Term
| Who generally manages a corporation? |
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Definition
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Term
| Why do the BODs generally manage the corporation and not the SHs? |
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Definition
| Because the SHs have the privilege of being exempt from all personal liability. Therefore, they do not generally have the right to control the mgt of the corporation. If they do, this may lead to imputing liability to SHs. |
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Term
| Under what circumstances may SHS directly manage a corporation? |
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Definition
| When the corporation is close or closely held corporation. |
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Term
| Wha tis a closely held corporation? |
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Definition
| A closely held corporation is a corporation that has few SHs and is not publicly traded. |
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Term
| Where would authority for SHs to manage a corporation be found? |
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Definition
| Such authority would be found in the certificate of incorporation. |
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Term
| What steps need to be satisfied before SHs can manage a close corporation directly? |
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Definition
| 1. There must be a unanimous agreement by all SHs or incorporators, 2. The fact that SHs are managers must be conspciously noted on the front and back of all shares. 3. All subsequent SHs have notice, AND 4. Shares are not listed on the stock exchange or regularly quoted over the counter. |
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Term
| In the closely held corporation, who owes the duty of care and loyalty to the corporation? |
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Definition
| The SHs who actually manage the corporation. |
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Term
| In a close corporation do SHs have a fiduciary duty to one another, if yes, why? |
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Definition
| SHs generally have a fiduciary duty in a closely help corporation, especially the managing SHs. Court will impose this fiduciary duty, the duty of utmst good faith because of the nature of the closely held corporation. A closely held corporation, unlike a public corporation, does not provide its SHs the ability to just sell off their stock. The SHs in the closely held corporation are basically stuck becuase they cannot sell their shares and tha tis why the courts impose this additional dutyon the managing SHs. |
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Term
| What are professional service corporations (P.C.)? |
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Definition
| PC's are a special corportions that members of licensed professions may practice through |
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Term
| What is the main requirment of a P.C.? |
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Definition
| All of the BODs and SHS must all be professionals of the same profession. |
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Term
| What liability is involved in P.C.s? |
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Definition
| SHs are liable for their own malpractice, not others... they are aso not liable for rent, or Ks made by the corporation. |
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Term
| The PC must meet the general certificate rqts of an ordinary business corporation, and in addition it must: |
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Definition
| indicate the profession to be practiced, and include the names and addresses of the original SHs, Dirs, and Officers. There must also be a certification that each SH, Dir. & Officer is licensed to practice the profession. |
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Term
| What happens if a SH in a P.C. des or is not eligible to practicein the profession? |
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Definition
| His shares must be purchased by the other SHs. |
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Term
| Wha tis a derivative sut? |
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Definition
| A derivative suit is brought by a SH with standing, who seeks to enforce the corporation's claim, not her own. The SH steps in because the corporation fails to pursue the claim itself. |
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Term
| What must we ask to determine whether a suit is derivative? |
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Definition
| Could the deivative suit have been brought by the corporation itself? |
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Term
| Wha tis another good indicator that the SH's suit is a derivative suit? |
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Definition
| Ther is a breach of duty or loyalty to the corporation. Usurping a corporate opportunity, for example. |
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Term
| SH sues the corporation for issuing new stock without honoring her preemptive rights... is this a derivative suit? |
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Definition
| No. this is a direct suit. |
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Term
| Who receives the recovery from a derivative suit? |
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Definition
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Term
| Does a SH who brings a successful derivative suit get anything? |
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Definition
| Yes she receives remuneration for litigation costs and attorney's fees, which is taken out of the judgment tha ti sawarded to the corp. |
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Term
| Why is SH entitled to remuneration? |
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Definition
| Because she conferred a benefit on the corporation. |
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Term
| Under what circumstances may a SH recover damages directly in a derivative suit? |
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Definition
| A Court may award damages directly to a SH when a judgment to the corporation would be benefitting the wrongdoer SH who breached his duty. |
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Term
| What are the consequences of a failed derivative suit brought by a SH? |
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Definition
| The SH will not receive remuneration for litigation costs and attorney fees. Additionally, will most likely de ordered to pay litigation cost of the D. Finally, this claim cannot be brought by another against the Ds: res judicata. |
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Term
| What are the rquirements for a Sh to bring a derivative suit? |
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Definition
the SH must have standing meaning tha tthe SJH must have an owned stock in the corporatin at the time the claim arose. A SH may have standing to sue if she received the stock via operation of law and the person the SH received the stock from was a SH at the time the claim arose.
The SH must also maintain owneship of the stock throughout the litigation and until the final judgment is rendered.
The SH must also show that she is an adequate represntative for the corporation.
