Corporations

Last update by Shanal on 10/24/2013
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Direct Shareholder Action/Suit

Answer:
Shareholders can directly sue corporate executives for

- breach of specific contracts to shareholders(e.g. preemptive rights)

OR

- denying shareholders specifically granted statutory rights (e.g. right to inspect records/books)

*** minority sh's of a close corp suing for oppression can bring a direct suit against the majority

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    Shareholder Derivative Action
    Shareholder brings suit to enforce a claim that is actually the corporation's claim. (shareholder derives standing from corp ownership).

    If successful, the award goes to the corporation and the sh who brought the action is entitled to reasonable expenses. Any settlement must be approved by the court.
  • Kara
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    Most claims against DIRECTORS or OFFICERS, for BREACH of fiduciary duty, MUST be brought as DERIVATIVE claims.

    What is the basic test to determine this?
    Test to determine if there can be a derivative action-

    Could the corporation have brought the suit itself?
    If yes, the suit should be brought through derivative action.

    *note- most derivative actions are against dir's or officers, but a sh could bring a derivative claim to try to get the corp to bring an action against a 3rd party, where the BoD has declined to bring the action.
  • Kara
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    Procedural Requirements for bringing a derivative action (3)
    1. P must have owned the shares at the time of the injury to the corp.

    2. P must adequately represent the interests of the shareholders as a whole.

    3. P must plead futility OR make a pre-suit demand.
    *OHIO- P must make a written pre-suit demand that corp bring action itself.

  • Kara
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    For a derivative action, shareholders can avoid making a demand on the corp, by pleading...
    The excuse of futility, with particularity.

    Demand is futile where...

    1. A demand would be served on the wrongdoers, or
    2. A demand would be served on those under the influence of the wrongdoers.

    *note- sh's should always plead futility bc a written demand and then refusal by BoD is protected by BJR.
  • Kara
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    Shareholder Voting - Where do shareholders vote?
    - Shareholders vote to elect directors at annual or special meetings. A corporation MUST hold an annual meeting, where directors will usually be elected.

    - A special meeting may be called to get shareholder approval for a fundamental corporate change, to replace a director, etc. A special meeting may be called by the Chairperson of the BoD, by the BoD, by the President, or by any 25% shareholder.
  • Kara
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    Location of Shareholder Meetings
    - Shareholder meetings can be held in Ohio or outside of Ohio
  • Kara
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    Notice for Shareholder Meetings
    Notice must be sent to shareholders for any meeting, and must...

    1.) Be in writing;
    2.) Identify the time, place, and purpose of the meeting;
    3.) Can be sent by mail, overnight, or any other form of communication authorized by the shareholder, such as e-mai; and
    4.) Delivered at least 7 and not more than 60 days before the meeting
  • Kara
    Answered in Corporations
    How May Defective Notice Be Waived?
    - Defective notice can be waived in writing or if a shareholder attends the meeting and does not object to the defective notice
  • Kara
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    Quorom - What is it and General Information
    Definition: The minimum number of shares present at a meeting to take effective action. Shares can be “present” when someone holding a proxy for that share’s vote attends the meeting.

    Note: If only one shareholder appears, but owns enough shares to constitute a quorum, the meeting can proceed.
  • Kara
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    How Many People Constitute a Quorum?
    - The number of shares necessary to establish quorum can be set in the articles of incorporation

    - If the Articles are silent then quorum is \"whoever shows up.
    *This is an unusual provision (most states require a majority of shares to have quorum).

    EXCEPTION: For fundamental corporate changes, where 2/3 support is needed from shareholders, that proportion must vote “yes”
  • Kara
    Answered in Corporations
    Who gets to vote (and also notice)?
    The shareholder as of the “record date” has the right to vote. The Board sets the “record date” and the owner on that record date gets to cast the vote that comes with the share.

    EXCEPTIONS:
    1.) Treasury Shares: Shares owned by the firm don\'t vote
    2.) Death, guardianship, etc. of shareholder as of record date are entitled to vote the shares
    3.) Shares owned by other corporations - An officer of the other corporation votes those shares.