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Flashcards in Corporations Deck (75)
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What is a dissenting shareholder right of appraisal?

Right to force close corporation to buy stock for its value that may be asserted if corp is:
1) merging or consolidating;
2) transferring substantially all assets not in the ordinary course of business; or
3) transferring its stock in a share exchange.


How is a dissenting shareholder right of appraisal perfected?

1) before shareholder vote, file with the corporation written notice of objection and intent to demand payment;
2) Abstain or vote against the proposed change; and
3) After the vote, within time set by corporation, make written demand to be bought out and deposit stock with the corporation.


When can a shareholder can petition the court for involuntary dissolution? Creditor?

a. Director abuse, waste of assets, misconduct;
b. Director deadlock that harms the corporation; or
c. Shareholders have failed at consecutive annual meetings to fill a board vacancy

Insolvent and there's unsatisfied judgment or corporation admits the debt in writing.


What's a liquidation preference?

A shareholder right memorialized in the articles held by a particular class of shares to be paid upon liquidation (like a dividend preference). In RI, no portion of issuance consideration representing liquidation preference may be allocated to capital surplus.


What is rule 10B5 generally?

a federal law that prohibits fraud or misrepresentation (or nondisclosure) in connection with the purchase or sale of any security (debt or equity).


What are the elements of a 10B5 claim?

1. Use of instrumentality of interstate commerce to
2. Intentionally or recklessly deceive or manipulate
3. (a) misrepresent material information (b) trade securities on the basis of inside information; or (c) pass material inside information for a wrongful purpose
4. Concerning a fact that a reasonable investor would consider important in making an investment decision ("material")


Corp. issues a press release that Buffett has expressed an interest in acquiring a major block of its stock. It fails to indicate that it is Jimmy Buffett and not Warren Buffett who is interested. Because of this press release, Becky does not sell her Corp. stock. Does Becky have a 10b-5 claim?

No, permissible plaintiffs in a 10B5 action are the SEC or between an actual buyer or seller. Here because Becky didn't sell or buy, she's not a permissible plaintiff


D is a director of C Corp. While waiting for a concert to start, D tells her husband about a new, secret processing method that C Corp. has just developed. Bobbitt, who is sitting in the next row, overhears the conversation and buys C Corp. stock on a national exchange. Any violations of 10b-5?

NO. At worst, D was merely negligent, which is not enough for 10b-5 liability. So there is no tipper. AND IN 10B-5, WHEN THERE IS NO TIPPER, THERE CANNOT BE A TIPPEE.


What does section 16B provide generally?

recovery by the corporation of “profits” gained by certain insiders from buying and selling the company’s stock.


What are the elements of a 16 B cause of action?

1. A publicly traded corporation whose
2. (a) Director (either when she bought OR sold) (b) Officer (either when she bought OR sold) or (c) Shareholder who owns more than 10 percent (both when she bought AND
3. Where the buying and selling of stock occurred within a single six-month period

***No fraud or inside info needed.


D is a director of Acme, Inc., which is a reporting company. In 2010, D bought 700 shares of Acme stock for $10 a share. In January 2014, D sold 700 shares for $6 a share. In March 2014, D bought 200 Acme shares for $1 a share. What result?

$1000 “profits” recoverable by the corporation.
Focus on the sale: because six months after sale, there was a purchase at less ($1) than the $6 prior sales price, there is a "profit." Multiply $5 profit times 200 shares because that's the largest number of shares that both were bought and sold within six months.


May a corporation lend money to its employees?

Yes, in RI.


Concerning a fraud in issuance of stock, when must a civil suit be brought in RI?

Earliest of: 1 yr after actual discovery of fraud or when fraud should have been discovered AND three years after fraudulent act.


When is the record date in RI?

Not more than 60 days before shareholders meeting or 20 days before meeting concerning merger or consolidation.


When a question asks about actions of the directors what should I mention?

Directors are vested with the power to manage the business and affairs of the corporation.
Directors may act on this power by a majority vote at a meeting at which a quorum of directors are present.