing
A proxy authorizes . . .
another to vote the shares.
For how long is a proxy good?
3 years
Are proxies revocable?
Yes
Is proxy revoked by death?
Yes
A proxy will only be irrevocable if it is coupled with . . .
Interest.
For a proxy to irrevocable, it must be coupled with interest, meaning . . . (2)
Proxy says its irrevocable
The proxyholder has some interest in the shares other than merely voting.
S sells B her shares after the record date but before the annual meeting. S gives B an irrevocable proxy to vote the shares at the annual meeting? Can S revoke?
No. In writing AND coupled with an interest.
4 requirements for a voting trust?
Written trust agreement as to how shares will be voted
Copy sent to corp
Transfer legal title of shares to trustee
Original SH receive trust certificates and retain all rights except voting.
What is required for a voting agreement?
A k (oral or written).
Are voting agreements specifically enforceable in PA?
Yes! (but not everywhere)
Between a voting trust and a voting agreement, pick ____ ___ because …
Voting agreement
Specifically enforceable in PA and less cumbersome
Two types of SH meetings: Annual and Special. What is done at an annual meeting?
Elections
Two types of SH meetings: Annual and Special. Special Meetings can be called by which three parties?
BOD
Holders of at least 20% of the voting shares
Someone else provided in the AI.
20% of the voting shares call a special meeting to remove an officer. OK>
NO! SH do NOT remove officers. Even at a special meetings.
Is noticed required for every meeting?
Yes
Why is the purpose of the special meeting of SH important?
Scope of meeting is limited to the stated purpose
SHers generally vote on these 3 things:
Election of Ds
Removal of Ds
Fundamental corp changes
A vote of SH requires a _____
Quorum
Determination of SH quorum is based on number of this represented and not that.
Number of shares
NOT number of SHers
Can a quorum of SH be lost?
NO – DIFFERENT THAN BOD
If a quorum is met, how many SH votes needed to elect a director?
Plurality
If a quorum is met, how many SH votes needed to approve matters other than elections?
Majority
Cumulative voting is only allowed for . . .
Elections
In cumulative voting, a SH can do what?
Aggregate his votes normally reserved for each seat, and cast them all for one seat
If AI is silent, does cumulative voting apply?
Yes, it is the default
Stock transfer restrictions are OK is they are reasonable, meaning they do not place an undue . . . .
Restraint on alienation.
is a right of first refusal an undue restraint on alienation?
No
Under the BCL, who can demand access to books and records of the corp?
Any SH
How does a SH demand access to books and records? What must be true of the request
Written request for a proper purpose (i.e., relating to your interest as a SH)
Distributions are in whose discretion?
The BOD.
A suit to force a distribution will fail unless plaintiff can show a . . .
GROSS abuse of discretion
Dividends totaling $400k. 100,000 shares of common stock. How much?
$4/share
Dividends totaling $400k. 100,000 shares of common stock. 20,000 shares of preferred with a $2 dividend preference? How much?
$40,000 to the preferred, then $360k left to the common, or $3.60/share
Dividends totaling $400k. 100,000 shares of common stock. 20,000 shares of preferred with a $2 dividend preference that is CUMULATIVE. No dividends paid in last 3 years. How much?
Four years multiplied by $2/share is $8/share. 20,000 preferred, so $160k to preferred. $240k to common, so $2.40/share.
Preferred stock gets paid ____
First.
A cumulative preferred dividend accrues __ to ___
Y to Y
*** A corporation can make a distribution even though it lost money money last year. T or F?
True
** A corp CANNOT make a distribution if it is _____ or the distribution would make it _____.
Insolvent x2
Insolvent means EITHER
A corp cannot meet its debt as they come due OR
Total assets are less than total liabilties
A corp will be deemed insolvent if its total assets are less than its ______
Liabilities
A corp will be deemed insolvent if its total assets are less than its liabilities. Liabilities include _____ ____
Liquidation preferences
Directors are personally liable for unlawful distributions made _____ or in breach of their duty of _____
Intentionally
Care
If a director incurs personally liability for an unlawful distribution, he may claim the “good faith” defenses. This requires what?
That the director placed good faith reliance ON
book value of assets
financial statements by auditors or accountants
opinion of an employee, officer, professional, or committee of which they are not a member.
