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Chapter 44 - Shareholders' Rights and Liabilities
V. ANSWERS TO PROBLEM CASES
1. No. The court held that the Oregon statute, drawn from the MBCA, did not permit the
bylaws to determine a quorum for shareholder meetings. Only in the articles of incorporation
2. Here is one of many possibilities. There should be seven classes of shares. Five classes are
identical to each other. Each has the right to elect one director to the board of directors,
which director has the power to vote on any matter submitted to the board. Each of the five
managers receives all the shares of one of the five classes. Each class owns 5% of the equity
of the company. No amendment to the articles of incorporation may be made without the
3. No. The proxy James gave to Louise was revocable, because the proxy, that is, the part of the
4. Aspen wanted to exercise a dissenter’s right, or right of appraisal, that is, to have a court
determine the value of the shares into which the warrants were convertible upon exercise, and
therefore, the amount that would be paid to Aspen had it been a shareholder. The Delaware
5. No. The Delaware Supreme Court ruled it was inappropriate to deny a shareholder the right
to seek information merely because he once filed a derivative suit, because such a bright-line
rule did not comport with existing Delaware law or sound policy. The court held that King
6. Yes. The business judgment rule protects a board’s decision whether to pay a dividend,
requiring that the board's decision to retain earnings and not pay a dividend be in good faith
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 44 - Shareholders' Rights and Liabilities
and rationally related to the facts and the strategy of the company. That appears to be the
case here, as the board wants to stockpile cash to finance the production of new and better
7. The shareholders seeking damages for having overpaid for their GM shares or for buying GM
shares that they otherwise would not have purchased have brought a class action against GM.
The shareholders who claim that GM has been harmed by GM's management have brought a
derivative action, an action on behalf of the corporation and for its benefit against those that
have harmed the corporation. A derivative action is appropriate because the allegation is that
the corporation (GM) was harmed by the actions of management; there is no allegation that
8. No. While the court noted that a majority of states find that directors and officers owe
fiduciary duties only to the corporation, it stated that the better rule, at least in Wisconsin, is
9. Yes. The court held that the market created for United was a market that would have been
available for Association shares had the majority taken Associated public. After United
became public, it became a virtual certainty that no equivalent market could be created for
Association shares. Thus the majority shareholders chose a course of action in which they
used their control of the Association to obtain an advantage not made available to all
10. Yes. The Utah Supreme Court agreed with McLaughlin that shareholders in close
corporations stand in fiduciary positions to one another and are required to act with the
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 44 - Shareholders' Rights and Liabilities
utmost good faith. However, the court noted that this duty is not unlimited but instead must
be balanced with the legitimate business interest of the corporation and the reasonable
11. No. The court held that the provision in the articles giving power to dissolve the corporation
to shareholders holding 75 percent or more of the voting power was separate from the
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
