Powers and Rights of Shareholders

Question 1

shareholders in their collective capacity have the power to:

Answer 1

1. elect directors
2. remove directors (with or without cause)
3. Amend bylaws
4. Approve fundamental changes in the corporation

Question 2

Fundamental changes are

Answer 2

amendments to the articles, merger, dissolution, and the sale of substantially all corporate assets

Question 3

Shareholder action typically occurs at

Answer 3

Shareholder meetings

Question 4

Each shareholder of record must

Answer 4

be provided with timely written notice of
1. annual; and,
2. Special shareholder meeting
No fewer than 10 and no more than 60 days prior to the meeting date

Question 5

Annual meeting notice requirement

Answer 5

proper notice will state the place, date, and time of the shareholder meeting.

Question 6

Special Meeting notice requirement

Answer 6

proper notice will state the place, date, hour, and purpose of the shareholder meeting.

Question 7

a quorum of shareholders consists of

Answer 7

the majority of the shares entitled to vote on a matter

Question 8

when a quorum of shareholders exists, action is approved if:

Answer 8

The votes casted in favor of the action exceed the votes casted against it

Question 9

Directors are elected by

Answer 9

a plurality of votes cast by shares entitled to vote. That is, whoever gets the most votes wins, even if it’s not a majority

Question 10

In straight voting

Answer 10

shareholders may NOT give more than one vote per share to any single nominee.

Question 11

In cumulative voting

Answer 11

allocate any portion of their votes to any nominee

it allows a shareholder to “bundle” all of his or her votes in this manner, cumulative voting helps strengthen the ability of minority shareholders to elect a director.

Only given by articles

Question 12

Default rule for voting shares?

Answer 12

Straight voting

Question 13

Cumulative voting only allowed if

Answer 13

Specifically authorized int he articles of incorporation

Question 14

Directors can be removed with or without cause unless

Answer 14

The articles provide for removal only with cause

Question 15

If a corporation has straight voting, a director can only be removed if:

Answer 15

The votes in favor of removal exceed the votes against it

Question 16

If the corporation has cumulative voting and less than the entire board is to be removed, no director can be removed if:

Answer 16

The votes against removal would be sufficient to elect him under cumulative rules

Question 17

In general, the procedures for amendments to the articles and other fundamental changes

Answer 17

proposal by the board and submission to the shareholders for their approval.

Question 18

Shareholder’s ability to bind the corporation

Answer 18

Shareholders in their individual capacity as shareholders are NOT agents of the corporation. That is, unless specially authorized, a shareholder cannot bind the corporation.

Question 19

a shareholder may appoint a proxy by means of:

Answer 19

1. A signed authorization for; or,

2. An electronically transmitted authorization

Question 20

No proxy shall be valid after:

Answer 20

The expiration of 11 months; unless the proxy agreement says otherwise

Question 21

Revocation of proxy may be achieved by:

Answer 21

Proxies are freely revocable;

1. writing delivered to a corporation;
2. A later proxy presented at the shareholder meeting; or,
3. An In-Person appearance and vote

Question 22

How to make a proxy irrevocable

Answer 22

Must explicitly provide that it is irrevocable and have consideration

Question 23

Right to inspect corporate records

Answer 23

1. For Qualified Shareholders

2. Written notice of demand at least 5 business days before the date of inspection

Question 24

A restriction on the transfer of shares is enforceable if:

Answer 24

1. the restriction is “authorized” by statute;
2. the restriction is not unconscionable under the circumstances; and,
3. Its existence is noted conspicuously on the stock certificate or information statement given to each shareholder.

Question 25

Types of restrictions on the transfer of shares that are okay

Answer 25

○ the corporation to reacquire shares upon a triggering event,
○ that require the corporation (or its shareholders) be given the first option to buy the shares (the right of first refusal),
○ that require a shareholder to first obtain consent or approval from the corporation (or its shareholders).

Question 26

Where a fundamental change has been put to a vote of the shareholders, dissenting shareholders have:

Answer 26

The right to obtain payment of the fair value of that shareholders shares

Question 27

Direct suits by shareholders are brought

Answer 27

when the wrong or harm is direct to the shareholder

Question 28

Shareholders have the powers to

Answer 28

1. Vote
2. Sell
3. Sue

Question 29

To compel payment of dividends, a shareholder needs to prove that:

Answer 29

the directors choice not to declare was due to fraud, bad faith, or abuse of discretion

Question 30

A derivative suit is

Answer 30

an equitable action brought by a shareholder on behalf of the corporation and for the corporation’s benefit.

Question 31

What does a derivative suit typically involve

Answer 31

an alleged breach of fiduciary duty by officers and/or directors. It usually involves a request that the court enforce this duty owed to the corporation, or redress the injury suffered by the corporation.

Question 32

There are some prerequisites to bringing a derivative a suit. The shareholder must:

Answer 32

1. Have been a shareholder of record at the time the transaction complained of occurred;
2. Have made a written demand of the directors to enforce the rights of the corporation (over 90 days ago)

Question 33

When can shareholders seek judicial dissolution of the corporation?

Answer 33

1. corporate management is deadlocked in a way that the shareholders cannot break + on the brink of injury/business failing
2. shareholders are deadlocked, failing at two consecutive annual meetings to elect successors to the board of directors
3. Liquidation is reasonably necessary to protect the rights and interests of the complaining shareholder
4. Corporate assets are being misapplied or wasted