Shareholders

Question 1

Do shareholders generally get to manage the corp?

Answer 1

no b/c board of directors do

Question 2

when do Ss get to run corp directly?

Answer 2

in close corp

Question 3

characteristics of close corp

Answer 3

1) few shareholders

2) stock not publicly traded (not traded on national exchange)

Question 4

if want to eliminate board and have shareholder management in close corp, how to do it? either

Answer 4

1) in articles AND approved by all shareholders OR

2) by unanimous written shareholder agreement

Question 5

if shareholders eliminate board, who owes duties of care and loyalty to corp?

Answer 5

managing shareholders

Question 6

can SHs generally be held liable for the acts or debts of the corp?

Answer 6

no b/c corp liable for what it does

Question 7

how can SHs be held personally liable for what corp did?

Answer 7

if court “PIERCES THE CORPORATE VEIL”

Question 8

in what kind of corps can court “pierce the corp veil”?

Answer 8

ONLY close corp

Question 9

to PCV and hold shareholders personally liable…

Answer 9

1) they must have abused the PRIVILEGE of incorporating and
2) FAIRNESS must require holding them liable

e.g. to avoid fraud or unfairness by SH

Question 10

classic fact patterns where court PCV

Answer 10

alter ego- treat corporate assets as his own, creditors not being paid

undercapitalization- SHs failed to invest enough to cover prospective liabilities

Question 11

court may be willing to PCV for a ____ victim than a _____ victim

Answer 11

tort victim than for a K claimant

Question 12

PCV: shareholder being reached can be another corp

Answer 12

parent corp forms subsidiary so pierce through subsidiary to get to parent corp

Question 13

in SH derivative suit, who is P?

Answer 13

SH

Question 14

In derivative suit, SH is suing to…

Answer 14

enforce corporation’s claim, not own personal claim

SH step in b/c corp not pursuing own claim

Question 15

How to tell if suit is derivative

Answer 15

if corp could bring suit, it’s derivative

Question 16

What suit is ALWAYS derivative

Answer 16

SH suing board of directors for breaching duty of care or loyalty

Question 17

What’s NOT derivative

Answer 17

suing for issuing new stock w/o honoring preemptive rights

suing to force co to declare dividends (recover money for self)

suing SH for oppression in close corp

Question 18

if SH P wins derivative suit who gets money?

Answer 18

corp

Question 19

if SH P wins derivative suit, what does P receive?

Answer 19

costs and attys’ fees

Question 20

if SH P loses derivative suit, can SH still recover costs and attys’ fees?

Answer 20

no

Question 21

if SH P loses derivative suit, is he liable to D he sued for their costs and attys’ fees?

Answer 21

yes IF sued w/o reasonable cause

Question 22

requirements for bringing SH derivative suit (4)

Answer 22

1) OWNED STOCK or got via operation of law (inheritance, divorce decree) when claim arose and throughout suit
2) ADEQUATE REP of corp’s interest
3) make WRITTEN DEMAND on corp (usually board) that corp bring suit. in many states, must always make this demand and cannot sue until 90 days after making demand. but other states, don’t have to make demand if futile (e.g. directors would be Ds)
4) corp joined AS D (even though suit asserts corp’s claim, the corp did not do so, so it is joined as D)

Question 23

can parties to SH derivative suit settle or dismiss?

Answer 23

only w/ court approval

Question 24

corp can move to dismiss SH derivative suit upon showing that…

Answer 24

independent investigation by ind directors or court appointed panel of 1 or more ind persons showed suit not in corp’s best interest (low chance of success or expense would exceed recover)

Question 25

SH voting- general rule on who has the right to vote

Answer 25

"record SH" as of the "record date"

Question 26

SH voting: who is record SH?

Answer 26

person shown as owner in corp records

Question 27

exceptions to gen rule that record owner on record date votes: corp re-acquires stock before record date, so it is the owner of this "treasury stock" as of the record date. does it vote this stock?

Answer 27

no

Question 28

exceptions to gen rule that record owner on record date votes: death of shareholder

Answer 28

S's EXECUTOR can vote the shares

Question 29

exceptions to gen rule that record owner on record date votes: PROXIES: what is a proxy? (4)

Answer 29

1) writing (fax and email OK) 2) signed by record SH (email OK if can ID sender) 3) directed to secretary of corp 4) authorizing another to vote the shares

Question 30

exceptions to gen rule that record owner on record date votes: PROXIES: how long is proxy good for?

Answer 30

11 months

Question 31

exceptions to gen rule that record owner on record date votes: PROXIES: how can SH revoke proxy?

Answer 31

in writing or by attending meeting and voting

Question 32

exceptions to gen rule that record owner on record date votes: PROXIES: can S revoke proxy even though states it's irrevocable?

