Shareholder Rights, Voting and Derivative Suits: every key term you need (+ practice quiz)
25 flashcard terms for Business Associations Topic 7, written to match the course framework. Study them here, then drill them as interactive flashcards, or test yourself with the 15-question quiz — free, no account needed.
Holders elect and remove directors, approve charter amendments, mergers, sales of substantially all assets, and dissolution, but they do not manage the ordinary business of the corporation.
Record date
The cutoff date fixed by the board that determines which holders may vote or receive a distribution; a buyer who acquires shares after it must obtain a proxy from the record owner.
Quorum for a shareholder meeting
A majority of the shares entitled to vote unless the charter or bylaws set another figure; once present, a quorum is generally not broken by later departures under the MBCA.
Plurality election
The default for director elections, under which the nominees with the most votes win regardless of whether they receive a majority, which is why withhold campaigns rarely unseat directors.
Cumulative voting
A minority protection multiplying a holder's shares by the number of seats and permitting all votes to be cast for one candidate, allowing a bloc to elect a proportional share of directors.
Proxy
A written authorization letting another person vote a shareholder's shares; it is revocable by later proxy, by attending and voting in person, or by notice, and it lapses after eleven months by default.
Irrevocable proxy
A proxy that survives revocation because it states it is irrevocable and is coupled with an interest, such as a pledge of the shares or a purchaser's contract right.
Voting trust
A formal arrangement transferring legal title of shares to a trustee who votes them under a written agreement filed with the corporation, typically limited by statute to a set term.
Pooling agreement
A contract among shareholders to vote their shares together, which is specifically enforceable under modern statutes and requires no transfer of title to a trustee.
Action by written consent
DGCL 228 allows shareholders to act without a meeting by the written consent of holders of the minimum votes needed to approve the action, unless the charter bars it.
Annual meeting
The required yearly gathering to elect directors; if none is held within a set period a court may order one on the petition of any shareholder or director.
Special meeting
A meeting called between annual meetings by the board or by the persons the charter or bylaws authorize, limited to the purposes described in the notice.
Inspection rights
Under DGCL 220 and the MBCA a shareholder may examine the stock ledger, books, and records after a written demand stating a purpose reasonably related to the person's interest as a shareholder.
Proper purpose
A purpose reasonably related to the shareholder's interest, such as valuing shares, investigating mismanagement with a credible basis, or soliciting other holders, but not mere curiosity or harassment.
Direct shareholder suit
An action for an injury to the shareholder personally, such as denial of voting or inspection rights or a compelled unfair merger, with any recovery going to the plaintiff.
Derivative suit
An action brought on the corporation's behalf to redress a wrong to the entity, in which the shareholder is a nominal plaintiff and any recovery belongs to the corporation.
Tooley test
Delaware asks who suffered the harm and who would receive the benefit of a recovery to decide whether a claim is direct or derivative, discarding the older special injury formulation.
Contemporaneous ownership rule
A derivative plaintiff must have owned shares at the time of the challenged transaction and must maintain ownership throughout the litigation to keep standing.
Demand requirement
Before suing derivatively a shareholder must ordinarily ask the board to pursue the claim, respecting the board's authority to control the corporation's litigation assets.
Demand futility
Excuse from demand where the board could not impartially consider the request, pleaded with particularity rather than by general assertions of loyalty among the directors.
Aronson test
The traditional Delaware inquiry asking whether a reasonable doubt exists that directors were disinterested and independent, or that the transaction was a valid exercise of business judgment.
Zuckerberg refined test
The unified three-part director-by-director analysis asking whether a director received a material benefit, faces a substantial likelihood of liability, or lacks independence from someone who does.
Universal demand
The MBCA approach requiring demand in every derivative case and a ninety-day wait, abolishing futility litigation in favor of scrutinizing the board's response.
Special litigation committee
A committee of independent directors appointed to investigate a derivative claim and move to dismiss it where continued litigation is not in the corporation's best interests.
Zapata review
Delaware's two-step response to such a motion: examine the committee's independence, good faith, and investigative thoroughness, then apply the court's own independent business judgment.