MODULE 5: MANAGEMENT AND CONTROL OF THE CORP.

If you are a registered shareholder on the "record date," you are entitled to:

Notice of shareholder meetings. The right to vote on matters at shareholder meetings. The right to receive declared dividends.

What can shareholders do if they do not want to waste their time in a meeting?

they can write up unanimous consent on certain matters.

What does the notice have to provide?

time, place, and purpose of the meeting. NOTE: the stated purpose limits the actions taken at the meeting.

Why do we give the board so much power?

to run the corp properly even if the decision is unpopular.

Who are the three constituents of a corporation?

1) shareholders 2) board of directors 3) officers

Corporation has 30,000 outstanding voting shares. Corporation has 1,000 shareholders. To have a quorum, at least how many shares must be represented at the meeting?

15,001. Explanation: Unless the articles provide otherwise, each outstanding share is entitled to 1 vote and a quorum consists of a majority of those outstanding voting shares (i.e., 51% of the outstanding shares).

Out of 100 shares, what is the quorum?

51.

Stewie and Brian are the sole shareholders of B.S. LLC. Stewie has 700 shares and Brian has 300. There are 3 directors. With cumulative voting, how much voting power does Brian have for 1 candidate?

900 Votes. Explanation: Under cumulative voting, Brian has a total of 900 votes because 3 directors are being elected and Brian owns 300 shares—i.e., 3 x 300 = 900.

What does a quorum mean?

A majority of outstanding shares.

Officers of a corporation usually possess what type of authority?

Actual. Apparent. Explanation: Companies act through agents, and actual authority or apparent authority is usually present.

What are the two types of shareholder meetings?

Annual and special.

How are stocks viewed differently?

CHC = there is no stock market PHC = you can sell you shares anytime we want

What is the role of officers?

Day to day bosses Always agents of the corporation They can act with authority They also can give apparent authority they owe fiduciary duties to the corporation

What is commulative voting?

Def: one where each voter allocates his/her shares among the candidates. -This only applies when electing directors. -will not apply to approve fundamental changes. helps a minority elect at least one representative. It is common in shareholder actions.

Is there any problem with shareholders removing a director for cause?

In a PHC the problem is the mechanics; the directors are entitled to notice and a hearing before their removal. Issue: in a corp. with over 6k shareholders, how do you provide such hearing? most of the votes are by proxy. Poses additional issues with shareholders' voting powers.

What does it mean to be a passive shareholder?

Not involved in decisions; merely owns. A shareholder is usually passive unless elected to be a BOD or officer (not uncommon in closely held corps to be all 3)

Who administers the day-to-day affairs of the corporation?

The officers. Explanation: The board of directors elect officers. They implement the board's policy choices.

What kind of overlaps are there in CHC and PHC

Shareholders in CHC are generally directors and officers, employees. This overlap is not in a PHC.

What is the issue with the rule above ^?

That it makes no sense in CHC. Those that form these, think of themselves as all three constituents at the same time and believe they should have the right to make these agreements in advance.

Who establishes corporate policy?

The board of directors. Explanation: Shareholders elect the board of directors. They manage the corporation and make the policy decisions for the business.

What is the role of BOD

The governing body of a corporation. elected by shareholders to: 1) establish corporate policy 2) appoint major officers 3) make major business and financial decisions They manage the corporation "the manager of the corp."

Who gets to vote at the corporations meetings?

The record shareholder as of the record date §7.07

What is the reconciliation with the rule preventing agreements beforehand and CHC's management structure?

There is more leewya given to CHC. An agreement is valid when there is no: (1) complaining shareholders, (2) hurt shareholders; and (3) nothing was prohibited statutorily. Therefore, it was ruled Closely Held Co.'s had more leeway.

What is the true role of shareholders?

They elect and remove directors by vote. They are the true owners of the corporation. They can amend the bylaws of the corp by vote They can approve fundamental changes Note: they do NOT manage day to day operations of the corp. They just approve fundamental changes

What do shareholders vote on?

They elect and remove directors. They are the true owners of the corporation. They can amend the bylaws of the corp by vote They can approve fundamental changes they can only vote when a quorum is present.

True or false. The board of directors can act only as a group, not individually.

True Explanation: the board of directors is a governing body and, therefore, they must act together.

T/F in CHC it is common to be an officer, director and shareholder at the same time.

