Business Associations

Front 1

Shareholder managment - direct control

Back 1

shareholders have no right to directly control themanagment of a corp

Front 2

exceptions to direct control 7.32

Back 2

managmenet agreement that can allow for managment decsion such as granting dividents and voting

Front 3

A shareholder agreement must

Back 3

1. be set forth in articles or bylaws and be approved by all person who are shareholders at timeof agreemetn
2. be set forth in a wirtten agrememtn sgined by all shareholder at timeo f agreemetn adn flied with the corp.
a. unless othewise agreement the agremetn is valid for up to then years
3. allows for any party to enforce it and it expires whena crop goes public
4. gives direct sharholder leigalities noramlly the directors would have but does nto impose personal liablity

Front 4

Indirect control

Back 4

asbsent a sharehold agreemetn vestin drict control of the coproation ins harholder, sharholder have indect control over their corp throught their power to elect and reovke directors, adopt, amend or appleal by law and articles and approve fundamental cop excahgnes, and sale of corp assets they can call anual meetings

Front 5

Shareholder meetings - conventional metting

Back 5

must have annual meeting with 6 months of fiscal year

Front 6

who can call a meeting

Back 6

shareholder or holders of 10% of vote may call metting

Front 7

Requirement of a meeting

Back 7

1. place of meeting
a. can be held anywhere unless specified
2. notice must be given with 10 days not more then 60 days

Front 8

improper meeting

Back 8

a. the meeting can be set aside or if shareholder can waive if there is a signed writting or the shareholder does not object to the meeting

Front 9

eligibility to vote

Back 9

1. bylaws can provide a record date to vote there is one vote pers hare

Front 10

Proxies

Back 10

a sharholder may vote his or her shares in person or by proxy
a shareholder can appoint a proxy and is effective if signed for 11 months

Front 11

Proxy revocable unless

Back 11

1. the appoinment form conspiculsly states it is irrevocable
2. it is coupled with an interest
3. death or incapcity of sharholder appointment proxy does not effect the rights of corp so they can accept

Front 12

Quorum

Back 12

A quorum must be met before vote maybe tekn a majority of votes entitled to be cast on matter by a peaticula point group will constitute a quorum unless there is a quorum requirement

Front 13

Inspectors of election

Back 13

Public corps must an other corps may appoint one more inspector to act at a meeting of shareholder and makes report at inspector finding . THe inspector may ascertained the number of outstanding shares and voting power of each, determines the shares represented at the meeting, determine the validity of proxies and ballots, count votes and determine result

Front 14

Director election

Back 14

unless otherwise said the director shall be elected by plurality of votes cause in quorum

Front 15

Cumalative voting

Back 15

rather than one share evoke by plurality the articles may provide for cumulative voting. Sharehlders multiply the number of votes there are to cast by the number of director they may distribute votes or just vote for one.

Front 16

Voting Agreement

Back 16

two or more shareholder may provide for manner in which they will vote their shares by signing an agreement for that purpose. They can be enforceable

Front 17

Voting AGreement is illegal if

Back 17

1, the object or purpose is to defraud or disenfranchise other shareholder
as a mtter of public poicy each shareholder is entitled to rely upon indiepened judgment of other stockder

Front 18

Voting Trust

Back 18

confers the right to vote or otherwise act on behalf The shareholder must 1. signed agreement setting out the proven of the trust and must 2. transfer ownership of shares to trustee

Front 19

When voting Trust is signed it must

Back 19

1. prepare a list of the names and addresses of beneficial owners and number of class of shares transferred and deliver the copies to the principa office and the corp. A voting agreement is valid for 10 years.

Front 20

A voting trust is illegal if

Back 20

1. voting right of stock are separate from attributes of ownership
2. the voting rights are deemed to be irrevocable for definite period of time
3. the principal purpose is to acquire voting control of the corp.

