| Term | Definition |
|---|
| s/h derivative suit | S/h suing to enforce the corporation's claim b/c the corp isn't pursuing its own claim |
| to know if it is a derivative suit ask | could the corp bring this suit? if yes, then likely is |
| types of derivative suits | breach of K with a corp; usurping corp opportunities (duties of loyalty and care owed to corp); suit for corproate waste |
| not derivative suit examples | preemptive rights (direct suit, personal claim); declaration of a dividend. |
| what happens if shareholder wins derivative suit? | corporation recovers ; s/h gets costs and attorneys fees |
| when can s/h recover damages from a derivative suit? | if recovery by the corporation returns money to the defendants - ie i there is a close corporation and returning money of judment to the cop will return money to some of the bad guys then ct might return it to s/h |
| what happens if s/h loses derivative suit? | s/h can not recover costs and expenses and might be liable to the corp for costs and attorneys fees if sued without reasonable costs and winner recovers costs from loser |
| can other s/h's later sue same D on same transaction? | no- res judicata |
| what are the requirements for bringing s/h der. suit? | 1. stock ownership 2. adewuately rep interests of corp and s/hs and make a demand that Ds bring suit unless it would be futile |
| stock ownership | person bringing the suit must have owned the stock or held a voting trust certificate At the TIme the claim aROSe or have gotten it by operation of law from someone who did via inheritence or divorce decree AND own stock when the action is BROugh and through entry of judgment |
| must the s.h post a bond for Defendants costs in a deriv. suit? | yes unless she owns 5% or more of the stock or her stock is worth more than 50K |
| did S must first make a demand on the directors that the corp sue? | in a derivative suit, he must unless the demand would be futile |
| when would a demand be futile? | if 1. the majority of the board is interested or under the control of interested directors or 2. the board did not inform itself of the transaction to the extent reasonable under the circumstances or 3. the transactio is so egregious on its face that it could not be the result of second business judgment. |
| what is the specifal pelading requirmeent? | the plaintiff must pelad with particularity his efforts to get the board to sue or why the demand was excused - give details |
| in a derivative suit, how is the corp joined in the litigation | as a defendant! |
| what if S made a demand and the board refused? | S can still bring action if he can show that a majority of the board is interested OR its procedure was incomplete or inadequate. |
| what if the corp wants the suit dismissed? | it can move to dismiss and motion is based on a finding by independent directors --> special litigation committee that the suit is not in the best interest of the corporation. |
| special litigation committee | handles the derivative suit to decide if it should be dismissed |
| what does the SLC look at in deciding whether to dismiss the suit? | 1. indepdendence of the making investigation and sufficiency of the investigation |
| can the parties dismiss or settle a deriv. suit on own? | NO! need court approval and court may notify other S/H's whose interests will be affected for feedback. |
| can a DIRECTOR bring a derivative suit if he meets the same requirements? | yes! a D or O can sue another D or O to compel him to account for a violation of duties. |
| how does a D or O sue? | in his own name and not in a rep. capacity |
| who has the right to vote? (S/H voting) | record owner as of record date has right |
| who is the record owner? | the person shown as the owner in the corporate records. |
| what is the record date | a voter eligibility cut off - no fewer than 10 and no more than 60 days before the meeting |
| hypo: C corp sets annual meeting for July 7 and record date for june 6. S sells B her C corp. stock on June 25 who is entitled to vote shares at meeting? | S because he owned it on June 6 |
| exception to general rule that record owner or record date votes | if corp reacquired stock-- treasury stock or if shareholder dies (his executor can vote for him) and proxies (ok) |
| treasury stock | stock that is issued and then reacquired and can be resold |
| a proxy is | a writing(including fax/email) signed by the record shareholder or authorized agent directed to sec. of the corporation authorizing another to vote the shares |
| proxy is good for- | 11 months unless says otherwise |
| recovability of proxy | proxies ARE revocable even if it says irrevocable! |
| when is a proxy irrevocable? | if it says irrevocable and the proxy holder has some interest in the shares OTHER THAN voting! --> "proxy coupled with interest." |
| block voting | when shareholders decide to vote alike |
| requirements for voting trust | - written trust controlling how shares will be voted; copy to the corp transfer of legal title of shares to trustee; and original s/h receive voting trust certificates and retains all s/h rights except voting |
| when does a voting trust expire | 10 year- but within 6 months of expeiration, can extend for another term up to 10 years |
