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Shareholder governance and liability

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Powers of shareholders

Shareholders have limited powers over the corporation. The only powers they generally exercise are the powers to elect directors, approve amendments to the articles of incorporation and approve "fundamental transactions." Some states grant shareholders additional powers, such as approval of "gifts" from corporate funds, and the power to enact bylaws. Among the many legal services offered by Adams Law Group, the corporate lawyers at Adams Law Group can assist the shareholders by drafting "shareholder agreements" or by representing shareholders in the event that the corporation or its directors are breaching their fiduciary duties.

Removal of directors

Shareholders have an inherent power to remove directors for cause. They must serve specific charges on the director and provide adequate notice and a full opportunity to meet the accusation. See Auer v. Dressel, 118 N.E.2d 590 (N.Y. 1954); Campbell v. Loew's, Inc., 134 A.2d 852 (Del. Ch. 1957). However, the scope of the shareholder's powers will generally be found in the corporation's bylaws. The corporate lawyers at Adams Law Group are well versed in drafting corporate bylaws.

Generally, shareholders must approve any substantive amendments to the articles of incorporation, but such amendments must be proposed by the board first. Depending upon the by-laws, the board may make minor amendments and corrections to the articles without shareholder approval.

Approval of fundamental transactions

Shareholders generally have the power to approve fundamental transactions-those which fundamentally change the nature of the corporation. The three basic types of fundamental transaction are dissolution, merger and sale of substantially all assets.

Shareholder meetings

The shareholders of a corporation generally exercise their limited powers of control at a shareholder meeting. There are two kinds of shareholder meetings: the annual meeting usually happens once a year and a special meeting may be called for particular purposes from time to time. The actual date for the annual meeting is fixed in the bylaws of the corporation. Since the bylaws are written by the board, the board picks when and where the meeting takes place.

Special meetings can be called by the board, or by any other party named in the articles of incorporation or bylaws. Many statutes also allow shareholders to call special meetings, but they have to own a certain percentage of the stock in order to do so. There has to be a quorum at the meeting for its actions to be effective. The quorum is usually a majority unless the articles of incorporation or bylaws state otherwise. Some corporations might have a quorum of one-third or two-thirds.

The actual voting can be very complicated. In corporations with more than one class of stock, each class votes separately, and the approval of every class might be required to pass a measure. Many states practice a further convolution: cumulative voting, where a holder of more than one share can "spread their votes" across multiple choices.

The only thing that has to be discussed at an annual meeting is the election of directors.

The corporate lawyers at Adams Law Group can advise their clients on what items should be presented at board or shareholder meetings, how to conduct board or shareholder meetings, and how to draft minutes of such meetings.

Proxies and proxy statements

In larger corporations, shareholders usually don't attend the meetings: instead, they get a form in the mail which authorizes a proxy to vote on their behalf.

Shareholder liability: piercing the corporate veil

Piercing the corporate veil is a metaphor for ignoring the limited liability of a corporation. When a corporate veil is pierced, the corporation's creditors can go after the assets of its shareholders. There are no hard and fast rules for determining when the corporate veil should be pierced. The determination is left largely to the determination of judges, who look at the totality of the circumstances to make their ruling, and choose to pierce the veil if it's necessary to prevent fraud or achieve equity. The corporate lawyers at Adams Law Group can represent shareholders against those persons attempting to "pierce the corporate veil" or represent those wishing to hold the shareholders liable for tortuous actions taken by the corporation or shareholders.

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