Front 21

Transfer restriction

Back 21

1. must be conspicuous and reasonable to be valid although there can be restrictions imposed but they have to be reasonable

Front 22

A share restriction may

Back 22

1. obligate the shareholder to first offer share to corp and another person
2. obligate the copy or other reason to acquire the share
3. require the corps or other person to approve the transfer of share is not manifestly reasonable
4. prohibit the transfer of shares to designed person if not manifesty unreasonable
It will be enforced if the resticion is noted conspicuously on front of the statement and had knowledge of the restriction

Front 23

Deadlocks

Back 23

Unless articles provide if a vacancy occurs on the board the directors remain in office constitute fewer than a quorum of the board they may fill vacancy by affirmative vote of majority of all directors that remain in office 2. if a director refuses to attend they are estopped from challenging the vote

Front 24

Judicial Deadlock

Back 24

the court can dissolve a corp if there is a deadlock of management and unable to break or if there eis contain on voting deadlock

Front 25

Modern remedies for oppression, dissent, or deadlock

Back 25

oppression, brudensome, harsh and wrongful condcut, lack of probability and fair dealing in affairs of company to the prejudice of some of ti member or a sisble department front the standard of fair ealing and violation of fair play on which every shareholder who entrust his money to commay is entitled to rely

Front 26

judicial dissolution for deadlock

Back 26

only the most sever circumstances only for matters which are illegal, oppressive or fraudulent

Front 27

Buy out

Back 27

the court may grant a buy out as a remedy. Statutory buy out: the corps can elect to buy out all the shares 1. has to be done with 90 days 2. and must notify all shareholder of all intent 3. upon ordering for shares the out must dimiss

Front 28

Officers

Back 28

The mica does not require a copy to have any spefic offers the bylaw determine the duties, authorities, and the officers

Front 29

Actual Authority

Back 29

an officer actual authority includes not only the authority expressly granted to the officer by the director or by bylaws or state

Front 30

Officer Apparent Authority

Back 30

When the corp hold on officer as possieign ceraint authority theoryby induction bother reasonably to believe that the authority to exist the officer has apparent authority to opt act and to bing the corp even thought actual authority has not been granted

Front 31

Transcton in controlling shares

Back 31

duty of good faith and fair dealing when shares are sold in looters controlling shareholder show sell to looter are laibie for damages
2. shareholder are liable for sale of their shares at preium.

Front 32

directors what can they do

Back 32

the directors may advice and cousel management, engage in strategic planning and ensue that corporate affairs are conducted in ethical legal and socially responsible way

Front 33

Mandatory functions of a board

Back 33

1. compensates executeves
2. oversee management
3. corporate planning
4. audit and accounting practices
5. perform other function prescribed by law

Front 34

Sec Implementation

Back 34

Requires companies to have audit commmities composed entirely of independent directors, prohibits for from arranging or extending credit to other officer, requires CRO to rectify the reports and ensure they do not have false info, disclose annual reports, resonance to non gap financial info, ensure there is independent auditors, disclose balance sheets, independent management of board members, disclose nomination of directors, ceritfacion of reports

Front 35

SOA

Back 35

1. Restiers public accounting firms that prepare audits
2. establish rules of audits, ethics, and indepneed relating to preparation of audit report.
3. only public accounting firm register man y prepared report
4. imposes stricter corporate resonsibliy incliding civil and crimminal statutes

Front 36

Whistleblower protection

Back 36

Created a statuary cause of action for person who's are discharged because they are lawfully provide information to their supervisors or federal cover elating to conduct they reasonably believed to be violation of securities law and protect employees who testify in particulate in any fraud proceeding

Front 37

Solicication under 14 a

Back 37

Any communication that reasonably calculated to result in gratin withholding or revocation a proxy content, autthoirztion or action by shareholder

Front 38

Solicitation uder 14 a under sec do nto include

Back 38

1. solicattion to no more than 10 person
2. socliation on how to vote
3. solicitation to obtain proxy material
4. newspaper ads that describe how to obtain proxy materials

Front 39

Purpose of a proxy regulation

Back 39

to ensure that discoluure is enough adequre knowledge about the corp and major policy qs are decided in stockholder meter

Front 40

14 a 4

Back 40

requirement that shareholder has an option to vote for or against issues submitted to them nd vote for against direct

Front 41

14 a 3

Back 41

Provides that if a solicaitiaton is by management an dilates to annual shareholder meeting at which directors are to be elected, the solicatitioan must be accompanied or preceded by annual report

Front 42

Annual Report must contain

Back 42

1. fincial satemetn for two more recent years
2. stock and dividend info
3. operation and inductiry segment info
4. director and officer info
5. management portion of the annual report contains a detailed d sicoucsiion of corp financial condition, and changes as a result of the operation