True.

T/F Shareholders and BOD can act as groups

True. individual shareholders have no power to make the corp. do anything. Same goes w/ individual directors. They must act as a body. Officers do not work in groups.

True or false. An officer of the corporation has the power to bind the corporation?

True. Explanation: Officers are agents of the corporation. As such, they have the power to bind the corporation.

T/F: Shareholders can appoint an agent to be their proxy.

True. This is supposed to be in writing, signed by record shareholder, authorizing another to vote the shares.

Takeaway from Zion:

Understand this: by investing in a PHC, your voice will not be heard as a shareholder. If you are a director, there is a chance you may be removed without traditional due process b/c the mechanics are so strange.

Can a shareholder for a closely held corporation make decisions for the corporation even when there is no compliance with statute and give notice to the world?

Yes. This is a mere technically and can be amended. Rule: a closely held corporation, in every state can elect to have the right to have internal shareholder management agreements to control the company. Shareholder agreements that require minority shareholder approval of corporate enterprises are enforceable (applies to closely held corporations).

What do you do if the bylaws of the corporation call for a special meeting as per request of 55% of the shareholders and the President refuses to do so?

You file a writ of mandamus to compel the president to comply with that duty.

Who elects the board of directors?

a. The shareholders.

What is corporate resolution?

how the board takes an act at a meeting and its proof of it.

How do we generally elect directors?

all we need is plurality. However, has the highest vote wins even if he or she did not get the majority votes. think about sufficient even when not a majority

How are routine matters handled?

all you need to approve a routine matter is more than half. this is the majority of shares present NOT A MAJORITY OF SHARES ENTITLED.

How many types of meetings?

an annual (where we elect directors--it is required by all corps.) and a special meeting (any other meeting called for something important; i.e. mergers or a sale/purchase of significant assets. KEY: whether special or annual, the corp. must provide written notice to all shareholders entitled to vote.

Why does a CHC more like partnership than OHC?

b/c there is substantial shareholder participation. Shareholders want more flexibility, so those who own CHC can structure them however they see fit. In a CHC, they can even abolish board of directors and become managers themselves. explanation: in a CHC, shareholders sometimes are also BOD and officers at the same time.

How are shareholders viewed different in CHC v. PHC?

b/c we rarely have many shareholders. With a publicly held corp. you can have hundreds of thousands shareholder.

What is a safe way to determine whether the board of directors approved of a supposed transaction?

c. By asking for a certified copy of the board's resolution authorizing the transaction. Explanation: a resolution is how a board takes action at a meeting. A certified resolution would be evidence that the board approved a transaction.

What is straight voting? How does it happen? (non-commulative voting)

each director position is filled with a separate election at meeting. Each shareholder will cast a vote for each share they own and she will do so in each of the five elections. Votes equal a number of shares that you own. You vote on each directors separately. In place to allow minority shareholders to get a shot at being represented by the BOD.

Under the traditional model, shareholders:

elect but do not manage it. They do not make decisions.

Hoard of directors:

elect officers who implement choices by the bod

How do we generally remove director before term expires?

most require an affirmed vote of the majority of shares entitled. We do need 51 votes here in 100 shares outstanding.

How are fundamental corporate changes voted on? (i.e. merger, sale of assets)

most states also require the affirmative vote a majority of shares entitled to vote and other states required fundamental changes be approved by 2/3 of those entitled to vote so 66 votes out of 100.

Who are the owners of a corporation?

shareholders Explanation: A corporation is made up of shares. Thus, shareholders are the owners of the corporation.

Who is a proxy?

someone who is entitled to authorized to act as sub for another. In corporate law, someone who is authorized to vote on another's stocks or shares.

What does the internal affairs rule dictate?

that the law of the state of incorporation should control shareholders rights and duties.

Who appoints the officers of a corp.?

the BOD, not the shareholders!!

Is a violation of the principal of law and restricts the board of directors to act as a board: & Who may be hurt by this?

when directors agree in advance what they would do as directors. This agreement violates public policy. AKA: sterilization agreement. The deal sterilizes the court and robs each director the opportunity to use their independent judgment. Explanation: directors owe fiduciary duties to the corp. and they should exercise their independent judgment AT ALL TIMES. the creditors and minority shareholders may be hurt because directors must have unfettered discretion to manage and make the best biz judgment they can given the circumstances.