shareholders

ignoring the corporate entity

ordinarily a corporation is regarded and treated as a separate legal entity, and the law does not look behind a corporation to see who owns or controls it

capital distribution

upon dissolution of the corporation, shareholders are entitled to receive any balance of the corporate assets that remains after the payment of all creditors

characteristics of bonds

- a bond is an instrument promising to repay a loan of money to a corporation - a bond obligates the corporation to pay the bondholder the amount of the loan, called the principal, at a stated time, called the maturity date, and to pay a fixed amount of interest at regular intervals, commonly every six months - a debenture is an unsecured bond of the corporation with no specific corporate assets pledged as security for payment - bonds are negotiable securities - bonds held by owners whose names and addresses are registered on the books of the corporation are called registered bonds

inspection of books

- a shareholder has the right to inspect the books of the shareholder's corporation - in some Staes, there are no limitations on this rights - in most states, the inspection must be made in good faith, for proper motives, and at a reasonable time and place - form of books - financial statements - inspection has been refused when it has been sought for mere curiosity

dividends

- a shareholder has the right to receive a proportion of dividends as they are declared, subject to the relative rights of other shareholders, to preferences, accumulation of dividends, and participation - there is no absolute right that dividends be declared, but dividends, when declared, must be paid in the manner indicated - funds available for declaration of dividends: - earned surplus/retained earnings - wasting assets corporation: corporation designed to exhaust or use up the assets of the corporation, such as by extracting oil, coal, iron, and other ores

what is the general rule?

- a shareholder is ordinarily protect from the liabilities of the corporation - some exceptions exist, however

terms and control

- bond indenture: agreement setting forth the contractual terms of a particular bond issue - indenture trustee: usually a commercial banking institution, to represent the interests of the bondholders and ensure that the terms and covenants of the bond issue are met by the corporation - deed-instrument by which the grantor (owner of land) conveys or transfers the title to a grantee - sinking fund-fixed amount of money set aside each year by the borrowing corporation toward the ultimate payment of bonds

nature of stock

- capital and capital stock: - capital: refers to net assets of corporation - capital stock: value received by the corporation for its outstanding stock - outstanding shares: shares that have been issued to holders - valuation of stock: - par value: specified monetary amount assigned by issuing corporation for each share of its stock - book value: shareholders net equity in the corporation - market value: the price at which that stock can be voluntary bought or sold in the open market

certificates of stock and uncertified shares

- certificate of stock (share certificates): - document evidencing a shareholder's ownership of stock issued by a corporation - the issuance of such certificates is not essential either to the existence of a corporation or to the ownership of its stock - revised article 8 of the UCC, if adopted, says uncertified shares may be issued; shares must, however, be registered

kinds of stock

- classification by preferences: - common stock: stock that has no right or priority over any other stock of the corporation as to dividend or distribution of assets upon dissolution - preferred stock: stock that has a priority or preference as to payment of dividend or upon liquidation, or both. - cumulative preferred stock: the right to receive dividends depends on declaration of dividends by the board of directors for a particular period of time - participating preferred stock: after common sharers receive dividends both kinds participate or share equally in the balance - duration of shares: shares continue to exist for the life of the corporation (any share may be made terminable at an earlier date) - fractional shares: these can be sold or combined for the acquisition of whole shares

dividends 2

- discretion of directors: assuming that a fund is available for the declaration of dividends, it is then a matter primarily within the discretion of the board of directors whether a dividend shall be declared - form of dividends: customarily, a dividend is paid in money. however, it may be paid in property, such as a product manufactured by the corporation; in shares of other corporations held by the corporation; or in shares of the corporation itself - effect of transfer of shares: when a corporation declares a cash or property dividend, the usual practice is for the board of directors to declare a dividend as of a certain date - the declaration date - payable to shareholders of record on a stated future date - the record date - with a payment date following the record date, usually by some 30 days. the person who is the owner of the shares on the record date is entitled to the dividend even if the shares are transferred prior to the payment date

