Key Terms
Quorum
The minimum number of shareholders (usually a majority) required to be present to conduct a vote. Defined by bylaws or s
Proxy
A person authorized to vote on another shareholder's behalf when that shareholder cannot attend in person.
Common stock
One vote per share, generally. Preferred stock: Typically no voting rights; trades voting rights for higher or priority
Preemptive right
A shareholder's privilege to purchase newly issued stock before it is offered to the public; proportionate to current ho
Purpose
Prevents dilution of existing ownership percentages.
Timeline
Must typically be exercised within 30 to 60 days of the offer.
Derivative suit
A lawsuit filed by a shareholder on the corporation's behalf — usually against an officer or director — because the corp
Requirements to file
1. Shareholder must have owned stock at the time of the alleged injury (cannot buy in after the fact just to sue) 2.
Grounds that succeed
Misconduct or fraud by a director or officer.
Grounds that fail
General dissatisfaction with management.
Damages
Awarded to the corporation, NOT to the shareholder who filed.
Dividend
A portion of corporate profits distributed to shareholders on a pro rata basis; typically paid in cash or additional sha
Court standard
As long as the board acts reasonably and in good faith, courts uphold dividend decisions even when shareholders disagree
Corporate opportunity doctrine
Officers and directors cannot take personal advantage of a business opportunity that properly belongs to the corporation
Business judgment rule
The legal presumption that directors acted in good faith, were well-informed, and believed their actions served the corp