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Business orgs outline FL!!!!!!!

Business Orgs Outline
33 questions for each FL Crim, FL Civ pro, Evidence, (either Wills OR Biz orgs)
SOMETIMES dropped evidence biz orgs AND Wills
BIZ orgs not tested on essays ( breadth not depth)
Proxies expire in 11 months
Notice to dissenters within 10 days after resolution passed
SH annual meetings require at least 10 day notice
SH special meetings require at least 10 day notice
The notice stated that the meeting was called for the shareholders to vote onBankit’s proposed merger
with Spendit Corporation. At least 10 days before the meeting, Bankit must compile a complete list of
shareholders entitled to vote at the meeting, and if it fails to do so, any shareholder may demand that the
meeting be adjourned.
Short form mergers – 80%
SH Involuntary Dissolution - 35 SHs
Appraisal rights DNA if 2000 shares +10 million outstanding OR traded on national scale
2 day written warning for special director meetings
90 days waiting required after demand on BOD for SH derivative suit
5 business days warning for day of SH inspection of books +GF, directly connected, reasonable
Refusal for inspection warranted if in past 2 yrs, person offered a list of SH or etc.
Record date may not be > 70 days before meeting
SH Annul meetings may not be more than 13 months apart
Subscription Agreementin FL-Irrevocable for 6 months unless otherwise stated
If no record date is fixed by the board, the close of business on the day before the first
notice is delivered to the shareholders is the record date. Makes sense
16b short swing profits provision PRIVATE if you make profits on those shares by a
purchase and sale or sale and purchase within 6 months of each other you must give up
those profits to the corporation.
) Preemptive right is the right of an existing shareholder to maintain her percentage of
ownership by buying stock whenever there is a new issuance of stock for money (cash
or equivalent). FLorida does not include sale of treasury stock as Anew issuance.’’
Stock – feely transferrable
Florida Business Corps Act (“FBCA”)– requires 2 things on alienation of stock if
both satisfied, that limitation on transferability will be ok
1. Reasonable restrictions
 Complete bar to transferper se unreasonable
 Right of first refusal (gives the corp the right buy first if you want to sell
them (keep the shares within the family)reasonable
2. Conspicuous restriction–restriction runs with the share (person must be put on notice
of the restriction on alienation)
FL does not recognize de facto corpspersonal liability instead
Shareholder List Inspection Rights
4 requirements to get list of shareholders:
1. Person requesting list must be a shareholder (on record)
2. Request must be in writing
3. Making a request during reasonable times (not asking to see records during
midnight or a holiday)
4. Request is for a proper purpose, not for mere personal purpose.
This method allows shareholders to cast all of their votes for a single
nominee for the board of directors when the company has multiple
openings on its board.
A corp Is considered its own person (a separate entity under FL law)
 LL=corps have limited liability meaning you cant go after shareholders unless piercing
the corporate veil
 Centralized management
 Easy transfer of ownership – shares are % of ownership of that comp that are outstanding
 Corp can sell shares to make more capital but in effect, dilute the existing ownership
C corp – suffers from double taxation. Income is taxed at the personal level and at the business
level meaning the corporation is first taxed on its profit because that is income to the corporation.
Shareholders are also taxed when they receive distribution (when they receive their share of the
profit) because that is income to the shareholders.
S corp – single taxation (foregoes double taxation). Here, the shareholders/owners are taxed even
if they don't receive the profit in cash, ie the corp chooses to reinvest the profits
Duration of corporate existence. As long as you comply with law, corp can exist forever:
annual report along with the corresponding fees. These docs are registered with the
dsecretary/department of state.
Lawful activities: Corps can engage in any lawful activities. Corps are permitted to donate to
Annual report- as part of the notice, you have to appoint a registered agent (someone who is
designated to receive service of process).