| voting AGREEMENT | (Recall directors can't enter these but s/hs can) but be signed and in writing. no duration max and s/h retains both legan and beneficial ownership |
| are votign agreements enforceable in ny | not specifically |
| a proxy given subject to a voting agreement is | irrevocable if it says so |
| can 2 shareholders agree to vote to elect each other as D's | yes |
| can 2 shareholders agree as to what theyll do when they become directors? | no- but OK if they are the only directors in the corporation because no one can be harmed by it. |
| what are the only 2 ways the s/hs can take a valid act? | 1. by written consent signed by s/hs of all voting shares to act without a meeting OR 2. by a meeting |
| shareholder annual meetings | can be held anywhere or court ordered. this is where shareholders elect directors |
| spcial shareholder meetings | can be held anywhere and called by the board or anyone provided in the certificate or bylaws. it must be held if there's a failure to elect a sufficient # of D's to conduct the corp. business |
| what happens if the board fails to hold a special shareholder meeting and it is necessary | holders of 10% of the voting shares may demand in writing that the corp hold it. secretary must give notice of the meeting and if fails, the s/hs may give the notice. |
| notice requirement for shareholder meetings | must give notice- email is ok- to every shareholder entitled t ovote -- for annual OR special meeting between 10 and 60 days before the meeting. |
| what is in the notice of shareholder meeting | where, when and proposed action (whether it would entitle sh to appraisal rights and why) and who called it and the purpose-- b/c ONLY that purpose can be done there! |
| can the shareholders have a meeting with the purpose of removing an officer | no way! need a proper purpose-- shareholders do not remove officers- the board does! |
| what happens if the corp does not give notice to everyone entitled to vote | general rule is that the action taken at that meeting is void |
| when will an action be upheld even though there was not full notice? | if those not given notice waived the notice defect by writing and signed (Express waiver) or implied ( attended the meeting without objection) |
| quorum at sharehodler meeting | generally requires a majority of outstanding shates (not shareholders!) can be changed by certificate or bylaws but can never be fewer than 1/3 of shares entitled to vote |
| can we reduce the requirement of majority approval | never |
| is it possible to require a supermajority of the shares entitled to vote to be rep to constitue a quorum | yes but only via certificate and not bylaws! |
| if the quorum is met what is needed to bind corporation? | majority of the shares ACtuALLY VOTIng1 (NOT THE MAJORITY OF THOSE PRESENT!) |
| once a quorum is established at a shareholder meeting, can it be lost if people leave the meeting? | no -- once we have a quorum do no lose it! (DIFF from director voting!) |
| cumulative voting | only available in voting for directors. helps small shareholders get representation on the board. multiply the # of shares times the number of directors to be elected - only by certificate for D voting. if silent cannot have cumulative voting |
| cumulative voting election formula | one share more than percentage 100/ (# of directors deing selected +1) |
| can shares be transfered/ | yes free transferability of individual shares |
| amount of consideration | s/h can sell his stock for less than par b/c par is an ISSUAnce rule and is inapplicable to sales by individuals-- only relevant when corporation is selling its OWN shares! |
| share transfer restriction | may be contained in certificate, bylaws, or a separate agreement -- to impose restrictions on transfers to keep outsiders out like in a close corporation. such restrictions are in cert or bylaws |
| right of first refusal | acceptable so long as it is reasonable. -- to require s/h to offer his stocks hirst to the corporation |
| when will a buyer who violated the stock transfer restruction be liable | it is's conspicuously noted on the stock certificate or the transferee has actual knowledge of the restriction. |
| inspection rights to books and records | s/h has right to inspect and copy for any proper purpose 9D's have unfettered access to records b/ cthey manage the corp) |
| how do u demand to inspect as a s/h? | 5 day written demand for minutes or records and 2 day written demand for list of current O and ds . written request by mail for balance sheet and interim statements |
| what can the corp demand for shareholder investigation? | that SH give an affidavit that his purpose is not other than in the interest of the corp and he has not within 5 years tried to sell any list of shareholders. corp can NOT demand more details that this! if s/h refuses affidavit corp can deny access |
| when can the corp not require an affidavit | for sh request for list of current directors and officers |
| common law right to inspect | gives all s/hs the right to inspect records at a reasonable rime and proper place for a proper purpose. unlear how broad this is. |
| does a director have a right to inspect | ABSOLUTE right |
| will a court interfere with the boards discretion and order a distribution | tough to show- only in bad faith |
| distributions are declared by | board's discretion |
