Shareholder Rights
What are two important shareholder rights?
A. (Any of the following 2)Limited liability, right to vote, right to sue the corporation, dividends, inspection of books or records, cumulative voting for directors, preemptive rights for issuance of new shares, voting agreemnts, shareholder mangement agreements.
What are the three general fiduciary duties that an agent must act with?
Care, obedience, and loyalty.
How are corporations formed?
Articles of Incorporation are filed with the secretary of state.
What are the typical characteristics of partnerships?
A legal entity that requires no formal filing, and shares in profits and has active control and management of the busienss.
What are two of the typical characteristics of a corporation?
1) legal entity that requires filing with the state for legal existence, 2) separation of the corporation from the owners-the shareholders- for liability purposes [limited liability/corporate veil]; 3) corporate formalities, that is, less flexibility to establish the rules governing the internal affairs of the corporation, 4) centralized management and control in the board of directors-management separate from ownership; 5) manager and controlling shareholder fiduciary duties which may not be modified or eliminated; 6) relatively free transferability of ownership interests [shares or stock], 7) power to award distributions[dividends]; 8) ability to raise capital through securities offerings, and 9) perpetual existence.
What fiduciary duties do the directors and officers owe to the shareholders?
The fiduciary duties of care, loyalty, and good faith.
If an agent has been expressly granted authority to act by the principal, they have this type of authority.
Actual authority.
What are the two types of corporations and what are the taxes for each?
Public corporation (C-Corp) - double taxation and private or closed corporation (S-Corp) pass through taxation.
What is one key difference between general partnerships and limited partnerships?
Limited partnerships has limited libaility while general partnerships do not.
What is one characteristic of a Limited Liability Company (LLC)?
1)legal entity that must file with the secretary of state for legal existence, 2) often insular like partnerships, 3) limited liability for members and managers, 4) member or manager managed; 4) restrictions on transfer of units, 5) pass through taxation, 6) flexibility to establish rules governing internal affairs through operating agreements, 7) may eschew “corporate” formalities which complicates veil piercing; 8) member manager and member manager fiduciary duties which can be altered or modified, in some states like Delaware eliminated entirely, and 9) perpetual existence if elected.
What is the key difference between majority and minority shareholders?
Minority shareholders have limited power to influence corporate affairs compared to majority shareholders.
Unauthorized acts by an agent can be ratified by the principal in these two ways:
Express conduct or implied conduct.
What are two factors a court will look to to determine whether or not they should "pierce the veil?"
Treating corporate funds as their own funds, commingling of corporate and personal funds, no separate bank accounts, use of corporate assets for personal purposes, excessive corporate loans at below market interest rates, excessive officer salaries and dividends, optics of sameness.
Unless otherwise provided in the partnership agreement, partners can make decisions that are considered to be in the _____
Ordinary course of business
One possible end to a corporation is through a merger; what are the two parties to a merger called?
The bidder (buyer) and the target (seller).
Shareholders generally do not owe fiduciary duties to a corporation except in these two exceptions:
(1) if they are a controlling shareholder they are a fiduciary; and/or (2) in a closed corporation, a shareholder management agreement requires it.
What are the two elements of apparent authority?
Principal's manifestation and the third party's reasonable belief.
What is the difference between a direct and a derivative lawsuit?
Direct lawsuit is when the shareholders are asserting a personal right and damages go to the shareholders. A derivative lawsuit is when the shareholder asserts the rights of the corporation and the damages go to the corporation.
What type of taxation do partnerships fall under?
Pass through taxation.
What is the test to determine materiality under Basic v. Levinson?
A fact is material if there is a substantial likelihood that a reasonable investor would consider it important to their decision. It is a fact specific inquiry, there is no bright line test.
What is one benefit to being a shareholder rather than a manager for liability purposes?
Shareholders have limited/no liability and managers can be held liable.
A principal is vicariously liable for torts of the agent if there are these two elements present:
Elevated control over the manner and means and agent acting within the scope of employment.
What is one difference between S-Corporations and general partnerships? (There are many)
Corporation requires filing while GP does not. Corporation has separate ownership while GP does not. Shareholder of Corporation are not liable for debts or liabilities while GP partners are. Corporation has limited flexability to change internal affairs while GP has flexability. Takes one shareholder to form a corporation while GP requires at least two people. Corporation has greater freedom to transfer or sell ownership interest while GP does not. Corporations have perpetual existance while GP do not.
What are the fiduciary duties required of partners in a partnership?
Care, loyalty, and good faith and fair dealing.
What is one way to "keep" the closed corporation closed?
Preemptive shares, shareholder management agreement, buy back agreements.