Ultra vires- Ask that is up beyond the corporate charter or unlawful
Very limited application today
Donate to candidates for federal office
How to form a corp:
Must file the articles of incorporation. Registered agent + incorporators must sign them and they
must be filed with the secretary state. After which time, the corp is filed
AOI: (1) corps name (2) # of shares authorized to be released by the corp “ownership interestcan be changed later) + and (3) the distinguishing characteristics (including classes of stock). (4)
Preemptive rights if any, (5) corporate address, (6) registered agents name (so we know who to
sue-they sign it anyway), (7) name and biz address of incorporators,
OPTIONAL: The address of the corporation’s initial registered office in Florida.
Required for annual report: same as above generally+(8) address of principal office of
the corp (9) date of incorporation (10) federal employment id #
NAME - Must end in either corporation, incorporation, company, or abbreviations of those
Cant be misleading name “FB investigators inc.” for an private investigation firm
What MAY the AOI include
 Imposition of personal liability on shareholders
 Purpose of the corporation
 # of directors
 Par value of stock (corp can never sell stock for less than that value)
Defective formation:
De jure – incorporated in complete compliance with the law
De facto – FL DNR de factopersonal liability. incorporated in substantial
compliance with the law (although they haven’t complied with everything, they are given
a chance to CURE their defects to become a registered corp)
No personal liability BUT Quo warranto still p;ossible Quo warranto is a special form of legal action used to resolve a dispute
over whether a specific person has the legal right to hold the public office that he or she occupies
Actual knowledge of no incorporation personal liability
Corporation by estoppel - neither party knew there was defective incorporation and they
acted like it too estopped from suing SHs for personal liability probably + estopped
from avoiding contracts (1) a good faith attempt to form a corp, (2) the corp reasonably
believes they formed the corp (3) they acted like a corp (4) other party had reason to
believe they were not a corp but they treated them like one anyway, they will be
estopped from holding the owners liable (they will have to go after corp assets)
Amending Bylaws: MAJORITY BOD OR SH
Amending AOI BOD AND the shareholders BOTH must approve the amendment
by a majority
Amending Bylaws BOD OR the shareholders must approve the amendment by a
Half is typically enough
SH voting on Regular issue majority of a quorum present
SH voting on Fundamental issue – majority of ALL outstanding shares (not just those at the
Capital structure –
Shares - ownership interest issued by the corp
Original issuance of share is how corp made money (not the resale of that share)
Debt structures – bonds (loans with) layperson buys them and earns interest on them whereafter
the corp pays them back after a certain time
Bankruptcy - Bond owners get paid first, shareholders second (increased risk)
Preferred stock – a class of stock that typically does not have voting rights in exchange, they
usually get paid first or certain amount of money
-will be considered voting stock for an issue that would affect these preferred stocks
rights -Both classes must approve of this issue by a majority
Preemptive right – give a right, but not obligation, to purchase shares for cash in order to
maintain their ownership interest in that stock
(1) Preemptive right is the right of an existing shareholder to maintain her percentage of
ownership by buying stock whenever there is a new issuance of stock for money (cash
or equivalent). FLorida does not include sale of treasury stock as Anew issuance.
-- S owns 1,000 shares of C Corp.
There are 5,000 shares outstanding.
C Corp. is planning to issue an additional 3,000 shares.
If S has preemptive rights, then S has the right to to buy 600, it is a percentage deal. She initially
had 1k of 5k which is 20% so now she is entitled to 20% of the 3,000 newly issued shares which
is 600 shares.
Traditionally, preemptive rights exist unless the articles provide otherwise.
The articles of C Corp. provide for preemptive rights. C Corp. is issuing stock to G to acquire
Green Acres from G. Are there preemptive rights? NO. This is not an issuance of momney. Here
it is for property
Treasury stock.
This is stock that was previously issued and has been reacquired by the corporation. The
corporation can then resell it. Treat the sale as no par.
1. Who determines the value of consideration received for an issuance? The board of
directors. And its valuation is conclusive if it was made in good faith
Distribution of shares- giving the profit to shareholders (dividends)
BOD has the control over doing this
Stock – feely transferrable
Florida Business Corps Act (“FBCA”)– requires 2 things on alienation of stock if
both satisfied, that limitation on transferability will be ok
3. Reasonable restrictions
Complete bar to transferper se unreasonable
Right of first refusal (gives the corp the right buy first if you want to sell them (keep
the shares within the family)reasonable
4. Conspicuous restriction–restriction runs with the share (person must be put on notice
of the restriction on alienation)
Shareholder power – vote on BOD + corporate matters (amending AOI, motions, etc.)
