Shareholders: rights

Question 1

Inspection rights

Answer 1

Shareholders have the right to inspect corporate records, although the right is subject to restrictions:

(1) It can only be exercised during normal business hours;
(2) It requires five days’ notice; and
(3) The inspection request must state a proper purpose.

Question 2

Right to vote

Answer 2

Shareholders have the right to vote to:

(1) Select the board of directors; and
(2) Approve fundamental corporate changes—e.g., a merger or sale of the corporation.

Question 3

Right to vote: proxy voting

Answer 3

A proxy is a written agreement to allow a person to vote on behalf of the shareholder.

Proxies are revocable unless otherwise stated.

Question 4

Bylaws

Answer 4

Shareholders can:

(1) Amend or repeal existing bylaws;
(2) Pass new bylaws; and
(3) Limit the board of directors’s ability to change the bylaws.

if shareholders approve a bylaw amendment that limits further board changes, the board can only amend or add to the bylaw to safeguard the voting process; it cannot repeal the shareholder-approved bylaw.

Question 5

Shareholder agreements

Answer 5

Shareholders may enter into agreements to vote their shares together.

Question 6

Right to sue the corporation: direct action

Answer 6

A shareholder may sue a corporation for her own benefit—i.e., to remedy a wrong personal to the shareholder.

Direct actions usually arise when:

(1) A shareholder is denied voting rights;
(2) The board failed to declare a dividend; or
(3) The board failed to approve or deny a merger.

Question 7

Right to sue the corporation: derivative action

Answer 7

A derivative action is one by a shareholder on behalf of the corporation against a director or officer.

Thus, any recovery goes to the corporation

Question 8

Derivative action: standing

Answer 8

Any person who was a shareholder at the time of the bad act or omission—and at the time the action is filed—has standing to sue derivatively.

The shareholder must continue to be a shareholder throughout the litigation.

Question 9

Derivative action: demand requirement

Answer 9

Ordinarily, the plaintiff shareholder must first demand action from the board before proceeding derivatively.

The board has 90 days to act upon demand. It can move to dismiss if it determines that the action is not in the corporation’s best interest, although such a motion to dismiss can be challenged if:

(1) The board was not disinterested; or
(2) It was not acting in good faith.

A shareholder can proceed derivatively if demand is rejected or if irreparable harm would occur without suit.

Question 10

Derivative action: demand futility

Answer 10

Demand is not required if it would be futile—e.g, when the shareholder is accusing the board of wrongdoing.