Answer 32

YES

Question 33

exceptions to gen rule that record owner on record date votes: PROXIES: only way to have irrevocable proxy: if it is a

Answer 33

"proxy coupled w/ an interest"

Question 34

exceptions to gen rule that record owner on record date votes: PROXIES: only way to have irrevocable proxy: if it is a "proxy coupled w/ an interest"- what does this require? (2)

Answer 34

1) proxy says it's irrevocable 2) proxy-holder has some INTEREST IN THE SHARES OTHER THAN VOTING e.g. A gives B an option to buy A's stock. A gives B an "irrevocable proxy" to vote that stock at a meeting. A can't revoke

Question 35

2 options for SHs who have few shares in corp and want to pool voting power

Answer 35

voting trust | voting agreement

Question 36

requirements for voting trust (4)

Answer 36

1) written trust, controlling how shares will be voted 2) copy to corp 3) transfer legal title to voting trustee 4) original SHs receive trust certificates and retain all SH rights except for voting

Question 37

requirements for voting ("pooling") agreement

Answer 37

signed writing

Question 38

where do SHs vote?

Answer 38

at meeting OR unanimous written consent signed by holders of all voting shares

Question 39

2 kinds of SH meetings

Answer 39

annual meeting special meeting

Question 40

what are annual meetings for?

Answer 40

elect directors

Question 41

if no annual meeting held in ___ months, SH can....

Answer 41

15 petition court to order one

Question 42

special meeting can be called by..

Answer 42

1) board of directors 2) president 3) holders of at least 10 % of voting shares 4) anyone else authorized in bylaws

Question 43

who can SHs remove?

Answer 43

directors, NOT officers

Question 44

notice requirement for meetings- what form? to whom? when? contents?

Answer 44

written notice to every shareholder entitled to vote 10-60 days before meeting contents: time and place; for special- purpose of meeting

Question 45

consequence of failure to give proper notice of meeting to all SHs

Answer 45

action taken at meetings void unless those not sent notice waive notice defect in either of 2 ways 1) express- in writing and signed anytime 2) implied- attend meeting w/o objection

Question 46

there must be a quorum represented at the meeting. what's a quorum

Answer 46

majority of OUTSTANDING shares

Question 47

is SH quorum lost of ppl leave meeting?

Answer 47

no (diff from directors)

Question 48

if quorum req met, passing resolution requires...

Answer 48

majority VOTE majority of votes ACTUALLY CAST, not necessarily majority of all shares PRESENT

Question 49

SH can sell or give stock away. when are stock transfer restrictions OK?

Answer 49

when reasonable- not an undue restraint on alienation

Question 50

when can stock transfer restrictions be enforced against transferee (person SH transferred stock to)?

Answer 50

1) restriction conspicuously noted on stock certificate OR | 2) transferee had actual knowledge of restriction

Question 51

right of SH (personally or by agent) to inspect (and copy) books and records of corp: who has standing to demand access?

Answer 51

any SH on 5 days written notice

Question 52

right of SH (personally or by agent) to inspect (and copy) books and records of corp: procedure: Sh must make written demand stating:

Answer 52

1) docs desired | 2) proper purpose for inspection- related to interest as SH (e.g. value of your stock)

Question 53

right of SH (personally or by agent) to inspect (and copy) books and records of corp: if corp fails to allow proper inspection, SH...

Answer 53

seeks court order if win, recover costs and atty's fees

Question 54

what are distributions?

Answer 54

payments by the corp to SH

Question 55

diff types of distributions (3)

Answer 55

1) dividends 2) repurchase SH's stock 3) redemption (forced sale to corp at price set in articles)

Question 56

at whose discretion are distributions (payments by corp to SH)?

Answer 56

board of directors

Question 57

there is no right to distribution until it is...

Answer 57

declared

Question 58

is an action to compel declaration of a derivative?

Answer 58

no, direct

Question 59

how to win an action to compel declaration of a derivative?

Answer 59

STRONG showing of abuse of board discretion

Question 60

for any distribution (dividend, repurchase, redemption), which funds can be used? (3) (traditional view)

Answer 60

1) earned surplus 2) stated capital 3) capital surplus

Question 61

distributions: funds: earned surplus- how is it generated? what does it consist of? can board decide to use this fund for distributions?

Answer 61

generated by business activity consists of all earnings - all losses - distributions previously paid boar MAY decide to use this fund for distributions

Question 62

distributions: funds: stated capital- how is it generated? can it be used for distributions? par vs. no par issuances

Answer 62

by issuing stock (when corp issues stock, it allocates proceeds b/w stated capital and capital surplus) no, stated capital can NEVER be used for distributions on par issuance, par value goes to stated capital and any excess over par goes to capital surplus on no- par issuances, board allocates b/w stated capital and capital surplus

Question 63

distributions: funds: capital- how generated? how computed? can it be used for distributions?

Answer 63

generated by issuing stock computed by payments in excess of par plus amounts allocated in a no-par issuance capital surplus CAN be used for distributions IF inform SHs

Question 64

for any distribution (dividend, repurchase, redemption), which funds can be used? (modern view)

Answer 64

modern view does not look at funds. it says corp can't make distribution if INSOLVENT or dist would RENDER it insolvent insolvent: corp unable to pay its debts as they come due OR total assets less than total liabilities (including preferential liquidation right)

Question 65

who is liable for improper distributions? when SHs personally liable?

Answer 65

directors, jointly and severally liable BUT good faith defense of reliance SH personally liable ONLY if knew dist improper when received