Valid meetings (annual and special meetings)
Annual meetings- elect directors and any other business
Special meeting – special notice required!!!
Shareholders MUST be notified of both meetings or the act will be null and void
Notice + Quorum (majority of common stock shareholders entitled to vote)
Can also vote by proxy- they will be counted towards quorum
Straight voting (default) (1 share, one vote)
Cumulative voting allowed in Florida – allows for minority shareholders to have a voice
=Shares in vote *directors required /directors to be elected +1
=take answer and add 1
X = # of Ds wanted X # of total shares
# of Ds being elected +1
(300* 2/5 +1 )+1
Shareholder can vote
as many shares as he has times the number of directors
being elected, and cast the product among the director
candidates. EXAMPLE: 100 Shares X 10 Directors = 1000
cumulative votes
Cumulative Voting Formula
X >
(S*𝑁 / 𝐷+1) +1
X= Number of shares you need to elect N directors
S = Total number of shares being voted at the meeting
N = Number of directors YOU want to elect to the board from the total of D directors
spots open
D = The total number of director spots open for election
Ex question:
300 shares available (s)
5 directors to be elected (d)
2 directors wanted (n)
Shares in vote *directors required /directors to be elected +1
(300* 2/5 +1 )+1
=101 votes required to vote in those two directors
take answer and add 1
X must be 1 greater than 100
Cumulative Voting Formula
How many votes of ALL SH votes are sufficient to elect a specified number of directors?
X = a X b +1 X = # of Ds wanted X # of total shares +1
# of Ds being elected +1
1000 shares ; 2 Directors desired ; 5 positions open
=1000 X 2 / 5 + 1 = 2000/6 = 333.33 =should be 334.33?
How many directors can one shareholder elect with a given # of shares?
X = (n-1)(d+1)
X = (# of 1 owner shares -1) (# of Ds being elected + 1)
Total Shares – All Owners
401 shares; 1000 shares voting ; 4 directors
(401-1)(4+1) / 1000 = 400X5=2000/1000 = 2
601 shares; 1000 shares voting ; 4 directors
(601-1)(4+1) / 1000 = 600X5=3000/1000 = 3
Business judgement rule – directors do not need to pay dividends for this reason
BJ rule – moderated by duty of good faith and loyalty
Voting trust – a trust where shareholders irrevocably transfer their ownership into the trust
-the trustee has the power now (but they must vote those shares in accordance with the
trust purpose
After transfer of ownership to trust:
 Trustors have equitable title
 Trustee has legal title
Voting trust certificate entitles you to % of dividends
Pooling/voting agreement – a K for voting Must be written and signed
Not a trust
Lets vote on these people
Transfer the share itself
Make sure subsequent owners /transferees are bound by this agreement by voting trust
certificate (“VTC”)
Transferrable from person to person
Must be written and signed
Pooling Agreement
Can be perpetual
Shareholders retain both
legal and beneficial
Voting Trust
MBCA: >10 Yrs
DGCL: Can be
perpetual here too
Legal ownership transferred
to trustee, shareholders
retain beneficial ownerships
Shareholders - No fiduciary duty to corp (act in their own best interest)
Exceptions to only act with self interest:
 Controlling shareholders cannot use that power to defraud or repress minority
 corp with a 100 or fewer SHs
Closely held corps corp with a 100 or fewer SHs (corps w/ >100 SH) the duty is
ALLLLL SHs must be treated equally FBCA – Florida business corps act --- can
dispense with BOD and so, SHs can run the corp by themselves
BOD in corp– elect by voting shares (nonvoting shares do not elect BOD)
Elected by plurality
BOD in not for profit corp–
Meetings -- question – was the meeting valid?
