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NY Corporations > Shareholders > Flashcards

Shareholders Flashcards

1
Q

Can SHs manage the corp?

A

No, that’s the BOD’s job.

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2
Q

When can SHs manage corp?

A

when closely held corp. BUT NOT MANDATORY - CAN HAVE BOD

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3
Q

** what defines a close corp? 2 things

A
  1. few SHs

2. private stock

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4
Q

** To have SH MGMT in close corp you need A PROVISION IN CERT giving board power to SHs and you need (4 things)

A
  1. all incorporators or SHs approve it
  2. conspicuously noted on front and back of all shares
  3. subsequent SH have notice, and
  4. shares not listed on exchange or regularly quoted OTC
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5
Q

in close corp run by SHs, who owes duties of care and loyalty

A

MANAGING sharholders

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6
Q

in close corp, trend toward imposing fid duties on SHs when dealing w/ each other. Controlling shareholders owe minority shareholders ______. Why?

A

Controlling shareholders owe minority shareholders the UTMOST DUTY OF GOOD FAITH. So controlling Sh can’t use their power for gain at expense of corp. We give minority SHs remedy b/c controlling shareholder’s behavior DEFEATS REASONABLE EXPECTATIONS for investing.

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7
Q

Can members of licensed profession operate through general corporation?

A

No, must form “P.C.” a PROFESSIONAL SERVICE CORPORATION.

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8
Q

In P.C., are professionals liable for their malpractice?

A

Yes, but not malpractice of others in the corporation, nor are you personally liable for rent or Ks of the P.C.

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9
Q

What’s required in P.C. certificate that’s abnormal? (2 things)

A
  1. profession being practiced

2. certification that each SH, Dir, and Officer is licensed to practice the profession

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10
Q

*Generally, are SH’s liable for what corp does?

A

No

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11
Q

Exception to rule that generally SH’s are not liable for what corp does?

A

Piercing the corporate veil in close corporation

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12
Q

*** To prove piercing corporate veil in NY reqs 3 things

A
  1. complete domination over corporation by SH
  2. abuse of privilege of incorporating, and
  3. fairness required holding SH liable (e.g., FRAUD or INJUSTICE)
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13
Q

what’s hardest part to prove to pierce corp veil?

A

Complete domination over corp.

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14
Q

What if only SH of corp is another corp – can you pierce corp veil?

A

Yes

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15
Q

Is undercapitalization grounds to pierce corporate veil?

A

No, not by itself.

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16
Q

Do we expect more piercing corp veil cases from K or tort?

A

Tort

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17
Q

in close corp, who is liable for wages and benefits of employees?

A

10 largest SHs.

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18
Q
  • to determine if you’ve got a derivative suit, ask what?
A

Could corp have brought this suit (e.g., usurping corp opp suit against D&Os)? Derivative suits are brought by SHs but are based on CORP’S LEGAL CLAIM..

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19
Q

Who gets the $ from successful derivative suit?

A

Corp gets the $, but SH who brought suit gets costs and attorney’s fees covered out of the judgment.

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20
Q

When can SH recover the $ in derivative suit?

A

When $ otherwise goes to the bad guys, e.g., close corp where returning $ to corp gives it to bad D&O who is also SH. In this case, court might give $ directly to innocent SHs.

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21
Q
  1. can losing SH in deriv suit recover costs?

2. can other SHs thereafter sue defendant for same transaction?

A
  1. No

2, No

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22
Q

**Reqs for bringing SH derivative suit

A
  1. stock owner when COA arose and through action and judgment,
  2. adequately rep SHs or corp,
  3. bond for D’s costs (SH below 5% or 50K)
  4. SH makes prior demand on BOD to sue corp (unless futile)
  5. plead w/ PARTICULARITY efforts to get BOD to sue or why futile
  6. Join corp. AS DEFENDANT
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23
Q

what are 3 situations where derivative suit doesn’t req prior demand to BOD for suit (because such demand would be futule - #1 most important)

A

Futile to request BOD sue where:

    1. Maj of BOD is interested or under ctrl of interested directors;
      1. BOD didn’t inform itself of teh transaction to the extent reasonable; or
      2. transaction so egregious on face that it couldn’t reflect sound business judgment.
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24
Q

If SH requests that BOD sue on behalf of corp and BOD refuses, can SH bring derivative suit? Reqs (1 of 2)?

