Shareholders Flashcards
The power to manage the corporation is generally vested in whom?
the directors
Do shareholders have any direct control in management of the corporation’s business?
generally, no
In what way to shareholders exercise control over the corporation?
through their voting power
Can shareholders dispense with the board of directors and assume control of the corporation?
yes, if they decide to do so.
Corporations must hold ___________ shareholders’ meetings.
annual
When must an annual meeting be held?
within 6 months of the end of the corporation’s fiscal year or 15 months of the last shareholder meeting.
Can a court force a corporation to hold a shareholder meeting?
yes
Can specialized meetings be called?
yes
Where can shareholder meetings be held?
anywhere
When must shareholders be notified of a shareholder meeting?
not less than 10 days before the meeting and not more than 60 days before the meeting.
Who may vote at a shareholder meeting?
shareholders of record on the record date
What is the record date?
the date by which shareholders should be recorded as voting shareholders of the corporation in order to be eligible to vote.
Can a shareholder vote by proxy?
yes
Proxies last for how long?
11 months unless otherwise stated.
How is a proxy made irrevocable?
by stating that it is irrevocable and is coupled with an interest.
Quorum
a majority of outstanding shares entitled to vote, unless the bylaws require some greater number.
Absent a contrary provision in the articles, each share is entitled to ________ vote.
one
Unless the articles provide otherwise, directors are elected by _____________ of the votes cast.
plurality
Whenever a class of stock has no voting rights, but an amendment to the articles would affect only that class of stock, may that class of stock vote to defend itself?
yes
When can shareholders take action without a meeting?
with the unanimous consent of all shareholders entitled to vote on the action.
Voting Trust
a written agreement of shareholders under which all the shares owned by the parties to the agreement are transferred to a trustee, who votes the shares and distributes the dividends in accordance with the provisions of the voting trust agreement.
How long is a voting trust valid?
10 years unless extended by agreement of the parties
Voting Agreement
a written and signed agreement providing for the manner in which they will vote their shares. It is specifically enforceable.
Shareholder Management Agreements
agreements amongst the shareholders regarding almost any aspect of the exercise of corporate power.
For a shareholder management agreement to be valid, what must be present?
the agreement must be included in the articles, bylaws, or a written agreement approved by all persons who are shareholders at the time of its adoption.
How long are shareholder management agreements valid?
10 years unless otherwise provided.
What will terminate a shareholder management agreement?
the listing of the corporation on a national securities exchange.
Stock transfer restrictions must be _____________.
reasonable
Under RMBCA, shareholders may inspect the corporation’s books, papers, accounting records, shareholder records, etc. when?
upon five days written notice stating a proper purpose.
Under RMBCA, what records may a shareholder inspect at any time without prior notice?
the corporation’s articles and bylaws, board resolutions regarding classification of shares, minutes of shareholders’ meetings from the past three years, communications of the corporation, all contact info for directors and officers, and copies of the corporation’s most recent annual report.
Under RMBCA, do shareholders have a right to purchase additional stock to maintain their proportional share of the company before the stock is open to the public?
no, unless the articles or bylaws state differently.
When can a shareholder bring a direct action against the corporation?
for a breach of a fiduciary duty by the officers or directors.
Derivative Action
a suit where a shareholder is asserting the rights of the corporation, not of the shareholder.
Recovery in a derivative suit goes to whom?
the corporation
In a derivative suit, who is named as the defendant?
the corporation.
When does a shareholder have standing to bring a derivative suit?
if the shareholder was a shareholder at the time of the wrongdoing or who became a shareholder through transfer by operation of law.
Before filing a derivative action, a shareholder must do what?
make a written demand on the corporation to take suitable action.
When will a derivative suit be dismissed on the corporation’s motion?
when a majority of the directors who have no personal interest in the controversy find in good faith after reasonable inquiry that the suit is not in the best interests of the corporation.
What form can distributions take?
dividends, redemptions of shares, repurchases of shares, distribution of assets upon liquidation.
The decision of whether or not to issue distributions is controlled by whom?
it is at the discretion of the directors.
Can shareholders compel a distribution?
no
A distribution is not permitted if, after giving it effect, either:
1) the corporation would not be able to pay its debts as they become due in the usual course of business; or 2) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution.
What controls the directors’ abilities to make distributions?
the articles of incorporation.
Are distributions of a corporation’s own shares included in the definition of “distribution?”
no
Preferred Shares
shares that have a right to be distributed before common shares.
Do shareholders have a fiduciary duty to the corporation in which they hold shares?
no
Where the corporation has a structure such that shareholders rather than directors manage the operations of the corporation, who is liable?
the managing shareholders
Close Corporation
a corporation with few shareholders.
What duties do shareholders in a close corporation owe to one another?
the same duties of loyalty and good faith that partners in a a partnership do.
Can a controlling shareholder use his control to disadvantage minority shareholders?
no