shareholder actions 2

- in a derivative action, when a corporation has failed to enforce a right, a shareholder bringing such a suit must show that a deman was made on the directors to enforce the right in question - the shareholders must show: - that the directors refused to enforce the right - that a demand that the directors enforce the right is excused because the directors are deemed incapable of making an impartial decision regarding the pursuit of the litigation

shareholder action 3

- lawsuits may be brought by minority shareholders against majority shareholders who are oppressive toward minority shareholders - oppressive conduct may include payment of grossly excessive salaries and fringe benefits to the majority shareholders who are also officers of the corporation - shareholders may bring a derivative action to obtain a dissolution of the corporation by judicial decree

limited liability

- liability of a shareholder is generally limited - this means that the shareholder is not personally liable for the debts and liability of the corporation - the capital contributed by shareholders may be exhausted by the claims of creditors, but there is no personal liability for any unpaid balance

preemptive offer of shares

- preemptive right: - shareholder's right upon the increase of a corporation's capital stock to be allowed to subscribe to such a percentage of the new shares as the shareholders old shares bore to the former total capital stock - the RMBCA provides that shareholder's do not have preemptive rights unless the articles of incorporation provide for them

piercing the corporate veil

- remember how corporation are sort of 'a person' separate from those who own it? there are times when courts will disregard this general rule and piece the corporate veil - factors that may lead to piercing the corporate veil and imposing liability on its owners (the shareholders) are: - the failure to maintain adequate corporate records and the commingling of corporate and other funds - grossly inadequate capitalization - the diversion by shareholders of corporate funds or assets - the formation of the corporation to evade an existing obligation - the formation of the corporation to perpetuate a fraud of conceal illegality, and - a determination that injustice and inequitable consequences would result if the corporate entity were recognized

alter ego theory

- some courts express their reasons for disregarding the corporate entity by stating that the corporation is the alter ego of the wrongdoer - a corporation is a separate and distinct person from the person or persons who own the corporation - however, when a corporation is so dominated and controlled by a shareholder, officer, or directors that the separate personalities of the individual and the corporation no longer exist and there's a wrongful use of that control, the courts will disregard the corporate entity so as not to sanction a fraud or injustice

how does corporation get money?

- stocks and bonds - ownership of a corporation is represented by stock - a bond is a corporate debt

the right to vote

- the right to vote means the right to vote at shareholders' meetings for the election of directors and on other special matters that shareholders must vote on - who may vote? only shareholders on record - unless there is a provision to the contrary, for each share owned, each shareholder is entitled to one vote on each matter to be voted (this procedure is called straight voting) - cumulative voting: system of voting for directors in which each shareholders has as many votes as the number of voting shares owned multiplied by the number of directors to be elected, and such votes can be distributed for the various candidates as desired - voting by proxy: authorizing someone else to vote the shares owned by the shareholder (shareholder has right to authorize someone else to vote their shares) - voting agreements and trusts: shareholders are allowed to enter into agreements where they concentrate their voting strength for purpose of electing directors or other matter. trust is where group of shareholders transfer their shares in trust to one or more persons as trustees.

ownership rights

- the rights of shareholders flow from their status as owners - shareholder control over the corporation is indirect - periodically (ordinary once a year), the shareholders elect directors and by this means control the corporation - at other times, however, the shareholders have no right or power to control corporate activity so long as it is conducted within lawful channels - certificates of stock: a shareholder has the right to have a properly executed certificate as evidence of ownership of shares. an exception is made when the corporation is authorized to issue uncertificated securities - transfer of shares: unless limited by a valid restriction, a shareholder has the right to transfer her shares

shareholder actions

- when the corporation has the right to sue its directors, officers, or third persons for damages caused by them to the corporation or for breach of contract, one or more shareholders may bring such action if the corporation refuses to do so - derivative (secondary) action: secondary action for damages or breach of contract brought by one or more corporate shareholders against directors, officers, or third persons - this is a derivative (secondary) action in that the shareholder enforces only the cause of action of the corporation and any money recovery is paid into the corporate treasury

unauthorized dividends

- if dividends are improperly paid out of capital, shareholders are generally liable to creditors to the extent of such depletion of capital - in some states, the liability of a shareholder depends on whether the corporation was insolvent at the time and whether debts were existing at the time