Corporations. Shareholders.

When is a distribution improper?

A distribution is improper if: 1. After if it is paid, the corporation would not be able to pay its debts as they came due; or 2. Its net assets would be less than total liabilities plus amounts needed to satisfy any preferential rights on dissolution if dissolved today.

Who votes?

A record shareholder as of record date has the right to vote.

What is cumulative voting?

A shareholder can cumulate their number of shares times the number of directors to be elected and cast all of those cumulated votes to one candidate.

What is the general rule that you should always state regarding shareholders?

A shareholder is not liable for the debts of a corporation. Unless, they knowingly receive "watered stock" or the court pierces the corporate veil.

What is a shareholder derivative suit?

A shareholder is suing to enforce a cause of action that belongs to the corporation.

What must the shareholder do to receive other documents? Such as accounting records, executive committee minutes, etc.?

A shareholder must make a special showing.

What are the consequences of a successful derivative suit?

Generally, the recovery of a derivative suit goes to the corporation. The shareholder who brought the suit gets her attorney's fees and costs.

Can shareholders take action without a meeting?

Yes, but only by unanimous written consent.

Can a shareholder sell their stock for less than par value?

Yes, par value only applies to the corporation's sale of its stock.

Are voting agreements specifically enforceable?

Yes.

Can shareholders enter into voting agreements?

Yes.

What are the two theories of Piercing the Corporate Veil?

1. Alter Ego Theory: co-mingling of funds. 2. Undercapitalization

When do Shareholders vote?

1. Annual meeting; or 2. Special meeting

Who can call a Special Meeting of the shareholders?

1. Board of Directors 2. Persons designated in the charter as having that power 3. The holders of 10% of the voting stock can call a special meeting

What are the exceptions to the general rule that record owner on record date votes?

1. Death of shareholder - executor can vote the shares; 2. Proxy

Even if a restriction is reasonable and valid, it cannot be invoked against the transferee unless what?

1. It is conspicuously noted on the certificate; or 2. the transferee had actual knowledge of the restriction

What are the requirements for bringing a shareholder derivative suit?

1. Shareholder must have owne the shares at the time the claim arose or received the shares by operation of law from one who did. known as the Contemporaneous Ownership Rule. 2. Adequate Representation, must adequately represent the interests of the corporation. 3. Written demand on directors to bring the suit first, but this is excused if the suit is futile.

What is a Special Showing?

1. The demand must be made in Good Faith and for a Proper Purpose i.e. regarding the shareholder's ownership interest 2. Demand must describe with particularity, the records sought 3. The records demanded must be connected with the shareholder's proper purpose

What is a proxy?

1. Writing; 2. signed by the record shareholder; 3. directed to secretary of corporation; 4. authorizing another to vote the shares

What are the requirements for a voting trust?

1. Written agreement controlling how the shares will be voted; 2. Copy to corporation 3. Transfer legal title of shares to voting trustee; and 4. original shareholders receive trust certificates and retain all shareholders' rights except for voting.

How long is a proxy valid?

11 months

What are the consequences of the failure to give proper notice to all shareholders?

All actions taken are void unless those not receiving notice waive the defect.

Who is liable for an improper distribution?

All directors assenting to an improper distribution are personally liable to the extent that it exceeds what properly could have been paid. However, they will be protected if they reasonably relied on the financial statements compiled by their officers or accountants.

What are cumulative preferred shares? Example. 100,000 shares of common and 20,000 shares of $2 preferred that is cumulative and no dividends in the three prior years.

Catch me up! $400,000 dividend First catch up the preferred for the three prior years. That is $40,000 a year for the past three years, that is $120,000 off the top. Then, pay the preferred for the current year. That is $40,000 more to the preferred. Then pay the remaining $240,000 to the 100,000 common shares. Each gets $2.40 a share.

What items does a shareholder have almost automatic access to?

Charter, bylaws, minutes of shareholder meetings, names and addresses of officers and directors, the most recent annual report filed with the Secretary of State. Shareholder must make written demand at least five business days in advance.

Is a proxy ever irrevocable?

No, a proxy is always revocable unless it is coupled with an interest.

If there is no cumulative voting provision, does cumulative voting still exist?

No.

Is an absolute restraint on alienation a reasonable restriction?

No.

What is the notice requirement for shareholder meetings?

Notice is required for either an annual or a special meeting. The notice must give the time and the place of the meeting.

How long is a voting trust valid?

Only 10 years

What are preferred participating shares?

Pay me again! The preferred participating get reintroduced to the pool after they get paid their preferred option but this time without their preferred status.

Which Shareholders get Distributions when the corporation declares a dividend with preferred shareholders?

Preferred shareholders get paid first.

Are Stock Transfer Restrictions valid?

Rule. Stock Transfer Restrictions will be upheld provided that they are reasonable under the circumstances.

What are the requirements for a voting agreement?

Same as a voting trust but no copy is made to the corporation.

What are shareholder agreements?

Shareholders can enter into an agreement relating to the management of the corporation and, under the new code, such an agreement is not to be declared invalid on the ground that it restricts the authority of the board of directors. Thus, by agreement, the shareholders can control the management of the corporation.

What is a direct suit?

That is when there is a suit on behalf of the shareholder himself.

What is the difference in the notice requirement for a special meeting?

The notice must state the purpose of the special meeting and that is the only business that can be addressed at that meeting.

Who is record owner as of the record date?

The record owner is one shown in the corporate records. The record date is a cut-off to determine who is eligible to vote.

What are the consequences of an unsuccessful derivative suit?

The shareholder does not get costs and attorney's fees.

How do Shareholders vote?

There must be a quorum at the meeting. The determination requires a majority of outstanding shares, not shareholders.