Shareholders Flashcards
Required notice of shareholder meetings
Written notice of each annual and special meetings required to be given at some point between 10 and 60 days before the meeting.
What is a shareholder quorum?
Majority of shares entitled to vote (unless Articles provide otherwise)
What actions may shareholders take?
Shareholders elect and remove directors (with or without cause), amend the bylaws, and approve fundamental changes.
What are fundamental changes that shareholders must approve?
+ Amendments to Articles – notice must include a copy of the amendment and indicate one purpose of the meeting is to consider the amendment.
+ Merger or Dissolution – notice must include a copy of the plan and indicate one purpose of the meeting is to consider the merger/dissolution (EXCEPT short-form merger)
+ Sale of all or substantially all of corp. assets – Shareholder approval required for such a sale that occurs outside the usual and regular course of business if it would leave the corp. without a significant continuing business activity.
How many votes does a share get?
Each share gets one vote, unless provided otherwise by statute or the Articles.
Only shareholders of record on the “record date” may vote.
May a shareholder vote by proxy?
A proxy agreement is valid if it is in writing and signed by the shareholder (or an electronically transmitted authorization). Proxy agreements are not valid for longer than 11 months, unless a longer time is provided in agreement.
Generally, proxies are freely revocable (unless it says “irrevocable” and is coupled with an interest) by:
+ a writing delivered to the corp.,
+ a subsequently executed proxy presented at the SH meeting, OR
+ SH appearing in person and voting at the meeting.
Can shareholders consolidate voting power?
A contact between shareholders agreeing to vote their shares together is valid absent fraud or other illegal objective.
Shareholders have an UNQUALIFIED right to…
Shareholders have an UNQUALIFIED right to examine the articles, bylaws, minutes of SH meetings, and a list of SHs of record.
Shareholders have a QUALIFIED right to…
Shareholders have a QUALIFIED right to inspect (and make copies of) accounting books and the records and minutes of director meetings.
Requires a good faith demand made for a proper purpose and with specificity of that purpose and the items sought for inspection.
Appraisal Rights of Dissenting SHs
If a fundamental change was approved by SHs, dissenting SHs have right to sell their shares for the fair market value.
For a merger, this right can be exercised by any SH of a corp. that is a party of the merger. NOT exercisable by SHs of subsidiary corp. whose parent corp. owns at least 90% of each class of stock.
For a share exchange, this right can be exercised only by SHs who own shares of the class/series that are to be acquired or exchanged.
What may a SH file a DIRECT suit for?
Used when the wrong or harm is caused directly to the SHs.
To compel payment of dividends, a SH must prove the Director’s refusal amounted to fraud, bad faith, or an abuse of discretion.
Factors in determining Directors’ bad faith
+ Intense hostility by controlling SHs against minority Shs
+ Excluding minority SHs from employment by the corp.
+ High salaries, bonuses, or corp. loans made to the controlling officers
+ If the majority SHs may be subject to high personal-income taxes if substantial dividends are paid
+ Whether the controlling directors desire to buy the minority stock interests for as little as possible.
Derivative Suits
Equitable action brought by SHs on behalf of the corp. and for the corp.’s benefit (i.e. damages are paid to the corp., not the SHs bringing suit).
Before bring suit, the SH must make a WRITTEN DEMAND of the directors to enforce the rights of a corp. UNLESS demand would be futile.
Duty of Good Faith for Controlling SHs
Controlling She must refrain from exercising control in a way that disproportionately benefits them over the minority SHs.
SH’s exposure to liability
Generally, SHs are not personally liable for debts of the corp.
EXCEPTION: Piercing the corp. veil
