Shareholders

Question 1

SH liability for corp debt

Answer 1

GR: SH not liable for corp debt

Exception: Piercing the corp veil

• alter ego
• undercapitalization
• fraud

Question 2

SH Distribution

Answer 2

Defn: payment to SH - any distribution of cash, property, or corp shares paid to SH on account of stock ownership

Question 3

SH Distribution: Right

Answer 3

• No right to them; payment is a matter of board discretion

- Exception: abuse of discretion/breach of fiduciary duties

Question 4

SH Distribution: Funding

Answer 4

BLL: Corp must be solvent to extent that assets exceed liabilities and corp is able to meet current obligations

Liability:

• directors are personally liable for unlawful distributions, as are SH who knew distribution unlawful when received it
• defense: good faith reliance

Question 5

SH Derivative Suits

Answer 5

Defn: SH sues to enforce corp rights - can sue if:

• corp hurt
• officers or directors violate duty of loyalty/due care
• SH sues on behalf of corp
• Recovery goes to corp

Question 6

SH Derivative Suits: Reqs: 1) Stock Ownership

Answer 6

• SH at time claim arose or obtained it by operation of law (inherit) from someone who did
• Continue to hold stock through judgment

Question 7

SH Derivative Suits: Reqs: 2) Written Demand

Answer 7

• Demand that director bring suit, or argue it is futile
• Good faith turn down - court can dismiss if independent director finds not in best interest of corp
  
  • court looks at:
    
    • in good faith
    • board independent
    • board well informed

Question 8

SH Derivative Suits: Reqs: 3) Bond

Answer 8

Bond required in many jurisdictions

Question 9

SH Derivative Suits: Litigation

Answer 9

• Corp necessary party
• No dismissal without court approval

Consequences:

• if SH successful, recovery goes to corp; SH - atty fees/costs from corp
• if SH unsuccessful, no other SH can sue

Question 10

SH Management (Close Corp)

Answer 10

Defn: Has few SH; not publicly traded. Owners manage day to day operation. Liability on SHs.

BLL: SH agreements that bind directors’ discretion are void. Many states allow SH to manage directly if the articles provide it is a close corp and unanimous SH agreement provides for SH management.

Question 11

Close Corp: Duties

Answer 11

• Fiduciary to SH and corp

* Managing SH owe duty of loyalty and care*

Question 12

Right to Inspect Books/Records

Answer 12

Standing: any SH

Procedure: written demand stating a proper purpose (i.e. related to the role as SH - something that affects profits is okay, but not supervision of management)

Question 13

Voting Rights

Answer 13

GR: Right to vote vested with record owner as of record date (voter eligibility cut-off) has right to vote. If dies, SH executor can vote.

Question 14

Voting Rights: Proxies

Answer 14

Okay if:

• writing
• signed by record SH
• directed to secretary of corp
• authorizing another to vote

*Only good for 11 months unless otherwise stated; revocable unless coupled with an interest other than voting

Question 15

Voting Rights: Agreements: Voting Trusts

Answer 15

Voting Trusts:

• written trust agreement controlling how shares will be voted
• copy to corp
• transfer legal title of shares to voting trustee
• original SHs retain all SH benefits

Question 16

Voting Rights: Agreements: Pooling Agreements

Answer 16

• Contract law applies

- Trend is to enforce

Question 17

Shareholder Meetings: Annual

Answer 17

Annual meeting required unless unanimous written consent of all voting shares

Question 18

Shareholder Meetings: Special

Answer 18

Special meetings can be called by

• board
• 10% voting shares
• as provided in articles
• Notice required (must state PURPOSE):
• written: when and where, to all voting shares
• failure to give notice, then action void unless waiver (express or implied)

Question 19

Quorum

Answer 19

• Majority of outstanding shares - to pass, majority present

- You do not lose a quorum

Question 20

Stock Transfer Restrictions

Answer 20

• Must be reasonable
  
  • no undue restraint on alienation
  • right of first refusal reasonable if price reasonable
• Corp can refuse to transfer shares if SH violates a valid restriction
• Absolute restraints void
• Restriction conspicuous - action against buyer if
  
  1. conspicuously noted on certificate; OR
  2. had actual knowledge