Shareholders Flashcards
Shareholders
Generally, shareholders do not manage the corporation directly, but rather elect the Directors who in turn select Officers to manage the company. Shareholders are usually not liable for the obligations of the corporation. Here,
Voting Rights
Record shareholders on record date have a right to vote at the annual meeting, special meeting, or by unanimous written consent. Shareholder may vote by proxy or through a shareholder voting agreement. A valid vote requires a quorum based on majority of the outstanding shares present, and a majority vote once a quorum is established. Here,
Proxies
A proxy is a signed written agreement to vote on behalf of a shareholder. Proxies are freely revocable and are valid for 11 months, unless expressly stated otherwise. Here,
Shareholder Trust/Agreement
Shares are generally freely transferrable, so any restrictions on transfers must reasonable. A shareholder trust allows shares to be transferred to a trustee who will vote shares according to the trust agreement. A shareholder agreement is a signed written agreement to pool shares for a specific time or purpose. Unlike a voting trust, the shareholder agreement need not be filed with the corporation and is not subject to any time limit. Here,
Inspection Rights
Any shareholder has a limited right to inspect the accounting records with property advanced notice, and an unqualified right (regardless of purpose), to review article bylaws, minutes, annual reports, etc. Here,
Preemptive Rights
A shareholders preemptive right is his right to maintain the same percentage of ownership by buying stock whenever there is a new issuance of stock for money. No preemption for non-monetary stock issuance compensation. Preemptive rights do NOT exist unless expressly stated in the Articles.
Shareholder Suits - Direct Actions
A shareholder may sue the corporation to enforce a personal right as a shareholder, and any recovery will go to the shareholder. Here,
Shareholder Suits - Derivative Suits
A shareholder may sue the corporation to enforce a right belonging to the corporation. The shareholder must own stock at the time of the wrongful act and must maintain stock throughout the litigation. The shareholder must first demand the Board of Directors bring suit unless doing so is futile (suit is agains the board). The recovery of any losses will go to the corp., minus reasonable litigation expenses reimbursed. Here,
Distributions
A distribution of dividends is within the discretion of the board of directors and a strong case is required to induce a court to order the directors to declare a dividend. Priority of distributions is 1) cumulative shares 2) preferred stock, 3)participating preferred, and 4) common stock. Here,
Controlling Shareholder Liability
Generally, shareholders may act in their own personal interest and have no fiduciary duty to the corp. or other shareholders, however, controlling shareholders must not act in a way that unfairly prejudices minority shareholders or allows the majority shareholder to obtain a special advantage. Here,
Sale to Looters
Controlling shareholders who sell their stock to persons who “loot” the company will be liable for damages unless reasonable measures were taken to investigate the buyer. The sellers duty of investigation depends on whether she has notice of the possibility of looting by the purchaser. Here,
Sale at a Premium
Payment of a premium is an important circumstance that puts a controlling shareholder on notice to investigate the buyer. Controlling shareholders may be held liable for the sale of shares at a premium where the premium was really paid for some illegal purpose resulting in private gain. If so, the shareholder may be held liable for the premiums they received from the sale of their stock. Here,
Appointment of New Directors
A majority shareholder prejudices the rights of minority shareholders when he uses his majority shares to remove directors and substitutes in his own directors. Here,