Front 43

14-9

Back 43

no solicitation throught proxy with statement that are false or misleading of material fact or omission of material fact

Front 44

14-9 Enforcement

Back 44

private right to action held under 14a -9 creates a private cause of action because private enforcement of the proxy rules provide necessary supplement to commission action

Front 45

14-9 requirement for materiality

Back 45

a fasct is meteril if there is substaial likelihood that a reasonable shareholder would consider it importing in deciding how to vote

Front 46

Causation

Back 46

1. p must how truncation causation that false statement influenced votes
2. in the case of an omission of material fact it is enough that the vote was essential like a transaction .
3. cassation may not be met where it is addressed solely to shareholder who combined votes are insuffience to proent the action form being tekn

Front 47

REmedies for 14-9

Back 47

damges, injuction, atty fees, set aside votes or merger

Front 48

14-8

Back 48

set forth procedures by which a stockholder may submit one proposal each year for inclusion in the com nay proxy statement 1. the submitting sotkchlder must have owned for period of one year 2. at least on personet of ouctstaind shares 2. shares with maker value less than 2j

Front 49

14-8 submission reuqiremtn

Back 49

the stockholder proposal must be less than 500 words if the propropal is is submitted int must be included even if the directors papoose it.

Front 50

When a company can exclude propel

Back 50

1. it is not proper subject for action by stockholder
2. it would require the company to violate any law if it was implemented
3. it is contrary to proxy regulation
4. it raltes to the redress of person or class
5. it deals with operation that account for least hen 5% of the ocmany total assets and net eating or gross sales and s not significant related to registrants business
6. it deals with matter the tis beyond the company power to effectuate
7. it deals with matter that is relating to conduct or ordingarmy business operation
8. it relates to election of officer or director s
9. it directly confics with on the comanys own proposal
10. if the proposal substainally duplicates another proposal submitted by proponent
11. it deals with substailly the same subject as another proposal that has been previously included in the company proxy matiarl with in last 5 years, if it has failed to receive 3% of the vote or 6% of prepared twice
12. it relates to specific amount of cash or stock dividend

Front 51

FAir Disclosure requirement

Back 51

requires that when a company discloses material non public info to creation stockholder or investment profession where intienally or inadvertely it must also disclose the info to all stockholders unless the original disclusre is subject to confidentiality agreement. The rule is directed to prevent selcitove disclousre

Front 52

Duty of CAre

Back 52

Directors suites must be disclosed in good faith with the care an ordinary prudent person in like poison would excecise under similar circumstance in a manner he or she reasonably believes to be the best interst of the corporation.

Front 53

Business judgment rule

Back 53

business judgment is intended to protect directors form lialbity for business decision made in good faith on abaiss or reasonsably invstegiaton even if the decision is mistaken, unfortunate or distrous

Front 54

A direct who makes a BJ in good faith fulfills the duty of car is

Back 54

He or she is not interested int the subject of the bj, he or sh eis informed wt respect to eh subject of the bj to the extent he or she reasonably believes to be appropriate under circumstance
She or she rationally believes that his or her buy is best interest of the cop

Front 55

Delaware bj

Back 55

1. directors must con dire al linof that is reasonable avlaible to them
2. the test for derminig whether director exceserise the info mated ecsion is based on gross negligence
3. good faith is irrelevant is determining whtehr the directors excessed on informed bj

Front 56

Ellminating good faith

Back 56

cant emlimnte intentiall conduct, violation of law or duty of loyalty

Front 57

Duty of care in defend derivitatve litigation

Back 57

1. p shareholder in brinign a derviate suit must allege and prove in good faith efforts to obtain redress from cop
2. this good faith effort is met when a shareholder makes a deman on the board. However, demand may b excused what it is flute because the directors are interested in the outcome of the cation
3. the board may seek to dimiss a derivate action of the grounds that it is con tray to the best interest of the corp.

Front 58

BJ applies to DA

Back 58

that decision must be made by disitereted director or special litigation cmmitee of disinterested director that is must be attest tow .

Front 59

in not in the best interest then

Back 59

a. motion to dimiss and the motion is fining own all sahrhodler and the shareholder can litigate the q of good faith.