A

Only can bring deriv suit post-BOD rejection if EITHER: (1) show maj of BOD is interested OR (2) BOD procedure was incomplete or inadequate

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25
Q

SH brings deriv suit. Corp must be joined as defendant. Corp moves to dismiss based on?

A

finding of independent directors (or committee of ind directors, “special litigation committee”)

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26
Q

SH brings deriv suit. Corp must be joined as defendant. Corp moves to dismiss based on independent directors’ findings. What does court look at to decide (2 things)?

A
  1. independence of those investigating claims internally; and
  2. sufficiency of the investigation
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27
Q

parties to derivative suit can’t dismiss or settle it without ____

A

court approval

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28
Q
  1. In NY, when can a D&O bring a derivative suit?
  2. in whose name is suit brought?
  3. who gets damages?
A
  1. In NY, a D or O can sue another D or O to compel her to account for violation of duties or misappropriation of assets.
  2. brought in plaintiff’s own name
  3. corp gets damages
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29
Q

which SHs have right to vote?

A

record holder as of record date. record date = eligibility cut-off = 0-60 days before meeting.
You get to vote even if you sell your stock b/t record date and meeting.

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30
Q

*3 exceptions to general rule that SH voting goes to record owner as of record date:

A
  1. corporation CAN’T VOTE TREASURY STOCK
  2. SH dies after record date; his executor can vote
  3. Proxy voting okay (11 months)
31
Q

*def of proxy (4 reqs)

A
  1. writing
  2. signed by record SH or his auth agent
  3. directed to sec of corp
  4. authorizing another to vote the shares
32
Q

How long is proxy vote writing good for?

A

11 months

33
Q

how can you revoke proxy when SH dies?

A

when corp sec receives notice of death

34
Q

can you revoke proxy that says “IRREVOCABLE”?

A

yes

35
Q

how to have truly irrevocable proxy in NY? 2 reqs

A
  1. says irrevocable

2. proxy voter has interest in stock besides proxy voting (agency law rule)

36
Q

*4 reqs for voting trust

A
  1. written trust agreement
  2. copy to corp
  3. transfer legal title to trustee
  4. original SHs receive voting trust certs
37
Q

time limit on voting trust?

A

10 years. can extend w/in 6 month of expiration

38
Q

*2 reqs for voting agreements

A
  1. in writing

2. signed

39
Q

are voting trusts enforceable in court?

A

NO! only voting trust can be enforced

40
Q

2 SHs agree to elect each other as directors. Then they agree on action to take as directors. Void?

A

Void. No director voting agreements.

41
Q

2 ways for voters to take action?

A
  1. unanimous written consent; or

2. meeting (annual or special)

42
Q

what do SHs always vote on at annual meeting?

A

elect directors (based on plurality, not maj)

43
Q

can you skip annual meeting?

A

no. required. court can order it.

44
Q

who can call special SH meeting?

A

BOD or anyone permitted by bylaws or cert

45
Q

notice requirements for SH meetings (annual and special) - 4 reqs

A
  1. written notice to all SHs entitled to vote
  2. 10-60 days before meeting
  3. stating time and place
  4. if SHs would have appraisal rights, need appraisal rights disclosure
46
Q

in addition to normal reqs (written, 10-60 days prior, time and place), what does SPECIAL meeting notice require (2 things)?

A
  1. who called it

2. purpose

47
Q

can you go beyond purpose of special meeting at meeting?

