SHs

Question 1

Close Corporation

Answer 1

Corporation with just a few shareholders and stock that is not on the public market; SHs run corp unlike normal corp

Question 2

SH Mgmt. Agreement (SMA)

Answer 2

Sets up alternative mgmt. for close corporation in the articles and approved by all shareholders OR by unanimous written SH agreement

Question 3

SHs’ Fiduciary Duties in Close Corps

Answer 3

DOL/DOC to corporation; duty of utmost good faith to other SHs (because it’s basically a partnership)

Question 4

Piercing the Corporate Veil (PCV)

Answer 4

Though SHs are not normally liable for corporate debts, in CLOSE corporations, SHs might be liable if court “pierces the corporate veil”

Question 5

Reqs to PCV

Answer 5

SHs must have abused the privilege of incorporating and fairness must require holding them liable.
(1) Alter ego (commingling assets or using them as your own); (2) Undercapitalization (SHs fail to invest enough to cover prospective liabilities)

Question 6

Derivative Suits (Definition)

Answer 6

SH is plaintiff bringing a suit that corp couldve brought itself; corp gets money and repays SH attorneys fees; whether case can proceed is determined by independent investigation abotu whether suit is in corp’s best interest

Question 7

Derivative Suits (Standing Requirements)

Answer 7

(1) Stock ownership when claim arose and throughout suit, either by owning stock or getting it by operation of law; (2) P provides adequate representation of corp’s interest; (3) P makes written demand on corporation (BOD) that corporation bring suit

Question 8

SH voting

Answer 8

Each outstanding share gets 1 vote; must be the record SH of the outstanding shares as of the record date to vote (voter eligibility cut-off date)

Question 9

Proxy Voting

Answer 9

Proxy is a writing signed by a record SH directed to the secretary of the corp authorizing another to vote the shares; revocable unless it says it isnt and the proxy-holder has an interest in the shares

Question 10

SH voting trust

Answer 10

Written trust agreement, controlling how the trusts will be voted; copy to the corp; transfer legal title to trustee; orig SHs receive trust certificates and retain SH rights except voting

Question 11

Voting Agreement

Answer 11

Must be in writing and signed

Question 12

SH Meetings

Answer 12

(1) Annual meeting (required) where SHs elect directors; (2) special meetings called by the board or the president or holders of 10% of outstanding shares or others authorized by bylaws; must state purpose for special meeting

Question 13

SH Voting Reqs

Answer 13

Quorum decided by number of shares represented, not number of SHs; to elect director, need plurality; to remove, need majority of shares entitled to vote; other matters, majority of shares that actually vote

Question 14

Straight v. Cumulative Voting

Answer 14

Cumulative allows SHs to put all their shares in one voting basket so they can make sure they are represented (because majority one will get 1st spot and you will get 2d)

Question 15

Stock Transfer Restrictions

Answer 15

OK as long as they are not an undue restraint on alienation

Question 16

SH Access

Answer 16

Any SH can demand access for noncontroversial things but if they want a controversial thing they must state a proper purpose related to their interests as a SH

Question 17

Distributions

Answer 17

SHs only have a right to dividends once the BOD says they do

Question 18

Pay-Out Structure of Dividends

Answer 18

Preferred cumulative stock (accrues over the years, incl. current year), preferred stock, common stock

Question 19

Funds Used for Distributions

Answer 19

Earned Surplus: business activity money
Stated Capital: generated by issuing stock; CANNOT be used for distributions; must be allocated btw stated capital and capital surplus
Capital surplus: generated by issuing stock; can be used for distribution