Front 60

Caremark

Back 60

1. such liability may be said to follow from board "decision that result in a loss because that decision was not induced or negligent"
2. lalbity to the corp for a loss maybe said to arise form an unconsidered fairer of the board to actin in circumstance under due attention would arguable shave prevent loss liability from the failure

Front 61

Zapata test

Back 61

a. first the dfedant shareholder has the burden to pvoe that the ocmmitee is indepedne and excessing good faith and ruinable instigation
b. the court should apply its own independent bj to determine if the corp motto nor to dims should be greed

Front 62

Lewis case

Back 62

wehre deman on the board is required the board and the shareholder do not file and action the court should grant the corp to dismiss the action

Front 63

Futile demand

Back 63

when p shareholder alleges particularized fat that cause reasonable doubt that the directors are isnitersted or din depend or ruinable doubt the the achalnged transaction is product of valid excursive of bj

Front 64

oracle law

Back 64

the court can look at non economic ties of the directors to dermic loyalty

Front 65

Dirivative ation under RMBCA

Back 65

nature of the cation - when the representation action in that shareholder is enforcing ghte right of the corp has suffered alleged harm to the corp is the party that wouldbnefit form any remedy

Front 66

Standing for DA

Back 66

have been a shareholder of the corp at time of act or omission complain of or must have become a shareholder through transfer by operatio of law from one who was a shareholder at the time. 2. fairly and adequately present the interest of the copy.

Front 67

Demand requirement of DA

Back 67

the shareholder must make a written deman on the copy. A deviate suit may not commence until 90 days ater the date of dmean 1. shareholder rhas earlier been notified that he hcorp has rejected the demand 2. irreparable injury to the copy would result waiting for 90 days

Front 68

Dismissal of action -

Back 68

majority of direct who have no persons interest in the converse find n good faith after eaosnable inquire that the suit is not in the copy best interest but the shareholder bing the suit anyway. The suit may be demised on the copy motion

Front 69

Burden of proof of BA

Back 69

to avlid dismissal the shareholder bringing the suit has the burden in proving to the court atht he decision was not made in good faith after reasonable inquire. However, the majority of directs had a person interest in the controversy, the cop will have the burden of showing that the deciso was mande in good fait after reoanble inquiry.

Front 70

Payment of expenses for da

Back 70

upon termination of the da the scour may order the cooper to pay the ps ruinable excesses including atty few incurred in proceeding if it find that actio has resulted in substaial benefit to the corp. Of the tcourfind that action was commenced or maintained wiotut reasonable cause or for impoer purpose it may rode the p to pay reasonable expenses to ps corp.

Front 71

Duty of Loyalty delaware

Back 71

intersiic fiarness test apples to dermine the validity of an interested director transaction

Front 72

Caremark factors to monitor

Back 72

in attempt in good faith to assure that corp info and reporting system 1. that the director knew 2. should have know that violation of law were occurring and in other events 3. the the directors took not steep in good faith effort to remedy that situation. 4. that such failure proximately rustled int eh losses complained of.

Front 73

Section 144

Back 73

no contract or transaction between the corp and director or intent ally in which the director has financial interest shall be void or avoidable
a. if material fact of interest are disclosed or know tot the board or committee and board or comitee in good faith authorizes the courntral or transaction by affirmative vote of majority or disinterred derecotrs even if less then a quorum
3. the material fact of the interested are disclosed or know that shareholder entitled to vote theron, the contract or truncation is approved by good faith by vote of sharodler or
4. the contract or transctio is fair as to the corp as time it is authorized, approved or ratified by board or commute sharoeoldere

Front 74

Duty of loyalty and good faith

Back 74

1. directors and officer are bound by rule of of fairness, loyalty, honestly, good faith, in the relationship, dalign and management of the corp.

Front 75

Duty of reasonable care

Back 75

1. director sand offer must exercise reasonable 1. care, prudence, diligence and then management of corp.

Front 76

Duty of loyalty and common law

Back 76

a director owes duty of loyalty to the corp and will not be permitted top refit at the expenses of the corp. The problems in in their area invoke director dealign with the corp and her potential convict of interest. Dealign wt the copy and her potential conflict of invest her dealign with 3rd paryt and her usurpation of corp opportunity, and her dealign wt shareholders which may arise insider trading issue

Front 77

8. 60 conflict of interest transaction

Back 77

if a directs has person interest in trance is apart convict of interest arises

Front 78

interested transcation

Back 78

a party to transaction , has beneficial financial interest, director, partner, agent or employee of another entity with him the corp is transion business ant the transio is ugh importance to the corp that would bbe normal course of business be brought before the board.

