Shareholders

Question 1

Meeting requirements

Answer 1

Failure to hold meetings does not affect C’s existence or invalidate C’s business

1. Annual—primary purpose is to elect Ds
2. Special—may be called by BD or SHs who own at least 10% of voting shares
3. Notice—voting SHs must be notified of time/date/place in a timely manner no less than 10 days and no more than 60 days before the meeting; SH may waive notice either in writing or by attending the meeting
4. Unanimous written consent—SHs can take any action that could have been taken at a meeting by unanimous written consent

Question 2

Voting requirements

Answer 2

1. Eligibility—generally, only record owners of voting stock are permitted to vote; an owner of voting stock at the close of business on the record date has the right to vote; C generally cannot vote its own stock
2. Quorum requirements—a majority of the votes entitled to be cast on a matter
3. Cumulative voting for Ds—SHs can cumulate votes to allow minority SHs to elect representatives to BD
4. Proxy voting—must be in writing and delivered to the C or its agent
5. Voting with other SHs
   • Voting pool—a binding voting agreement under which SHs retain legal ownership; does not need to be filed with the C; no time limit
   • Voting trust—a trust to which legal ownership of SH’s stock is transferred; the trustee votes the shares and distributes the dividends in accord with trust; must be in writing, limited to 10 years, and filed with the C
   • Management agreement—allows SHs to alter the way the C is managed even if the agreement is inconsistent with statutory provisions

Question 3

Inspection of records

Answer 3

A SH with a proper purpose has the right to inspect and copy corporate records upon five days’ written notice

Question 4

Shareholder suits

Answer 4

1. Direct actions—an action to enforce SH rights for breach of fiduciary duty by D or O, or an action based on grounds unrelated to SH’s status
2. Derivative actions—SH sues on behalf of C for harm suffered by C
   • Standing—the plaintiff must have been a SH at the time of the wrong and at the time the action is filed, must continue to be a SH during the litigation, and must fairly and adequately represent C’s interests
   • Written demand upon BD must be made unless it would be futile; the futility exception is not recognized under the RMBCA; a rejection of a demand is tested against the business judgment rule
   • Litigation expenses—the plaintiff can seek reimbursement from the C for reasonable litigation expenses

Question 5

Liability

Answer 5

1. Piercing the corporate veil
   • Totality of circumstances
   o Courts look to whether C is being used as a façade or alter ego for a dominant SH’s personal dealings, and whether there is unity of interest and ownership between the C and its members
   o The plaintiff must prove that the incorporation was just a formality and that C neglected corporate formalities and protocols
   • Factors considered—undercapitalization, disregard of corporate formalities, using C’s assets as SH’s own assets, self-dealing with C, siphoning of C’s funds, using corporate form to avoid statutory requirements, SH’s domination over C, and fraudulent dealings with a corporate creditor
2. Controlling SH’s fiduciary duty to minority SHs
   • A controlling SH is a SH (or a group of SHs acting in concert) who holds a high enough percentage of ownership in a company to enact changes at the highest level; a SH owning 50% plus one of a C’s shares is automatically a controlling SH
   • The duty arises if the controlling SH is selling interest to an outsider, seeking to eliminate other SHs from the C, or receiving a distribution denied to other SHs
   • Duty to disclose information that a reasonable person would consider important in deciding how to vote on a transaction, and a duty of fair dealing when purchasing a minority SH’s interest