| s/hs have right to ditribution | only AFTER declared and once dividends lawfully declared, affected s/hs take status of creditors |
| stock split | gives a shareholder more shares than she now has but reduces the value of each share proportionately |
| dividends | divide dividends by shares of common stock. ie-- 400K dividend. 100K shares of common stock. 4 dollars per share |
| what if there is a 400k dividend, 100K shares of common stock and 20K shares of preferred stock with $ 2 dividend? | so give preferred first (40K) then subtract the 40K from the 400K which is 360 and that goes to common ( so 3.60 a share) |
| 100K shares of common and 20K shares of 2 dollar preferred that is PARTICIPATING | participating means pay again so these 20K get paid twice-- once as preferred and again as participating. so here the 360 then divided by 120 shates because put the preferred back in |
| 100K shares of common and 20K shares of $2 preferred that is CuMULATIVE and no dividend paid in 3 years | cumulative means adding them up for the years in which no dividend was paid (plus add this year so that is 4 years). 4 years X 2 dollars preference = 8 dollars per share. 20K x 8 dollars per share is 160K so that leaves 240K worth so 2.40 a share |
| what is a surplus | assets - liabilities - stated capital. the surplus can be used for distribution. after a dividend, net assets must at least equal the stated capital. |
| stated capital | cannot be used for distribution. on the par stock- consideration received (Excess over par value is surplus) on no par shares ( consideration received except the board may allocate part but not all to surplus within 60 days after issue. |
| cn the corp make distributions even though it lost $ last year? | yes |
| can it make distributions if it is insolvent | no and also not if distribution will render it insolvent |
| what does insolvent mean | unable to pay debts as they come due in the ordinary course of business ( after distribution, net assets must at least equal stated capital) |
| are directors personally liable for unlawful distributions? | yes and so are shareholders who knew the distribution was unlawful when they received it. here the D or O can sue on behalf of the corp |
| does the D have any defense for unlawful distribution? | yes-- GOOD FAith reliance1 |
| redemptions | set in the certificate and must be done proportionately within each class of stock |
| repurchases | individually negotiated and can discriminate except in close corporations where they must give equal opportunity to all shareholders |
| who must approve fundamental corporate changes | generally 2/3 of all outstanding shares; and generally both the directors and the hareholders and most require notification to department of state by delivering a document with the department files |
| dissentign shs right to appraisal | the right of shareholders to force corp to buy her shares at fair value |
| when will a sh have a dissenting sh right to an appraisal? | 1. amendments to certificate 2. consplidation 3. corp merges into another 4. corp transfers substantially all of its assets 5. corporation's shares are acquired in a share exchange |
| when is there no right to appraisal? | if the corporation is listen on a national securities exchange or nasdaq |
| what actions are taken by shareholders to perfect their right before shareholder votes? | before s/h votes, file written notice of objection and intent to demand payment |
| what actions are taken by shareholders to perfect their right during shareholder votes? | abstain or vote against the change |
| what actions are taken by shareholders to perfect their right after the votes? | written demand to be bought out |
| to perfect right to appraisal sharehodler must | file notice to object before, abstain to vote against AND written demand after |
| what happens if the SH and the corp cannot agree on fair value ? | corp sues and corut determines the value |
| how does the court determine the value? | it cannot discount value to reflect minority shares-- NO minority discounting! |
| who must approve amendments to the certificate of incorp? | director action and by majority of shares entitled to vote - nto majority of those present! |
| if the amendment will change or strike a SUPERMAJORITY quorum or voting requirement for sharehoLDer voting then who must approve this amendment/ | 2/3 of the shares entitled to vote -2/3 total shareholder approval |
| what do you do if the amendment is approved? | deliver the amendment to the department of state for its filing |
| if there is an amendment what are the dissenting sharehodler rights of appriasal? | if the amendment alters or abolished a preference, changes redemption rights, alters or abolishes a preemptive right ot limits voting rights then they have rights for appraisal |
| merger | A & B = A |
| Consolidation | A & B = C |
| who adopts a plan of merger or consolidation | each corporation's board |
| do shareholders get to approve merger or consolidation? | yes -required- except for short term mergers where a parent corp owns 90% or more of each class of stock of a subsidiary that's merged into the parent |
| filing requirements for merger or consolidation | deliver the certificate of merge to the department of state for filing |