Directors have no power themselves, they must meet as a body
Regular meetings - occur regularly
Notice not required because they occur reguarly
Special meetings -occur as needed
Written Notice at least 2 days before meeting
Quorum – set # required for a valid meeting to take place
can be as high as you want, but not lower than 1/3 of all BOD that exist
(ex. 9 BOD3 is the lowest quorum you can go)
once you have a quorum, you need a majority to vote in
favor of the act for the act tom be valid after that meeting
Board Action/Resolution
There are two ways the board can take a valid act:
(1) unanimous written consent to act without a meeting, or
(2) a meeting (can be held anywhere) that satisfies quorum and voting
What if neither of these is met? must be ratified by any of the above two things or
it is VOID
Duty of care
BJR So long as these judgements are informed, BOD will not have violated duty of care
Duty of loyalty
Conflicts of interest – BOD cant vote on things if they have a personal stake/interest in
Interested director transaction  the proposal will be voted in if EITHER:
 interest directors discloses their interest to other BOD + interest directors
abstains from the vote + as long as majority of disinterested BODs votes
in favor of the proposal
 OR SHs approve the transactionmajority? the proposal will be voted i
 OR the K was fair and reasonable at the tiome it was approved (the BOP
is on the director to show it was fair)
If no disclosure, you will be liable to corp for damages
If my family is on BOD, they are not disinterested directors (my inrerest is imputed to
DUTY OF LOYALTY (Burden on Defendant because BJR does not apply in cases involving
conflict of interest.)
COI Exception
Interested director transaction will be set aside UNLESS the director shows:
(1) the deal was fair to the corporation when entered,
(2) full disclosure her interest and the relevant facts were disclosed or known and the
deal was approved by either of these: disinterested SHs, BOD, or committee
- Special quorum rules: interested directors count toward quorum. interested directors
may be counted to meet quorum requirements
Business opportunity /usurpation - if director came upon the business opp in the course of your
employment with the corp, you have a duty to dsclose and inform that business opp to the corp
Corp Denied the opp director can take the opp
Corp Accept the opp corp takes the opp
Failure to inform (take the opp without telling the corp first) corp can claw back the profits
officers – appointed by the BODs
-act as AGENTS of the corp (P) *BOD are never agents of the corp
PRESIDENTS, CFOs, CEOs, make executive decisions (run the corp day to day
Actual vs apparent agency Actual – actually have he authority to bind the corp with your actions
Apparent – a person reasonably believes you “ “ “
 The nature/reasonableness of the purchase can also determine if they have
apparent authority and thus their actions bind the corp
 Buying a capital asset/inside the scope of business =what they do day in
and day out ( requires BOD approval! (no apparent authority at all)
10b5 -broad only one that requires “scienter”
Fl’s Blue Sky laws -broad – only one that does not need “nexus to interstate commerce”
Promoters- a person who contracts on behalf of a corporation that does not yet exist;
Promoters generally are personally liable for actions taken prior to incorporation unless
the K waives his personal liability = Generally-Owners cannot claim acting as agents of
corporation b/c corp does not yet exist but promoter may look to that corporation for
ratification after the fact and indemnification:
Promoter’s Liability
MBCA 2.04 All persons purporting to act as or on behalf of a corporation, knowing there was no
corporation, are jointly and severally liable for all liabilities while so acting.
FLORIDA 607.0204 .--All persons purporting to act as or on behalf of a corporation, having actual
knowledge that there was no incorporation, are jointly and severally liable for all liabilities created while so
acting except for any liability to any person who also had actual knowledge that there was no
Promoter cannot bind/contract with a corporation that does not exist HOWEVER, promoter is
allowed to: (3 Ways To Deal With Pre-Incorporation Contracts):
RATIFICATION Make a K that binds himself and then just look to proposed company
for ratification and indemnification later
OR the K Bind himself (as the promoter) and stipulate in the K that the proposed
company will indemnify the promoter
NOVATION Make a K that binds himself but2. releasing him from and shifting
liability to the corporation once formed
Or, after issue arises, corp may bind promoter but hold corp liable instead.
