University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

437

Pages:

2
Author:

bratrochanter

Key Points on Shareholder Rights, Dissolution, and Governance 1. Dissolution in Nonprofit Corporations: o Nonprofits can dissolve voluntarily, administratively, or judicially. A voluntary dissolution generally requires both director and member approval. In cases of deadlock, fraud, or illegal actions by directors, minority members or directors may seek judicial dissolution. After dissolution, nonprofits continue to exist solely to wind up and liquidate assets. 2. Shareholder and Board Responsibilities: o Shareholders have rights in electing and removing directors, approving mergers, and voting on amendments. They may also bring derivative actions against directors harming the corporation or individual actions if their shareholder rights are infringed upon. 3. Corporate Governance Scenarios: o In a closely held corporation, disagreements may lead to legal disputes over control, as seen in hypothetical cases where:  A majority shareholder attempts to remove directors (Wallace v. CCCS),  Voting agreements and proxies are disputed among family shareholders (Eliason family case),  And minority shareholders face potential oppression or exclusion from financial benefits and decision-making (Water Works, Inc., and Cookietree, Inc.). 4. Derivative Actions and Fiduciary Duty: o Shareholders can bring derivative actions if directors breach their fiduciary duties, harming the corporation. They must usually meet a threshold of ownership or prove demand futility. In cases where directors act against the corporation’s best interest, shareholders may request records to build their case, although proper purpose must be shown, as illustrated in the VeriFone example. 5. Judicial Dissolution in Cases of Oppression: o When majority shareholders in a close corporation engage in oppressive practices (e.g., termination of employment of minority shareholders who rely on the corporation for income), minority shareholders may seek judicial dissolution or other remedies. Courts often protect minority shareholders’ reasonable expectations in such cases. Practical Problem Cases  Voting and Proxy Rights: o Disputes often arise over the validity of voting agreements or proxies, especially when family or internal corporate agreements come into   conflict, as seen in the Eliason family’s control struggle over BrosiusEliason Co. Sale and Control Issues: o Shareholders may face issues in mergers or stock exchanges if they disagree with terms. Minority shareholders like Myron Lasky in Kramett, Inc., have rights to dissent, often requiring appraisal rights for fair compensation. Fiduciary Breaches and Remedies: o In scenarios like Water Works, Inc., where majority shareholders allegedly misuse corporate assets, minority shareholders may sue for breach of fiduciary duty. Courts examine if the majority's actions unfairly suppress minority shareholder benefits. Conclusion This section provides a comprehensive look into the frameworks that define shareholder rights and obligations, corporate governance, and the legal mechanisms for addressing disputes. Close corporation and nonprofit governance present unique challenges, especially when shareholder expectations clash with board decisions, highlighting the balance courts seek to uphold between protecting shareholder rights and preserving corporate stability.