Corporations 6

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Author:
paul
ID:
24147
Filename:
Corporations 6
Updated:
2010-06-19 11:45:46
Tags:
Controlling Shareholders Related Topics
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Description:
Corporations 6 - Controlling Shareholders & Related Topics
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  1. Do S/Hs owe a fiduciary duties to each other or to the corporation?
    CLOSE CORPORATION: YES shareholders (esp. CONTROLLING S/Hs) owe each other and the corp. fiduciary duties
  2. CONTROLLING SHAREHOLDER

    1) May she sell her SHARES at a premium?
    2) Can she sell her shares to whomever she likes?
    3) Can she sell BOD positions?
    1) YES--and she may keep the premium for herself ("control premium")

    2) NO--Must make a REASONABLE INVESTIGATION into who the purchaser is

    • EXAMPLE: cannot sell to a looter
    • CONSEQUENCES OF BREACH: Disgorage profit AND liable for ALL DAMAGES to corporation

    3) NO--May not sell BOD positions (disgorge profit)
  3. FREEZE-OUTS

    1) What is a freeze-out?
    2) Will a court uphold one?
    1) MERGER designed to cash-out minority shareholders UNFAIRLY

    2) LIKELY TO UPHOLD if transaction is fair "as a whole" (fair PRICE and course of dealing). Factors to consider

    • Whether the deal is tained by SELF-DEALING or FRAUD
    • Whether the minority shareholders were DEALT WITH FAIRLY
    • Whether there is LEGITIMATE BUSINESS PURPOSE for the merger
  4. INSIDER TRADING

    Consequences of market TRADING on inside information?
    • BREACH OF DUTY to corp. by D/O
    • corp. may sue to RECOVER D/O's profit (possible derivative suit)

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