TREAT AS OFFER CONTINUING PROPOSAL which corporation may accept when it
comes into existence
Special Shareholder Meetings any meeting other
than the annual meeting
notice must contain a description of meeting’s purpose(s) and the matter to be
For special shareholder meetings, notice MUST be given between 10 days and 60 days before +
voted upon.=That statute requires that notice for special (i.e. other than annual) shareholder
meetings must be at least ten and no more than 60 days in advance of the meeting date.
Put in pictures!!!
Special Shareholder meeting can be called by:
MBCA 7.02
Special meeting can be called by:
persons authorized in Articles or Bylaw
 10% of all SH
=In a Model Business and
Corporation, as in Fl, 10 percent of the stock company
can call a meeting
SH Derivative suit
1. Breach of Fiduciary Duty
2. Usurpation of a corporate opportunity
3. Corporate waste claims are derivative, not individual.
SH Direct Actions
1. Declare dividends action to compel corp. to give out a
2. preemptive right suit to enforce preemptive right
3. Appraisal remedy
4. Oppression
5. Dissolution action to compel company to dissolve
Derivative Suits =SH sues his corp
SH Direct vs Derivative suits
derivative suit on behalf of the corporation action is “derivative” because it is brought
by one or more shareholders on behalf of the corporation rather than by the
corporation itself
direct action on behalf of the shareholder
Standing Requirements to bring a derivative suit
1. contemporaneous ownership rule You must have been a shareholder at the time of the
alleged wrong doing OR
2. continuing wrong doctrine, EXCEPTION: If you acquire your shares, anytime the wrong
is ongoing, then you bring a derivative suit and may reap any recovery rewards.
3. Must maintain your shareholder status during the entire suit, at least 1 share
=Must keep stock until end of litigation
(1) In a derivative suit, a shareholder is suing to enforce the Corporation’s claim, not her own
personal claim.
To determine if it’s a derivative suit, ask: could the corporation have brought this suit? If so, it is
probably a derivative suit.
 S sues the board of directors of C Corp. for usurping corporate
opportunities. Derivative suit? YES duty of loyalty (and care) are owed to
corporation. Breach hurts the corp
 S sues board of directors of C Corp. for issuing new stock
without honoring her preemptive rights. Derivative suit?
No. this is a direct suit, to vindicate S’s personal claim.
(2) What are the consequences of a successful derivative suit? Generally, the recovery in any
successful derivative suit goes to the corporation (not to the shareholder (S)) who brought the
suit on behalf of the corporation.
What does S receive for winning?
Costs and attorneys fees, usually from the corporation. After all, the shareholder
conferred a benefit on the corporation by suing and winning.
What does S receive for losing? NO_attny fees___________________________
-- Is S liable to the people he sued for their costs and attorneys fees? Yes, if he
sued without reasonable cause. –
- Can other shareholders later sue X on the same transaction? No. res judicata
Requirements for a derivative suit:
 Stock ownership. The person bringing suit must have owned stock at the
time the claim arose OR have gotten it by operation of law from someone
who did own stock when the claim arose. Acquiring stock by operation of
law Inheritance, divorce decree
S will adequately represent the interest of the corporation.
written demand on directors then wait 90 days that the corporation bring
o UNLESS demand would be futile If D are the BOD No demand
on BOD for derivative suit is needed
the exhaustion of corporate remedies
As a predicate of the shareholder making a derivative suit, must make a demand on the board, or the demand must be excused.
(and ask it to sue—then if it refuses to sue, then I can sue on its behalf)
Exception to demand precondition
FutilityA demand on the board is excused when the court is persuaded on the pleadings that the claim is futile (pointless)pleading that a demand would be
unavailing, unreasonable, impracticable, or that that corp are the alleged wrongdoers
=if the corp BOD leaders made the wrong, you don't have to demand
Usually must plead with particularity the efforts to get the corporation to
sue or why demand was excused
LitigationThe corporation must be joined as a defendant. Even though the
suit asserts the corporation's claim, the corporation did not do so, so it is
joined initially as a defendant
Corporation can move to dismiss the derivative suit based on findings by disinterested
directors (or a committee of disinterested directors) that suit is not in the corporation’s
best interest (e.g., low chance of success or cost of litigation would exceed recovery). -The court will scrutinize whether the directors making the recommendation are truly
disinterested and, if so, dismiss. In some states, the court will also make an independent
determination of whether dismissal is in the corporation’s best interest.
