shareholders

Question 1

Preincorporation subscriptions

Answer 1

written offer to buy stock and are irrevokable for sic months unles otherwise stated

Question 2

define par

Answer 2

minimum inssuance price
- this has essentially been errased by the MBCA and board can value at any price as long as made in good faith

On the test look for watered stock - occur when the par value stock is issued for less than its par value

Question 3

define subscription

Answer 3

written offer by the company to buy stock

Question 4

define debt secutity

Answer 4

corporation borrws money and issues debt security known as a bond - holder is not an owner

Question 5

equity security

Answer 5

shareholder is an owner but not a creditor

Question 6

Shareholders role in close corporations

Answer 6

can run the corporation directly in a close corporation

Question 7

Close corporation management

Answer 7

Shareholder management agreements set up alternative management for close corporations
- typical set up is indirect control of the corporation through voting power
- to change it they can
1. put it in th earticles and prrove by all sharholders OR
2. by unanimous written shareholder agreement

must be on the front and back of the stock certificate

Question 8

Fuduciary duties in close corporations

Answer 8

• controlling shareholders can’t use their power to benefit at the expense of minority shareholders
• can sue the controlling shareholders who oppress them for breach

Question 9

piercing the corporate veil

Answer 9

• shareholders must have abused the privilege of incorporating and
• fairness must require holding them liable

Question 10

Common Scenarios of Piercing the Corporate Veil

Answer 10

• Alter ego: use the corporation as an alter ego and some basic injustice results. Usually occurs when they comingle money
• undercapitilization: inadequately capitilized so that at the time of formation there isn’t enough to cover liabilities
• fraud: can be pierced to prevent fraud or to prevent an individual shareholder from using the entity to avoid his existing personal obligations

Question 11

Define derivitive suit

Answer 11

shareholder is suing to enforce the corporation’s claim not her own personal claim

ask, could the corporation have brought this suit

Question 12

recovery in a derivative suit

Answer 12

• the corporation recovers
• shareholder P can recover costs of attorney’s fees from the judgment won
• if the corporation loses she can’t recover costs
• if maintained wihtout reasonable cause or for an improper purpose it may order the P to pay reasonable expenses of the D

Question 13

Standing Requirements for Derivative Suits

Answer 13

• must have been a shareholder at the time of the claim
• must also faily and adequately represent the corporations interest

Question 14

derivative suits demand requirements

Answer 14

shareholder must make a written demand on the corporation to take suitable action
- can’t sue until 90 days adter making this damand unless
- 1. shareholder has earlier been notified that the corporation has rejected the demand or
- 2. irreparable injury to the corporation would result by waiting for the 90 days to pass

Question 15

derivative suit requirements - corporation joined as defendant

Answer 15

1. dismissal or settlement requires court approval - court may give notice to shareholders and get their input on whether to settle or dismiss
2. dismissed if found not in corporation’s best interest
3. investigation by independent directors or panel
4. court determination - a) those recommending dismissal were truly independent and b) they made a reasonable investigation in most stes the court will dismiss
5. can overcome judgement if the shareholder proves that the court didn’t make the decision in good faith

Question 16

who is able to vote

Answer 16

• shareholder on the record date (fixed by board directors) may vote
• exceptions:
  1. treasury stock: no one votes if the company reaquires it
  2. death of sareholder
  3. proxy

Question 17

define proxy

Answer 17

1. a writing
2. signed by the record shareholder
3. directed to the secratary of the corporation
4. authorizing another to vote the shares

Question 18

Revocation of proxy

Answer 18

generally revocable by the shareholder and may be revoked by the shareholder attending the meeting to vote tehmsevles, in writing, or by subsequent appoint of another

Question 19

irrevocable proxy

Answer 19

proxy will be irrevocable only if it states that it is and is coupled with an interest or given as security
1. proxy say its irrevocable and
2. proxy holder has some interest in the shares other than voting

Question 20

shareholder voting trust

Answer 20

written agreement of shareholders in which all votes are given to a trustee
requires
1. writtten trust agreement
2. copy of it given to the corporation
3. legal title to the shares transferred to the voting trustee
4. original shareholders recieve trust certificates and retain all rights

Question 21

voting agreement

Answer 21

providing how they will vote
1. agreement must in be in writing
2. signed

Question 22

two kinds of shareholder meetings

Answer 22

1. annual meetings - must be held within 6 months of corproate fiscal year conclusion
2. specifial meeting - which can be called by
   a. the board
   b. teh president
   c. the holders of at least 10% of the outstanding shares
   d. anyone else authorized ot do so in the articles or bylaws

Question 23

notice requirements for meetings

Answer 23

shareholders must be notified of meetings not few than 10 or more than 60 day before the meeting
1. must be writing
2. state the date/time/place
3. if it’s a special meeting it must state the priupose

Question 24

consequence of not giving notice for a meeting

Answer 24

whatever action occured can be void

Question 25

vote requirement to elect a director

Answer 25

plurality

Question 26

voting requirement to approve a dundamental corporate change

Answer 26

majority of shares

Question 27

to remove a director

Answer 27

majority shares entitled to vote

Question 28

voting requirement for other matters

Answer 28

majority of shares that actually voted

Question 29

straight voting

Answer 29

separate election for each seat and each share gets one vote

Question 30

cumulative voting

Answer 30

one at large election - multiply shareholders number of shares time the number of directors elected

Question 31

restriction on stock transfers

Answer 31

can be enforced if not undue restraint on alienation and 1. restriction is conspiciously noted on the stock or 2. the transferee has actual knowledge of the restriction at the time of purchase