Key Terms
Quorum
Minimum number of shareholders (usually majority) required to be present to take a vote.
Proxy
Person authorized to vote on another shareholder's behalf.
Common stock
One vote per share owned (default) Preferred stock: typically NO voting right in exchange for higher or priority dividen
Preemptive right
Shareholder's right to buy newly issued stock before the public offering; must be exercised within 30-60 days.
Purpose
Prevents shareholders from using a corporation to achieve what they could not do directly themselves.
Derivative suit
Lawsuit brought by a shareholder on the corporation's behalf; damages go to the corporation if successful.
Most common use
Shareholders suing officers or directors for not acting in the corporation's best interest.
Eligibility requirements
1. Shareholder must own shares AT THE TIME of the alleged injury 2.
Outcome if successful
Damages go to THE CORPORATION, not the individual shareholders who brought the suit.
What does NOT justify a derivative suit
General dissatisfaction with management. What DOES justify a derivative suit: misconduct or fraud by a director or offic
Dividend
Pro rata distribution of corporate profits to shareholders; declared at board's discretion.
Forms
Cash or additional shares in the corporation.
Key rule
Shareholders have a right to a dividend WHEN DECLARED, but the board has discretion over whether to declare one.
Two components
Duty of Loyalty + Duty of Care.
Corporate Opportunity Doctrine
Prevents officers and directors from taking personal advantage of a business opportunity that properly belongs to the co