Record Date
For voter eligibility cut-off
Determines shareholders entitled to vote at a future meeting by serving as the date on which stock
ownership must exist even if SH sells ALL her shares AFTER this time, she is STILL
ENTITLED TO VOTE on that future meeting (but not later ones)
C Corp. sets its annual meeting for July 7 and record date for June 6. S sells B her C
Corp. stock on June 25. Who is entitled to vote the shares at the meeting, S or B? S
Exceptions to the general rule that record owner on record date votes.
1. Treasury stock. Suppose the corporation reacquires stock before record date. So
the corporation is the record owner on the record date of this treasury stock. Does
the corporation vote the treasury stock? _____ NO_________
Short form Merger
if parent has 90% (80% in FL) ownership of a subsidiary corp just need parent corp’s
BOD approval not SH
if parent has 80% ownership of a subsidiary corp, parent can short form
merge with that subsidiary without shareholder approval ONLY REQUIRE’S
=Does not require shareholders votes or board of the owned company.
Alpha already owns 8% of Beta. Alpha can exercise short form merger of Beta only by
Alpha’s board.
Defacto Merger Doctrine- the buying/selling was almost the same as a merger (assets and
liabilities all came to the other side) This buying/selling gets treated like a merger.
Buyer corp’s SHs will assert there was a defacto merger in order to acquire appraiser
and/or voting rights of that merger
Dissenting Which directors are liable for all the things directors be liable for?
Absent directors are not liable
Dissenters in writing are not liable
Good faith relaince are not liable ???
1. General rule.
A director is presumed to have concurred with Board action unless her dissent or
abstention is noted in writing in corporate records. That means
(1) in the minutes or
(2) in writing to the corporate secretary at the meeting or
(3) registered letter to the corporate secretary immediately after the meeting.
-- So is an oral dissent effective? Not by itself________
Obviously, you cannot dissent if you voted for the resolution at the meeting.
2. Exceptions.
1. (1) Absent directors are not liable.
2. (2) Good faith reliance on (a) book value of assets or (b) opinion of a competent
employee, officer, professional, or committee of which the director relying was
not a member, or (c) financial statements by auditors. Must have a reasonable
belief in the competence of the persons providing such information.
Appraiser Right CLOSE COMPANIES ONLY = right to force corp. to buy your stock
=dissenting shareholder can asserts her right of appraisal can compel the corporation to pay her
in cash the fair value of her shares as determined by a judicial appraisal process.Appraiser rights
DNA to Public Companies!
i. Demand that they receive cash equal to the FAIR value of their shares
ii. Separate and fair determination of the value of the share
1. Exception- Appraisal remedy does NOT apply
a. If the shares are traded on national stock exchange
b. Or if you have 2000 stock holders
i. Because you can exit by just selling your shares to
 It’s a way to vote against the merger and to demand cash in the fair amount of their
shares and this is a way to allow exit from the transaction.
 Shareholders of the selling company OR the shareholders of the merged company gets a
right of appraisal.
Economic loss rule – pure economic losses CANNOT sue for torts instead, sue for contract
An affiliate is a type of inter-company relationship in which one company owns less than a
majority stake in the other company's stoc
Affiliate Transaction means any agreement, contract, arrangement or other transaction or
series of related transactions (including any purchase, sale, transfer, assignment, lease,
license, conveyance or exchange of assets or property, any merger, consolidation or
similar transaction or any provision of any service)
Affiliate Transaction Transactions with corps that have >10% of ownership in our corp
Must be approved by either
(1) majority of disinterested directors OR
(2) 2/3
disinterested SHs
UNLESS consideration is FAIR
DNA to corp has under 300 SHs
Committees The board can delegate substantial management functions to a committee, but a
committee cannot:
(1) amend bylaws,
(2) declare dividends or
(3) recommend a fundamental corporate change to shareholders.
Domestic Corp Formation
 File articles with Secretary of State and
 pay required fee.