The SH may be required to post security for costs unless she is an owner of 5% of the corporation's stock, any class, or her stock equates to 50,000. |
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Term
| How does someone obtain stock ny operation of law? |
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Definition
| divorce judgment or through inheritance. |
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Term
| Once the SH is deemed eligible to bring a derivative suit what should she do to bring the derivative suit? |
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Definition
She must evaluate whther she should make a demand on the corporation to bring the duit itself. Where it is futile the Sh does not have to make a demand.
If she makes a demand and the demand is refused by the BODs she will then have to show in court tha tthe demand was refused because the BOD are interested or they did not adequately consider her demand.
If there is no demand the P must go file a complaint that alleges with particularity what the breach is and how she attempted to rectify... in other words the P must explaint to the court what happened if she made a demand on the corporaiton to bring the actiono rwhy she believed it was futile and came directly to court. |
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Term
| If SH brings a derivative suit, what authority does the BODs have? |
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Definition
| They may move to dsimiss the action by creating an independent litigation committee (special litigaiton committee) that considers the merits of the action. The motion to dismiss will explain to the court why the action is not in the best interest of the corporation. Example: the cost of the litigation will be more detrimental than the judgment. |
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Term
| What will the court consider when deciding whether to grant the crporation's motion to dismiss the derivative suit? |
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Definition
| The court will determine whether the special litigation committee is in fact a neutral body (independent). also will consider the sufficiency of the committee's investgation. |
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Term
| In a derivative the corporation must be joined to the lawsuit, is the corporation named a plaintiff or defendant? |
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Definition
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Term
| Can a derivative suit be dismissed or settled? |
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Definition
| Only wth the Court's permission. |
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Term
| If the parties to a derivative suit seek to settle or dismiss, what rights do the court have? |
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Definition
| To decide whether to approve the dismissal or settlement. Additioanlly, the court has the discretion to contact those parties that will be substantially affected by this ecision (SHs) and get their feedback, this is optional, however. |
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Term
| Can members of the board or officers bring a derivative suit? |
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Definition
| Yes they may and they do not have to make any showing to do so. The will sue in theri own name, not in the corporations even though they are suing for a breach to the corporation as the SH would. Does not have to allege representative capacity. |
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Term
| What Shs have the right to vote? |
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Definition
| SHs who are the record owners on the record date. |
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Term
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Definition
| The record owner is the owner of the stock as per the corporation's records. |
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Term
| Wha tis the record date in the context of SH voting? |
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Definition
| The record date is a date that solidifies which SHs will vote at the annual meeting. The record date will between 10-60 days before the annual meeting. |
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Term
| Can a SH have voting rights, but not own the stock? |
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Definition
| Yes. If a SH is the record owner at the time of the record date, and sells her shares after that, she is still entitled to vote at the next annual meeting. |
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Term
| What are some exceptions to the general rule tha the record owner oon the record date will have the right to vote at the annual meeting? |
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Definition
1. When the record owner on the record date sold shares back to the corporation. In this situation the SH who sold the stocks cannot vote b/c treasury stocks are exempted from the general rule. Corp never votes treasury stock.
2. The SH is dead, the executor can vote the shares.
3. Proxies for SH voting. |
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Term
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Definition
| 1. writing, 2. signed by the record owner or authorized agent, 3. directed to secretary of corporation, 4. authorizing another to vote the shares. |
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Term
| Can a proxy be emailled to the sec of the corp or faxed? |
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Definition
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Term
| If a SH gives another person a proxy, how long is the proxy good for? |
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Definition
| 11 mos, but it can be longer if stated expressly. |
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Term
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Definition
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Term
| If a SH gives another an irrevocable proxy can it be revocable? |
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Definition
| Generally yes. If the proxy, however is coupled with some interest in the stock and it states that the proxy is irrevocable then it is irrevocable. The interest must be something other than voting.. maybe the proxy holder owns the stock, or has an option to buy the stock too. |
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Term
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Definition
| A group of minority SHs get together to augment their voting power, with the intent of block voting. |
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Term
| How do you form a voting trust? |
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Definition
1. Written trust agreement controlling how the shares will be voted.
2. copy of the agreement to the corporation.
3. transfer legal title of shares to the voting trustee
4. original SHs receive voting trust certificates and retain all their rights except for voting. |
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Term
| Is there a time limit of voting trusts? |
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Definition
| 10 years under the BCL, can renew if 6 mos before the cvoting trust ends (another 10 yrs). |
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Term
| Are there any requirements for a voting agreement, which has the same objective as a voting trust? |
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Definition
| the agreement must be in wiritng and signed. |
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Term
| What is the downfall to the voting agreement? |
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Definition
| It cannot be enforced specifically. No specific performanc eof the deal. Also if the voting rights are given as rrevocable they are irrevocable for 11 mos. |
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