4. Shareholders

Question 1

How can shareholders vote for decisions without meetings?

Answer 1

1) Unanimous vote

2) In writing

Question 2

How can shareholders vote for decisions with meetings?

Answer 2

1) Meeting
- Annual
- Special (Notice within 10-60 days re Date + Time + Place)

2) Record Shareholder
- Holds outstanding shares at record date (decided by directors 70 days before meeting/delivery of notice)
- 1 vote per share (unless articles state otherwise)

3) Quorum/Majority vote

Question 3

How can shareholders delegate voting powers?

Answer 3

Proxy vote (11 months valid)

1) Writing
2) Signed

Question 4

How can proxy votes be revoked?

Answer 4

1) Notice to secretary of Corporation

2) Proxy vote holder votes for revocation

Question 5

How can proxy votes not be revoked?

Answer 5

1) Proxy stated as ‘irrevocable’

2) Proxy coupled with interest other than voting/security

Question 6

How can directors be elected?

Answer 6

Plurality of votes

Cumulative voting (allow minority SHs to cumulatively vote for single Director against majority SHs)

1) Allowed by Articles
2) Director candidate’s votes = SH’s voting shares x Number of directors to be elected

Question 7

How can shareholders remove directors?

Answer 7

With cause

Without cause

Question 8

How can shareholders vote on amendment of articles?

Answer 8

Amendment affects specific SHs' class of stock => Specific SHs can vote on amendment 
- NO voting process required

Question 9

How can Shareholders sue Directors?

Answer 9

Direct suit (for SH)

• Breach of fiduciary duty to SH
• Damages mostly against SH

Derivative suit (for Corporation)

1) Stock ownership at time of suit/under bylaws
2) Adequate fair representation of Corporation’s interests
3) Written demand to Corporation (NOT futile bequest)
4) Suit commences after 90 days

Question 10

What is Shareholder entitled to if he wins/loses derivative suits?

Answer 10

Win

• Corporation receives damages
• SH receives legal costs

Loss
- SH must pay legal costs to Defendant

Question 11

How can derivative suits be dismissed/settled?

Answer 11

Not in corporation’s best interests

1) Majority vote of directors
2) Directors made reasonable inquiry (independent investigation) into the issue
3) Directors acted in good faith (legal costs exceed SHs’ recovery costs)

Court approval

Question 12

How can controlling SH (Parent) be liable to Subsidiary for breach of duties?

Answer 12

Care

Loyalty

Question 13

What is the difference between voting trusts and voting agreements?

Answer 13

Voting trust

• File agreement with Corporation
• Proper purpose
• 10 years duration (renewable)
• Trustee holds legal ownership for SH

Voting agreement

• NO need to file agreement
• Proper purpose
• Infinite duration
• SH holds legal ownership

Question 14

How may active SHs be jointly and severally liable with Corporation to TPs?

Answer 14

1) TP is tort victim/creditor
- NOT contract victims unless they had no chance to investigate under contract

2) Pierce veil
- Ignorance of corporate formalities
- Lacking capital at time of formation
- Fraud
- Avoiding current liabilities (NOT future)

Question 15

How may active SHs be personally liable to TPs?

Answer 15

Negligence

Absence of De Facto Corporation

By SH agreement

Breach of care/loyalty (by SH/Parent)

Oppression of minority SHs

• Unfair prejudice
• Not disclose all material facts
• Pay no dividends (affecting ALL SHs in same way)

Question 16

What are the advantages of using a voting trust?

Answer 16

Avoid share control in hostile takeover

Avoid conflict of interests