Front 79

Quorum requirment

Back 79

for the purposes of dictator meeting a majority of the director wt out conflisct of interest but no less than two constitutes a quorum for purposes of the vote in a at transaction
for the purposes of shareholder meting a quorum consists a majority of the votes entitled to be case not including shares owned or controlled directly or beneficially by the direct wt confictign intestest

Front 80

fairness for a intested directors

Back 80

tehc court s look faotsr asushc as adequacy of consideration, corp need to enter into transcion, finical poison of the copy, and available alternate

Front 81

corprate oppurtunity doctrine

Back 81

The directors fiduciary duties prohibit them from divers tin ga business opportunity from their corp to themselves without first giving corp an oppurnity to act. This is sometime know as insulation of corp

Front 82

a corp must have interst or expectancy ...

Back 82

a director are prohibited form taking advantage of uiness oppurtunityonl if their copy would have an interest or expectancy in business opportunity

Front 83

scope of interest delaware

Back 83

line of interest. lack of financial ability is not a complete defense. The board gnerally decides whether to make the corp opportunity

Front 84

Executive Compensative

Back 84

decsion regarding executive comensation arise duty of loyalty issues. to avoid breach of duty of they create compensation committees composed of iddependet director to review comensaton issue sfo highly compensated executive

Front 85

Test for excessive compensation

Back 85

courts are reluctant to inquire into issues of excessive compensation in publicly held corp. In these corp. the test for excessive compensation is thwer the payment are so large as to consitue waste.

Front 86

Waste

Back 86

as an exchange that is so one sided that no business person or ordinary, sound judgment could concluded that corp adequate consideration

Front 87

controlling stockholder

Back 87

minority stockholder in acorn may be injured by variety of transcion authorized by controlling shareholder of by the board of directs elected by those shredders of by the board of director lected by those shareholders. The usually applied to here trascion is one of fairness

Front 88

3 part test in sinclair

Back 88

1. parent receives something form the subsidiary to the exclusion and eterminet of the subside airy
2. the actio nwill be judged by intrinsic fairness test (objective fairness).
3. bürden shifts to the parent to prove inter sic fairness.

Front 89

cash out merger

Back 89

1. fair dealign embraces qs of when he transact was tied how it was initiated, structured, negotioed, discolored to the directors, an dhow the approval of the directs a rand shareholder were obtained
2. fiar pricer- relates to the economic and financial coniseratio of the proposed merger, including all relevant factors: assets, maker value, earning,future prospects, and any other elements that affect th intersiic vale of the ocmanys tock
3. burden shift to the parent to prove intrinsic fairness

Front 90

Corporate Oppurnity

Back 90

a fiduciary owes duty to further the itnerste in corp and gives it the bneift of his or her business judgment. as such, the direct may not take pereosnslly profitable nbusiness opportunities which bling to the copy.

Front 91

4 part test

Back 91

1. the copy is financially able to expo it the oppurnity 2. the opportunity is within the corp line of business 3. the cop has an inters or expectancy in the oppurnity 4. by taking the opportunity to his or own the directors will be placed in poison inconssisted with is or her duets to the copy

Front 92

ali business oppurnity

Back 92

that would reoanbly lead the director or seiou excestuive to beige that it should be offered to the copy or the ti it would be of interest to the copy.

Front 93

Rejection must disclose

Back 93

1. fari to the corp. 2. rejected by disnetered directors 3. rejected by disinterred shareholder

Front 94

Burden of proof

Back 94

a party challenging the transition has the burden of porrof except the director/senior executive shall have burden to prove it is fair if it was not rejected by dinsitered dericors or shareholders

Front 95

Standard of upholding conflicting interest transaction

Back 95

a confilicing interest transactio wil not be enjoyed or give rise to award of damages do to the director interest if
1. the transact was approved by a majority of majority of directors (but at least two) without a conflicting interest after ll maerial fact have been disclosed to the board
2. the transaction was proved by a majority of votes entitle to be case by shareholder without a confilignt interest in the transit after all marial fact shave been disclosed toe the shareholders
3. the transaction, judged accordion to circumstance at the time of commitment was fir to the copy