Shareholders Flashcards
Shareholder control over management?
NO
Management generally vested in directors
Indirect control through voting power, adopting and modifying bylaws, and approving fundamental changes in corporate structure
Annual Shareholders Meeting
mandatory
if not held within the earlier of 6 months after end of fiscal year or 15 months after its last meeting, court may order one
Special Shareholders Meeting
may be called by the board
holders of 1/10 or more of all shares entitled to be cast at the meeting or others authorized in the articles or bylaws
Notice to shareholders of meetings?
not less than 10 or more than 60 days before
must include date, time, and place
special meetings: purpose
Shareholder eligibility to vote
Shareholder of record on the record date may vote at the meeting
record date set by the board but may not more than 70 days before the meeting
one share one vote
Duration of proxies
valid for 11 months unless provided otherwise
are proxies revocable?
YES generally and may be revoked by shareholder attending the meeting to vote himself or by subsequent appointment of another proxy
irrevocable only if: proxy states so or coupled with an interest or given as security
Quorum at shareholder meetings
a majority of outstanding shares entitled to vote, unless otherwise provided in bylaws
if quorum present at shareholder meeting, how many votes needed for approval of a matter?
votes cast in favor of the matter must exceed votes cast against the matter unless otherwise stated in bylaws or articles
how many shareholder votes are needed for election of director?
plurality of votes
cumulative voting for directors
shareholder gets as many votes per share as there are directors being elected
(e.g. shareholder has 50 shares, 3 directors being elected, shareholder has 150 cumulative votes)
Voting Trust
written agreement of shareholders where all shares owend by the parties are transferred to a trustee who votes the shares and distributes dividends in accordance with provisions
not valid for more than 10 years unless extended
Voting Agreement
Written and signed agreement providing for manner in which they will vote their shares
shareholders retain legal and beneficial ownership of their shares (unlike voting trust)
can be perpetual
Stock Transfer Restrictions
Must be reasonable (e.g. right of first refusal)
third-party purchaser is bound if:
(1) restriction is conspicuously noted on certificate (or information statement) or
(2) third party had knowledge of the restriction at the time of purchase
Qualified Shareholder Inspection Rights
Books, papers, accounting records, shareholder records
upon 5 days written notice stating proper purpose (purpose relating to their interest as a shareholder)
Unqualified Shareholder Inspection Rights
regardless of purpose:
(1) articles and bylaws
(2) board resolutions regarding classification of shares
(3) minutes of shareholder meetings for 3 years
(4) list of names and business addresses of directors and officers
(5) copy of most recent annual report
Preemptive Rights
Right to purchase newly issued shares in order to maintain proportional ownership interest
NOT given unless in articles
only applies to shares issued for cash
Direct Shareholder Suit
Breach of fiduciary duty owed to the shareholder by an officer or director
any recovery is for the benefit of the individual shareholder, not the corp
Shareholder Derivative Suit
Shareholder asserting the corporation’s rights rather than her own; recovery goes to corporation directly and corporation is named defendant
Standing for shareholder derivative suit
Shareholder must have been a shareholder at the time the act or omission complained of or must become one by transfer from someone who was a shareholder at the time
must fairly and adequately represent interests of the corp.
Demand requirement for shareholder derivative suit
must make a written demand on the board
proceeding many not be commenced until 90 days have elapsed from date of demand unless:
(1) shareholder has already been notified that corp has rejected demand or
(2) irreparable harm will come to the corp if waited 90 days
Burden of proof in shareholder derivative suit
Shareholder has the burden to prove that the decision not to allow suit is not made in good faith after reasonable inquiry
If majority of directors were interested, the corporation has the burdne of showing decision was made in good faith after reasonable inquiry
what must Board do in response to a shareholder derivate demand?
Majority of directors (but at least two) who have no personal interest in the controversy must find in good faith after reasonable inquiry that the suit is not in the best interest of the corporation
who pays expenses of shareholder derivative suit?
if action resulted in a substantial benefit to the corporation: corporation can be ordered to pay reasonable expenses incurred by P
if action commenced or maintained without reasonable cause or for improper purpose: court may order P to pay reasonable expenses of D
