Shareholders

Question 1

Shareholder control over management?

Answer 1

NO

Management generally vested in directors

Indirect control through voting power, adopting and modifying bylaws, and approving fundamental changes in corporate structure

Question 2

Annual Shareholders Meeting

Answer 2

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

Question 3

Special Shareholders Meeting

Answer 3

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

Question 4

Notice to shareholders of meetings?

Answer 4

not less than 10 or more than 60 days before

must include date, time, and place

special meetings: purpose

Question 5

Shareholder eligibility to vote

Answer 5

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

Question 6

Duration of proxies

Answer 6

valid for 11 months unless provided otherwise

Question 7

are proxies revocable?

Answer 7

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

Question 8

Quorum at shareholder meetings

Answer 8

a majority of outstanding shares entitled to vote, unless otherwise provided in bylaws

Question 9

if quorum present at shareholder meeting, how many votes needed for approval of a matter?

Answer 9

votes cast in favor of the matter must exceed votes cast against the matter unless otherwise stated in bylaws or articles

Question 10

how many shareholder votes are needed for election of director?

Answer 10

plurality of votes

Question 11

cumulative voting for directors

Answer 11

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)

Question 12

Voting Trust

Answer 12

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

Question 13

Voting Agreement

Answer 13

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

Question 14

Stock Transfer Restrictions

Answer 14

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

Question 15

Qualified Shareholder Inspection Rights

Answer 15

Books, papers, accounting records, shareholder records

upon 5 days written notice stating proper purpose (purpose relating to their interest as a shareholder)

Question 16

Unqualified Shareholder Inspection Rights

Answer 16

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

Question 17

Preemptive Rights

Answer 17

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

Question 18

Direct Shareholder Suit

Answer 18

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

Question 19

Shareholder Derivative Suit

Answer 19

Shareholder asserting the corporation’s rights rather than her own; recovery goes to corporation directly and corporation is named defendant

Question 20

Standing for shareholder derivative suit

Answer 20

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.

Question 21

Demand requirement for shareholder derivative suit

Answer 21

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

Question 22

Burden of proof in shareholder derivative suit

Answer 22

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

Question 23

what must Board do in response to a shareholder derivate demand?

Answer 23

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

Question 24

who pays expenses of shareholder derivative suit?

Answer 24

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

Question 25

Distributions

Answer 25

solely within the directors’ discretion

Question 26

Solvency Limitation for Distributions

Answer 26

Distribution is not permitted if:

(1) Corp would not be able to pay its debts as they become due in the usual course of business (bankruptcy insolvency) or
(2) Corp’s total assets would be less than sum of total liabilities (balance sheet insolvency)

Question 27

Preferred Shares

Answer 27

Right to receive dividends before common shareholders may receive dividends

may be cumulative or not if unpaid in a particular year, or may be cumulative “if earned”

Question 28

Director Liability for Unlawful Distributions

Answer 28

When distribution exceeds what could properly be distributed

Director not liable for those approved in good faith if:

(1) based on financial statements prepared with reasonable accounting practices or fair valuation or other reasonable method or
(2) by relying on info from officers, employees, lawyers, accountants, or committee of board members