Shareholders

Question 1

What are the two types of meetings?

Answer 1

Annual meetings - required

Special meetings - may be called by shareholders who own at least 10% of shares entitled to vote.

Question 2

Notice of meeting requirements

Answer 2

• shareholders must be given notice of meeting
• corporation must notify all shareholders entitled to a vote at the meeting in a timely manner.
• shareholder may waive notice requirement in writing or by attending.
• no less than 10 and no more than 60 days notice.

Question 3

What is the effect of failure to hold an annual meeting?

Answer 3

The worst is that a shareholder may seek a court order compelling the corp. to have an annual or special meeting.

Question 4

Action by unanimous unwritten consent

Answer 4

Instead of holding a meeting, shareholders may take any action that could have been udnertaken at a meeting by unanimous written consent.

Question 5

What are the two issues to analyze when determining whether a shareholder can vote?

Answer 5

Who is the owner and when is ownership judged.

Question 6

May a corporation vote its own stock?

Answer 6

No.

Question 7

If a stock is sold before a vote, how do you determine who is entitled to vote?

Answer 7

You look to the record date that is set by the corporation. Record date can’t be more than 70 days prior to the meeting.

Question 8

What is the quorum requirement?

Answer 8

for a shareholders’ meeting to be valid, there must be a majority of votes entitled to vote on a matter present.
- the amount present at any meeting aspect is deemed present for quorum purposes.

Question 9

What level of approval is required for most issues?

Answer 9

A majority

Question 10

What level of approval is required for director election?

Answer 10

a majority or a plurality.

Question 11

What is cumulative voting?

Answer 11

Ability to vote all of one’s shares together at once. -

Question 12

What are the requirements for voting by proxy?

Answer 12

1) Writing
2) Delivered to corporation or agent
3) valid for 11 months unless otherwise specified
4) is revocable
5) if multiple proxies are given, the last one governs.

Question 13

What is a voting pool?

Answer 13

A binding voting agreement between shareholders. It may be specifically enforced.

Question 14

What is a voting trust?

Answer 14

A separate legal entity to which shareholders’ stock is transferred. The shareholders retain beneficial ownership but legal ownership is transferred to the trustee.

• must be in writing
• limited to 10 years
• trust instrument must be filed w/ corporation

Question 15

What is a management agreement?

Answer 15

An agreement between shareholders to alter the way in which the corporation is managed. Topics can include:

• authorization for distributions
• elimination of the board of directors
• determination of b.o.d. membership

Question 16

What are the requirements for a management agreement?

Answer 16

• must be set forth in the articles of incorporation, bylaws and approved by all shareholders at the time or in written agmt and signed by all shareholders
• unless changed - fixed at 10 years long
• a person who purchases stock in the corp w/o knowledge of the agreement can rescind the purchase agmt.
• company can’t have shares on national securities exchange
• if the agmt restricts BOD, then the directors don’t have liability in the context of the limitation.

Question 17

What are the rights to inspect the corporate records?

Answer 17

• shareholder has the right w/ five days notice.
• normal biz hours at corporations principal place of business
• must have a proper purpose related to shareholder’s interest

Question 18

How is a shareholder’s right to inspect corporate records enforced?

Answer 18

• some states impose fines on the corporate official who impropertly refuses shareholder access
• RMBCA - expedited court proceeding and reimbursement for litigation costs to shareholder

Question 19

What are the requirements to disclose a financial statement?

Answer 19

• by SEC for publicly traded

- RMBCA requires corps to provide them to shareholders

Question 20

How may a shareholder sue a corporation?

Answer 20

By a direct or a derivative suit.

Question 21

What are the types of direct actions?

Answer 21

1) An action to enforce shareholder rights

2) A non-shareholder action to benefit the indirect shareholder

Question 22

What is a non-shareholder action?

Answer 22

A suit that does not arise from one’s status as a shareholder, like if you are hit by a truck of the corporation.

Question 23

What is a derivative action?

Answer 23

Shareholder suing on behalf of the corporation for harm suffered by the corporation.
- recovery will go to the corporation

Question 24

When does a shareholder have standing to bring a derivative action?

Answer 24

1) Shareholder at time of the wrongdoing
or
2)Shareholder at time the action is filed and continuing throughout the litigation

Question 25

What is a prerequisite for filing a derivative action?

Answer 25

Make a written demand of the board in order to take action.

• derivative action may not commence until 90 days have passed from the date of demand unless waiting would irreparably damage the corporation
• prerequisite may be waived if it would be futile

Question 26

Who pays the litigation costs for derivative actions?

Answer 26

A shareholder may seek reimbursement from the corporation for reasonable litigation expenses including attorney’s fees if the lawsuit has resulted in a substantial benefit to the corporation.
- on the other hand if the action did not have a reasonable cause, then the plaintiff-shareholder may have to reimburse the defendant.

Question 27

When is a corporate veil pierced?

Answer 27

• When the corporation is the alter ego of the shareholder
• When there is a unity of interest and ownership between the entity and members
  Factors
• undercapitalization
• disregard of corporate formalities
• intermingling assets
• self dealing
• use of corporate form to avoid obligations

Question 28

Who is a controlling shareholder?

Answer 28

• anyone controlling 50 percent plus one % of a corporation’s shares
• A shareholder with a smaller interest can be controlling if shares are widely dispersed and not actively voted.

Question 29

Does the majority shareholder have a fiduciary duty to the minority shareholders?

Answer 29

Yes if the shareholder is:

1) selling the interest to an outsider
2) seeking to eliminate other shareholders from the corporation or
3) receiving a distribution denied to the other shareholders
4) withholding information that a reasonable person would consider important in deciding how to vote on a matter.