publicly her reason for agreeing to Filipowski’s demands. When the election was held, then the stockholders would have known that Filipowski and his designee would ultimately be on the expanded board. Shareholders could have easily rejected or accepted the side agreement. IV. Rights of Shareholders A. S TOCK C ERTIFICATES In jurisdictions that require the issuance of stock certificates, shareholders can demand a certifi- cate and demand that their names and addresses be recorded in the corporate record books. In most states, shares can be uncertificated. Notice of shareholder meetings, dividends, and reports are distributed according to the ownership listed in the corporation’s books, not on the basis of possession of a certificate. B. P REEMPTIVE R IGHTS 1. The Purpose of Preemptive Rights The articles of incorporation determine the existence and scope of preemptive rights. Generally, they apply only to additional, newly issued stock sold for cash and must be exer- cised within a specified time period. 2. Preemptive Rights in Close Corporations
272 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW , ELEVENTH EDITION Preemptive rights are most significant in a close corporation because of the relatively few number of shares and the substantial interest each shareholder controls. C. S TOCK W ARRANTS When preemptive rights exist and a corporation is issuing additional shares, each shareholder is given transferable options to acquire a given number of shares from the corporation at a stated price. Warrants are often publicly traded on securities exchanges. D. D IVIDENDS Dividends can be paid in cash, property, stock of the corporation that is paying the dividends, or stock of other corporations.
CHAPTER 39: CORPORATIONS—DIRECTORS, OFFICERS, AND SHAREHOLDERS 273 1. Sources of Funds for Dividends The sources of funds from which dividends may be paid are: (1) retained earnings, (2) current net profits, or (3) any surplus. 2. Directors’ Failure to Declare a Dividend That corporate earnings or surplus is available to pay a dividend is not enough for a court to compel directors to distribute funds that, in the board’s opinion, should not be paid. Abuse of discretion must be clearly shown. E. I NSPECTION R IGHTS The shareholder’s right of inspection is limited to the inspection and copying of corporate books and records for a proper purpose, provided the request is made in advance. A shareholder can be denied access to prevent harassment or to protect trade secrets or other confidential corporate in- formation.
- Fall '09
- Business Law, .........