| do dissenting shareholders have appraisal right with mergers/ | yes ( assuming not publicly traded) - for s/h's of both companies in a consolidation b.c dissapeared or of acquired co in short temr merger b/c it disappeared |
| do dissenting shareholders have appraisal rights if they are part of surviving co | no b/c did not dissapear (but in short term emrger yes) |
| successor liability | the surviving company succeeds to all of constituent company's rights and liabilities |
| must merger have a legitimate purpose? | yes cannot just be to freeze out minority S/H |
| transfer | transfer of all or substantially all of the assets not in the ordinary course of business or share exchange-- ie one corp acquires all the outstanding shares of 1 or more classes of another corp. this is a fundamental corp change for the selling corp only. |
| does the buying corp vote in a transfer | no because it is not a fundamental corproate change for the buying company |
| transfer requirements | board approval and shareholder approval od ONLY the selling corp (by a majority of shares) |
| in a transfer who has rights of appraisal | shareholders of the selling corp only- since not a fundamental change for the buyer |
| filing in asset transfer | none |
| filing in share exchange | yes with department of state |
| is the company acquiring assets liable for torts of the company whose assets it acquired? | generally no, unless the deal provides otherwise, or the purchasing co is merely continuation of the seller or the deal was entered fraudulently to escape such obligations. different than general rule of merger - b/c corp selling still exists! |
| voluntary dissolution | no board vote necessary. majority of shares entitled to vote is necessary |
| filing | certificate of dissolution is delivered to the dept of state for filing |
| involuntary dissolution | when u go into court and ask court order for a dissolution |
| basis for involuntary dissolution | 1. by board resolution or resolution of majority shares entitled t ovote stating that he corp has insufficient assets to discharge liabilities or that dissolution would be beneficials to S's. 2. 1/2 or more of shares entitled to vote petition if directors too divided to manage or S's too divided t oelect. 3. any S entitled to vote may petition if unable to elect directors for 2 annual meetings, or 4. 20% or more of voting shares in corp whose shares are not traded on sec (close cormp) can petition |
| how may voting shares petitition for an involunrary dissoution? | 1. management's illegal, oppressive acts towards complaining s's or 2. management's wasting, diverting or looting assets |
| how can dissolution be avoided? | within 90 days of the petition buy the petitioner's shares at fair value on terms approved by court |
| liequidating | gather all assets, convert them to cash, pay creditors and distribute remainder to sh's pro-rata by share unless dissolution preference exists in the certificate. |
| can the SHs agree tha they will be paid before creditors at liquidation | no way |
| who is management in dissolution context | directors or managing shareholders ( think of close corporation) |
| can shareholders act in self interest? | outside context of close corporations they can |
| when does a shareholder owe a duty | when occupies also a control position like a director- cannot use dominant position for individual advantage |
| sale of cotnrolling shareholder's interest | can sell at a premium and keep the money but courts can impose liability |
| when can court impose liability for sale of shareholder's intetest | 1. if sell to looters without reasonable investigation ( watch for facts that put a person on notice of a problem)- disgorge seller's profits and proable liable for all damage to corp. 2. controlling SH de facto sells a corporate asset - S/H has no right to do this, or 3. controlling S/H sells a corp office-- fiduciaries cannot sell their position in return for an agreement to resign from board. |
| freeze out mergers | aimed solely at cashing out minority S/Hs unfairly |
| when it looks like a freeze out merger courts will | review transaction as a whole -fairness of terms and treatment of minority S/H. factors; whether there was elf dealing or fraud; minortiy S/Hs are dealt with fairly and if legitimate business reason for the merger |
| what can the corp do if there is market trading on isndier information? | corporation can, through direct or derivative suits, recover any profit |
| non disclosure of special facts or special circumstances | all D and O's ow an affirmative duty to disclose special facts in a securities transaction with a non insider. -- common law insider trading |
| what are examples of special facts? | facts that a reasonable investor would consider important in making an important investment decision. - duty to disclose or abstain from trading |
| who can sue on common law insider trading? | a sharegolder dealing with an insider who violates the special facts doctrine and the corproation cna sue the insider to recover his profit made from market trading on isdie information |
| measure of damages in common law insider trading-- non disclosure of special facts-- | difference betwene price paid and value of stock at reasonable time after public disclosure |
Combine with other sets
Share on Facebook
Share on MySpace