Acceptance by Secretary of State is conclusive proof of valid formation. At that point, it is a de
jure corporation
(1) A foreign corporation is one incorporated outside this state.
So is a corporation formed in Florida “foreign?”
Foreign corporations transacting business in this state must qualify
(2) Transacting business means the regular course of intrastate (not interstate) business
activity Not occasional or sporadic activity.
Qualify by:
 getting a certificate of authority from Secretary of State.
 Apply by giving information from articles and
 a certificate of good standing from home state.
 Must pay fees to state
 Generally, must appoint registered agent here too.
(4) Consequences of foreign corporation transacting business without qualifying: civil fine and
the corporation cannot sue in state (but it can be sued).
There are no other consequences for the foreign corporation.
Unqualifying foreign corp cannot bring an action in any court in Florida, until the corporation obtains
authority. However,
the corporation is not barred from defending any action in Florida. A foreign corporation that
transacts business in Florida without authority is liable to the state in an amount equal to all fees
and taxes that would have been imposed for the years in which it failed to qualify. In addition, the
corporation must forfeit to the state between $500 and $1,000 for each year it failed to qualify.
-- Can the foreign corporation sue once it qualifies and pays fees and fines? __yes______
SH Involuntary Dissolution > 35 SHs
1. directors must be in a deadlock, =When the directors are deadlocked in
the management of corporate affairs and the shareholders are unable to
breach the deadlock.
2. but it must also be shown that the corporation is suffering or
threatened with irreparable injury.
SH Involuntary Dissolution: closely held corporation having 35 or fewer shareholders can
successfully maintain an action to involuntarily dissolve the corporation? The courts have full
power to liquidate the assets and business of a corporation in an action by a shareholder or group
of shareholders in a corporation having 35 or fewer shareholders when:
1. the corporate assets are being misapplied or wasted, or a causing
material injury to the corporation
2. the directors or those in control of the corporation have acted, are
acting, or are reasonably expected to act in an illegal or fraudulent
 the shareholders must be deadlocked in voting power and
 have failed to elect successors to directors whose terms have expired.
if the shareholders created the vacancy by removing a director, the shareholders generally must
select the replacement.
Filling vacancies on the board: MBCA 8.10
If remaining directors less than a quorum, majority of remaining directors may fill vacancies
Filling vacancies on the board: Death, resignation, removal, expansion of board.
Who can fill a vacancy? SH or the directors can fill the vacancy…
whoever acts first.
if there was 5 directors…
and 3 seats became vacant,
the 2 remaining directors they can fill the remaining seats before the SH decides
to pick someone (even though there isn’t a quorum)
+Once the seat is filled, the other body can’t fill it.
!!!!Removal of directors: occurs by vote of the shareholders usually
Only at shareholders’ meeting called for that purpose + notice of meeting with that purpose
director is entitled to reasonable notice and why his removal is being sought.
Anytime you are seeking to remove a director, the director is entitled to corporate Miranda notices… This then allows
director to mount his defense as to why they shouldn’t be removed.
Common law --high hurdle at common law- a director could only be removed by affirmative showing of
cause action that is harmful or wrongful to the corporation, breach of fiduciary duty).
Statutes provide that director can be removed without cause, by a majority vote unless bylaws say
otherwise. (greatly liberalized)
DE!!!!Removal of directors
(directors can be removed without cause, by a majority vote)
1 exception TO WITHOUT CAUSE ability
Removing directors elected to a staggered boarda SH must have cause
=Under Delaware directors elected under staggered voting can only be removed for cause.
DE is unique. DE makes it more difficult for SH to remove directors on staggered terms unless the
articles of incorporation provided otherwise.
MBCA 8.08 !!!!Removal of directors (directors can be removed without case, by a majority vote)
2 exceptions to MAJORITY VOTE requirement:
If a director is elected by a voting group of shareholders
Only voting group that elected Director can remove him.
cumulative voted director
If # of NO to removal > director’s # of YES votes that elected him initially NO REMOVAL
(everyone who wanted him on the BOD in the first place may still at the corp-)
Dissolution: voluntary and involuntary