A

CANNOT EXCEED SCOPE OF PURPOSE AT SPECIAL MEETING

48
Q

If you don’t give notice to a SH who was entitled to vote at meeting, the action at that meeting is VOID unless (2 ways)

A
  1. express waiver (in writing and signed); OR

2. implied waiver - ATTEND MEETING W/O OBJECTION

49
Q

what does quorum of SHs require to take action?

A

quorum reqs majority of all outstanding shares (not majority of shares, but SHs).

50
Q
  1. can you change number of shares for quorum req’d for SH action?
  2. can you change majority vote approval to lower threshold?
A
  1. yes, can reduce in cert or bylaws, but never less than 1/3 of shares
  2. no
51
Q

can you require that a higher than majority is amount to get quorum of SHs for action: 1. in cert? or 2. in bylaws?

A
  1. can raise quorum minimum in cert

2. can’t in bylaws

52
Q

can you require that SH resos be approved by more than simple majority to pass?

A

yes in either cert or bylaws.

53
Q

when can SHs use cumulative voting?

A

available for election of directors: multiply number of shares by number of directors to be elected

54
Q

if cert silent on cumulative voting, can it be used to elect directors?

A

no. only relevant if cert allows it.

55
Q

stock transfer restrictions (esp close corps), e.g., right of first refusal: where are restrictions set? (3 locations)

A
  1. cert
  2. bylaws
  3. agreement b/t SHs
56
Q

** stock transfer restrictions are valid if ____

A

if they’re not undue restraint on alienation (e.g., right of first refusal okay, required resale to corp upon retirement/death of SH)

57
Q

can stock transfer restriction be enforced against transferee who received shares in violation of transfer restriction? 2 circumstances where it could be

A

only enforceable against transferee when:

  1. restriction is CONSPICUOUSLY NOTED on certificate; OR
  2. transferee had ACTUAL KNOWLEDGE of restriction
58
Q

which SHs have access to 1. min of SH proceedings and 2. record of SHs?

A

any SH upon 5 days written demand w/ affadavit saying 1. it’s not against corp purp; and 2. SH not gonna sell SH list. Can’t ask for more info from requesting SH

59
Q

SHs can request current D&Os on __ days’ written demand

A

2

60
Q

reqs for SH to get annual statement, P&L, or most interim financials

A

provide by mail

61
Q

common law access to corp records okay so long as…(3 things)

A

seeking inspection

  1. at reasonable time
  2. in proper place
  3. for proper purposes (undef)
62
Q

can director access corp books and records?

A

yes. unfettered access

63
Q

3 types of distributions to SHs

A
  1. dividend
  2. repurchase of stock
  3. redeem shares (set price in cert)
64
Q

distribution declared in ______’s discretion

A

BOD

65
Q

can you force BOD to do distribution?

A

only for bad faith or dishonest purpose –> hard to win

66
Q

$400K for dividends. 100K shares of common. 20K shares preferred w/ $2 dividend preference. divvy up money?

A

$40K to preferred. $360 divided among the common ($3.60/share).

67
Q
  • which funds can be used for any distribution (dividend, repurchase, redemption)?
A
  1. can use surplus (net assets - stated capital)

2. CAN NEVER DISTRIBUTE stated capital = par value of all stock (excess over par goes to assets)

68
Q

can you make distributions if you’re insolvent or distribution would render you insolvent? def of insovlent.

A
  1. no distributions if insolvent

2. insolvent = unable to pay debts in ordinary course of business

69
Q
  • distribution that renders you unable to pay ordinary debts is ____
A

unlawful distribution

70
Q
  • if corp makes unlawful distribution, who’s liable?
A
  1. directors are personally liable; and

2. SHs are personally liable if they knew of unlawfulness at the time.

71
Q

who is plaintiff in suit for unlawful distributions?

A

it’s the corporation’s claim. can be derivative suit.

72
Q

directors’ defense to unlawful distribution?

A

good faith reliance on officers, attorneys, accountants, etc.

73
Q

redemptions: how do they work?

A

set by certificate

done proportionately w/in each clase

NY Corporations (4 decks)

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